Market America's American Dream Machine
(Corrects story published June 23, 2011 to clarify fees and commission structure in 2nd and 9th paragraphs; age of Loren Ridinger in 4th paragraph; and success of latecomers in 18th paragraph).
JR Ridinger, 61, has the master salesman's knack of seeming intensely interested in you. He leans forward, tense with anticipation, as he asks about where you live, what you do, whether you are married, have children. He remarks at how wonderful your life seems, at how exciting it all must be. Ridinger is a multimillionaire who lives in a 35,000-square-foot mansion on Biscayne Bay with a 150-foot yacht moored at the dock. He has a beautiful wife and celebrity friends, a $25 million Manhattan condo. He is the president, chief executive officer, and 93 percent owner of Market America, the e-commerce dynamo that made $393 million last year, according to company figures. And he is happy for you! That salesman's gift, that ability to make you believe in yourself, is why he has all this.
Market America is the latest and most sophisticated incarnation of multilevel marketing, that controversial business model that exploits the get-rich-quick dreams of every red-blooded American. The basic idea is that members of Market America who want to become "Independent Distributors" pay a fee for the right to sell exclusive products, including vitamins, makeup, potent herbal tonics and kitchenware, and the right to recruit other Independent Distributors. People can become "Sales Associates" which allows them to buy and sell the products at a profit without paying a fee, but they may not recruit other Independent Distributors. Plenty of large and successful businesses have been built around this model, Amway, Avon Products (AVP), and Tupperware Brands (TUP) among them. Market America is the first to integrate the Internet, e-commerce and social media into the process, elevating not only the products being sold but also the act of the sale itself.
In this world, sales is far more than a career choice: It's an act of self-expression, a pathway to happiness, and the fulfillment of one's wildest imaginings. And few Americans better embody that ideal than JR Ridinger.
On a hot Miami morning, JR and his wife Loren, 42, are sitting on suede sofas in a sumptuously furnished den. Around them on highboys and end tables are golden-framed photos of JR, Loren, and their daughter, Amber Ridinger, with various famous people—"Eva" (Eva Longoria), "Kim" (Kim Kardashian), "Jennifer" (Jennifer Lopez), etc. The room is festooned with high-end bric-a-brac: dragon-handled urns, brocaded curtains, pillows with lion's mane fringes, silver trays as vast as air hockey tables, crystal-bead chandeliers. In one arched hallway connecting ballroom to dining room, there are 18 images of Cupid, a motif Loren calls "Roman." In JR's office, there are several shelves of embossed Norwegian encyclopedias and sagas. When asked if he reads Norwegian, JR laughs and says, "I wish. Loren buys those books by the yard." JR prefers listening to cassettes of his own motivational speeches, sometimes when he's doing yoga. "I make myself laugh," he says. Ridinger's dyed comb-over of black hair, his angled slabs of cheeks, his short, sharp nose, narrow mouth, and dimpled chin create an almost-cherubic appearance that is at once pleasing and—this is key—nonthreatening. You feel instantly, completely, at ease.
"JR's great gift is, well, a lot of guys can sell stuff, but JR sells belief," says his brother-in-law, Marc Ashley, Market America's chief operating officer. "JR sells the idea that you too can be a great salesman. He sells that belief in yourself. Only the very top fraction of salesmen can do that."
The Market America website sells more than 3,000 proprietary products, an array of health tonics, nutritional supplements, cosmetics, weight-loss programs, and household cleaners, all of them "unique, exclusive, and developed by and for Market America," Ridinger says. Actually, those products, the most popular and profitable of which are the Isotonix line of nutritional supplements that sell for about $70 per 10-ounce bottle, are almost interchangeable with what you could find in your local CVS or Duane Reade for half the price. But that hardly matters. The business is driven, instead, by distributors finding customers, introducing them to Market America products, and then explaining to them that by selling this product, they can become as wealthy as, well, JR Ridinger.
"I want people to realize their dreams," he says. "And it doesn't depend on their bankroll or education or intelligence. They just have to be able to follow our system."
While most MLM businesses eventually bump up against the upper limits of what is possible—it's hard to keep finding new blood willing to spend hundreds of dollars to start their own high-risk business—Market America will soon turn 19, with a growth rate last year of 25 percent. According to the company, earnings grew from $34 million in 2009 to $43 million in 2010. And now, to make what JR calls "the billion-dollar roll"—$1 billion in revenue—the company has been expanding aggressively overseas, in Taiwan, Hong Kong, the Philippines, and the U.K. Last year the company made its first acquisition, buying Shop.com from Oak Investment Partners for more than $50 million. It's the first step toward Ridinger's ambition to make Market America "the next Amazon."
In the dizzyingly complex sales system the Ridingers have devised, money flows in so many directions and allows for distributors to earn money in such a wide variety of ways that it almost seems impossible not to make money. But in practice, the majority of Market America distributors realize nothing close to the fortune Ridinger has amassed. The Federal Trade Commission has compared multilevel marketing in general to a pyramid scheme, and for all Ridinger's innovations on the concept, some former members say it still promises much more than it delivers. The Market America career manual says that over 50 percent of distributors make $1 to $1,000 per year, not exactly life-changing numbers. And that doesn't include "inactive" distributors, those who are no longer buying product monthly. If you Google the company's name, the first related search that comes up is "market america scam," and there is no shortage of people who believe that Ridinger has overpromised. "It's slightly misleading that they say you can do this in your spare time," says former Market America distributor Sarah Chamberlain, 50, of Brooklyn. "They are very slick and their marketing is very good, but really you have to live and breathe it, for not so much payoff."
Another former distributor, Meryl Blackman, says: "To get ahead in Market America you have to be willing to look at everyone in your life as a potential customer. You have to tailor every conversation you have to Market America." To his credit, Ridinger doesn't attempt to duck such assessments. "This is survival of the fittest," he says. "It's natural selection. If you follow our system, if you make that commitment, you can change your life."
JR Ridinger grew up in Woodbury, N.J., the eldest of two brothers. (His actual name is James Howard Ridinger.) His father was a football coach and teacher, and JR was an avid athlete, a two-time district wrestling champion at 134 pounds and, even more surprising for a man who stands about 5-foot-5 in shoes embroidered with his own initials, he was the starting quarterback on the West Deptford High School squad that in 1967 went 7-2 and won a conference championship. "He is competitive," says Loren. "You should see him and my brothers when they start wrestling."
He attended Gettysburg College on an athletic scholarship and ended up majoring in marine biology. His great entrepreneurial awakening happened when, on a post-college trip to Bermuda, he saw the yachts and mansions of the superrich. "Ross Perot had a home there, beautiful homes. I said, 'Who are these people? How do they live like this?' And someone said, 'They're entrepreneurs.' I didn't even know what an entrepreneur was."
After returning from Bermuda, he had to hitchhike from the airport in a thunderstorm. This is where JR Ridinger's story takes on an almost mystical cast, becoming like the entrepreneurial version of Robert Johnson at the crossroads near Dockery Plantation: JR was picked up on the Belt Parkway by a charismatic man in a Cadillac. "I got in and started complaining, and said, 'Oh man, I don't want to go back, I don't want to get a job, and I wish I was an entrepreneur. ...' And this guy said, 'You know, I have a way you might be able to do that.' He gave me his card."
The man's name, according to JR, was Roman Batterfalby, and he sold JR a $5 ticket to a seminar he was hosting at a hotel near LaGuardia Airport. When JR showed up, he listened to a sales pitch about the concept of residual income. Batterfalby explained that the most powerful thing in life was to create something that produced an income. You only had to put the effort in once, and it made you wealthy. Batterfalby then explained how: Become an Amway distributor. He sold JR a cassette tape called The Strangest Secret by Earl Nightingale. Nightingale talked about the great business success stories of past eras and how they all shared this secret: You become what you think about all the time. JR listened to that cassette over and over again. In time, he would integrate those two ideas, making the power of positive thinking a central idea of his residual income plan.
Arriving at his version of nirvana involved a 15-year odyssey through the direct-selling industry. Ridinger made stops at Amway, Lusterbond, Old World Products, Legacy International, and a half-dozen other multilevel marketing businesses. When JR first turned up in 1984 at a company called TV Ventures in Greensboro, N.C., he was a consultant with a reputation as a master salesman, a guy who could captivate a room and inspire a sales force. He was also broke. At the time, Loren Ashley was a very pretty office manager at TV Ventures, which sold as-seen-on-TV products—abdominal exercisers, hearing aids, stain removers. She heard about this "sales animal they brought in from Jersey. I thought he was a little obnoxious."
Their relationship began inauspiciously. When Loren, feeling pity for JR, asked him to dance at a Greensboro nightclub, JR turned her down twice. A few days later, JR wrote Loren a cordial note asking her to go out with him. When she accepted, he made her get down on the floor boards of his car while they drove from the company parking lot. "He didn't want to be seen with the office manager," Loren explains.
It was Loren who convinced JR that he needed to stop helping others build their businesses and start his own. "She believed in me so much, it just inspired and irritated me," JR says. The pair founded Market America in 1992 in a rental house in Greensboro, testing and selling cheap costume jewelry and ersatz weight-loss products. But JR had always felt that what mattered more than the product were the data gathered about the customer and the encouragement of that customer to go out and find new customers. Using what JR believes was a breakthrough method of gathering sales data on shopping behavior and linking it to distributors, JR began to build his product brokerage, his "mall without walls."
He also created the system in which each distributor finds two distributors directly beneath him or her. JR calls this the "binary system," and he insists it is a crucial difference between Market America and, say, Amway, where a distributor can have an unlimited number of nodes beneath him or her. Much of the benefit of this, however, accrues toward Market America because "unfranchisees," as Market America distributors are called, seek to recruit new members, who buy and sell Market America products. Because each new distributor is one of a pair, a so-called right hand or left hand, and is responsible for finding two more hands, the complex system provides that bonuses flow throughout the network to every node.
The bonus system, and that potential for unlimited earnings, are what have made Market America appealing to new members, while bringing riches to those who got in early. "It began to take off when we had a couple products that really worked," says JR. "Thermochrome, this weight-loss product that had ephedrine in it, that was our first hit. But you know what? Our No. 1 product was really belief. We were selling believing in yourself. That's what we're really selling at every meeting."
There is a dream-like quality to time spent with the Ridingers. The Miami house is grand and sunlit, with immaculate grounds, elaborate statuary, a topiary, and huge bay windows overlooking Biscayne Bay. The Ridingers seem intent on showing off their wealth. They suggest lunch on their yacht, explaining that a Michael Miller painting in the dining room has been assessed at $2 million, that they bought Sylvester Stallone's bed, that Hulk Hogan used to live next door. JR and Loren both say they find it easier to befriend celebrities than regular people because, Loren says, "it's natural to be friends with people on the same economic level. Our artist friends and celebrity friends understand that you have a job and that you don't have a lot of personal time, so you have to treasure that with each other."
Loren has won endorsements for her Motives and fixx cosmetics lines from Kim Kardashian, Eva Longoria, and Kimora Lee Simmons, among others. The greatest advertisement for Market America, though, is JR and Loren themselves, "thinking big and living big," as JR puts it. Market America's business model, like most MLM companies, depends on every distributor selling the idea of "living big" to new distributors. And plenty of Market America distributors have succeeded. On the walls of the corporate headquarters in Greensboro are portraits of the 223 distributors who have earned more than $1 million in commissions.
At the core of the business is the Market America website, which, in addition to offering Market America products, links to a wide variety of retailers: Target (TGT), Gap (GPS), and Neiman Marcus among them. All 180,000 Market America distributors are set up with their own e-commerce portal, a customized Market America website. Distributors receive a commission on all transactions through their respective portals, in addition to the profit generated by direct selling, all the while attempting to lure new distributors to join Market America. Joining costs $139 and requires monthly purchases of about $100 in product and $20 in monthly Web support. A new distributor is also required to purchase products with a "Business Value" (BV) of 300, the equivalent of about $700. Business Value is a Market America currency derived from the profitability of each product. All Market America transactions are measured in BV or IBV, in the case of product bought from Market America partners.
If it sounds expensive and confusing, that's because it is. The total costs of becoming a Market America distributor are close to $900, and if you don't keep buying Market America product, or keep selling it steadily, your account becomes inactive and you can't qualify for bonuses, which is where the real money is made. Reading through the Market America career manual, the book that purportedly spells out the "simple steps" required to become rich through Market America, feels a bit like reading the small print on an insurance policy. A typical entry: "Failure to meet the Three-Q-Date Period requirements—150PBV ordered and Form 1000 submitted—will cause accrued Group Business Volume totals to be flushed (erased to 0) and accumulated Personal Business Volume to be purged erased to 0) [sic] from the distributor's BDC(s)." That explains how a distributor can lose the chance to earn a bonus if he does not sell enough product.
The jewel of the Market America empire is Shop.com, formerly a pay-per-click e-commerce portal that guides shoppers to partner websites and takes a few pennies per referral. By early next year, Market America's distributors will be rebranded as Shop Consultants, and Market America will be selling them its own Shop.com web addresses. The company "will provide the training, the products, the website, the fulfillment," Ridinger says, and use search-engine technology to connect customers with distributors. He claims the data from Shop.com's 5 million unique monthly visitors will somehow be equitably exploited to benefit each of the 180,000 current distributors, and the many, many more that JR believes will sign up.
Much of Ridinger's considerable energy is devoted to tending his flock, evangelizing for Market America and the life it purports to deliver for those who adhere to the company's vision. His performances at the annual Market America World Conference are legendary. As he jumps around the stage, sweating, spitting, and howling, his suit jacket bulging, his tie swinging, his shirt collar steadily darkening from his exertions, he comes across as a combination of Joel Osteen and Alice Cooper. At one point in a recent event at the Greensboro Coliseum, he shoved his head in a giant toilet as negative thoughts were broadcast on the screen above him. He has given speeches while running inside a giant hamster wheel to demonstrate how wage earners live. He typically speaks last at the two-day pep rallies where 25,000-odd distributors gather to listen to exhortations to think positively, sign up more distributors, and make a commitment to Market America's action plan for success.
During the conferences, successful higher-level Market America sellers are introduced to give testimonials. There are 18 levels in Market America, and the goal of each distributor is to move from Level 1 all the way up to "International Field Chairman," which is defined as earning $150,000 in commissions and bonuses within four consecutive weekly commission cycles, which requires selling approximately $300,000 in product in a month through your network. That would seem an exceedingly difficult task, but Ridinger has harsh words for those who would question the feasibility of achieving breakthrough wealth with his program. "Some people are just stuck where they are, they can't get off whatever they are stuck on," he says. "Flies won't get off crap, well, some people won't get off the crap of their lives. ... Some people say it's a pyramid. Let me tell you something, buddy: Your job is like a pyramid. You've got a president at the top, a couple of VPs, some divisional leaders, some department managers, all the way to the bottom. Nobody can make more than the guy above him. They hold you down. That's a pyramid. We're not a pyramid. We're the anti-pyramid!"
Distributors are strongly encouraged to bring prospective members to these conferences; the various sales levels in Market America also come with ticket-buying requirements. Seeing JR in action is considered the best way to close on new distributorships. Tien Xing Chen, 48, of New York, first saw JR in 2008. "He is such a powerful man. I thought, 'If I follow him, I will make money.'" Tien claims that today he makes up to $7,500 a month.
For every Tien, however, there are thousands of distributors who don't make the big bucks. The average distributor's annual income, according to COO Marc Ashley, is $60,000. However, when it is pointed out that this figure multiplied by 180,000 distributors exceeds the annual revenue of the company, Ashley says he has to double-check those figures. Certainly, like most MLM businesses, Market America has plenty of detractors. Jon M. Taylor, president of the Consumer Awareness Institute, an MLM watchdog group, says that based on his study of more than 400 such firms, 99.6 percent of people who sign up as distributors wind up losing money. Taylor ascribes Market America's current success to its being in a typical stage of growth. "What happens in these companies, because of the endless chain of recruitment, they get into a momentum phase where they grow rapidly," he says. "And to avoid leveling off, they set up new products and go to new countries."
JR dismisses criticism of the business as sour grapes on the part of those who couldn't cut it. "You get out of it what you put in. They didn't work the system. They weren't ready to change their lives."
Maybe. But there is a vast gulf between Ridinger's lifestyle and that of the people who have helped make him rich. On a warm, early June day, I drive down interstate 405 on my way to Rancho Bernardo, a suburb of San Diego. I had been poking around the Market America website when a phone number popped up telling me my consultant was someone named Jing Gibby. When I called, I told her husband, David, a self-employed photographer, that I was interested in finding out about Market America, about exactly how one becomes a distributor, and how much money I might make. I explained that I am a writer and would like to write about my experience. David suggested I come down to meet with them.
The Gibbys live in a ranch-style house on a subdivision corner. There are family photos on the wood-paneled walls, wire-and-gauze flowers on the coffee table, and hymnals on the upright piano. When I arrive, they have laid out the Isotonix products they want to demonstrate for me, and Jing Gibby, a Shanghai native who uses Loren Ridinger's Motives line of cosmetics, has her folder of Market America data on the sofa beside her.
The most important thing, they explain, is that I understand how wonderful Market America's products are. For example, the Isotonix OPC-3 health powders have "pine bark from Europe in it." They claim that a pinch of the stuff will purify water. The Isotonix Coenzyme Q10 can "settle any kind of stomach sickness." David, 54, relates a story of going on a cruise and being stricken with an upset stomach. Q10 saved him. "They have all this good food on the cruise, and I was able to enjoy it." The Isotonix Multivitamin with Iron costs about $50 for 90 servings, the Isotonix Resveratrol costs $45 for 30 servings.
The Gibbys say that the first thing I need to do is buy some Market America products. Then I can attend a meeting with them where I will be shown exactly how I can make money through Market America. Jing Gibby shows me some $300 checks she has received over the past few years from Market America as part of her BV bonus, and she points out that I could make even more. When I ask how much she makes per month, she just keeps showing me those checks.
The Gibbys don't dream of becoming millionaires through Market America. They say their goal is to earn a little discretionary income, perhaps to save enough for another cruise. They say they have yet to make a substantial sum from Market America. But both believe the potential is clear, the opportunity right there in front of them, in these pamphlets and products spread on the coffee table.
Before I leave, Jing Gibby shows me a few more catalogs of Market America products, mostly those for Loren's Motives cosmetics. She looks longingly at a photo of Loren and JR and calls them living proof that Market America's products work. "Look at Loren, she is beautiful," says Jing, "They look like Hollywood people." She smiles, then says, "We all want to look like them."