Cutco: Schemers or Success Story?

Today, it is not surprising to see household drawers filled with forks, spoons, spatulas, and other utensils. But, the utensil that might be filling up drawers in the near future: Cutco knives.

After growing steadily for most of its existence, in 1982, Alcas’ management team took the Cutco business private by buying out the company from Alcoa. At this point, there were hundreds of small, independent sellers of Cutco’s products, including a company called Vector Marketing Corporation. In 1985, Alcas acquired Vector Marketing Corporation in hopes to unify its supply chain, and vertically integrate the sale of Cutco products.

Vector Marketing Corporation is a single-level direct sales group that sells only Alcas, or Cutco as it has been called since the company’s name change in 2009. It grows its workforce through advertisement via word of mouth, direct marketing, media, newspapers, and posted advertisements. Their main selling point revolves around the idea of “student work” where they employ high school and college-aged students as salesmen for the company. These eager students pitch Cutco knives to friends and family, and often branch out to neighbors and community members from there.

Over the years, Cutco has come under fire for its use of Vector Marketing. Vector Marketing only sells Cutco products, buts it hires independent contractors to sell products, which some view as a scam. This is likely because sales representatives must pay for their starter kit, must pay for their own travel expenses, and are offered $15 per hour without realizing that payment only comes from sales. While the pay appears reasonable, a poor salesman could pour a couple hundred dollars from his own pocket into the company without ever earning it back.

Companies with similar sales models have often been equally criticized. One such example is Vemma Nutrition, an energy drink company that sold a drink called Verve. The Federal Trade Commission (FTC) shut down the company in August 2015 after alleging that Vemma was a pyramid scheme, which is an illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, or so-called returns, that is then given to the earlier investors/recruits above them. 53-year-old founder Bk Boreyko, the winner of the American Business Awards “executive of the year” award in 2014, disagrees, claiming that there was no malicious intent in the operation of the company. The FTC furthered its opposition by arguing that Vemma did not focus on selling products but instead, according to the New York Post, used false promises of high income potential to convince consumers to pay money to join their organization.

This is where the difference comes in. While Vector Marketing might share similarities with diabolical pyramid schemes like Vemma Nutrition, such as employing students as sales representatives, the company does have a distinct purpose: to sell Cutco knives and increase profit margins.

Cutco announced major reforms in 2011 to further distance themselves from shady businesses like Vemma and towards a more professional fair practice. The most significant of these reforms: Cutco representatives were no longer required to make initial deposits into sample kits. This reforms any last strands of suspicion that Cutco was operating as a pyramid scheme. Furthermore, Cutco released their plans to grow revenues at least $500 million over the next 5 years which included investment in recruiting strategies, investment in brand recognition, expansion into international markets, and entry into more sales channels such as retail.

Since then, Cutco has continued to progress, increasing profit margins. According to PrivCo, a New York-based financial-data provider, over the past three years, Cutco’s revenue growth rate has been 6.3 percent and for the past year, has been 7.3 percent. Employee growth rates, on the other hand, have been 1.8 percent and 2.3 percent over the past three years and past year respectively. These numbers are particularly important because for a company that was criticized as a pyramid scheme, Cutco is able to illustrate how significantly large growth is possible through incentivizing a productive workforce.

Moreover, Cutco’s recent success seems sustainable. The company has few large-scale competitors, few of them being based in the United States. Of its competitors, Henckels, Wusthof, and Messermeister are German cutlery companies and Global, MAC, and Shun are Japanese cutlery companies. While all maintain their brands online, none seem to have major United States retail operations or a unique system like that established by Vector Marketing that goes door to door to sell its products. In Japan, it is unlikely that a model like Vector Marketing would work as Japanese people typically spend less time at home than their American counterparts. Nonetheless, Cutco’s personal touch seems to be a driving factor of success in the United States.

Despite early negative accusations against it, Cutco has reformed, expanded and seems to have found success. They are able to use high school and college-aged students as sales representatives which offers great rewards and are able to do so while maintaining their true purpose—to sell knives. The future looks bright for this cutlery company regardless of the success of future global expansion as it sees few high quality American knife companies.