Features

By Teresa Craighead

In new approach, regulators go after long-accepted direct sales compensation methods.

“The FTC wants to encourage good behavior without clearly stating what ‘good behavior’ is. They want to see ‘real sales to real customers’ but won’t say how much because they can’t.”

—Kevin Thompson, partner, Thompson Burton

In the past, wholesale purchases of products by distributors were the only transactions that mattered to the company. The distributor was the customer. But times have changed.

“The company should have a sense of how much product has been sold versus how much is still out there, possibly stored in garages and closets.”
—Kenny Rawlins, CIO, InfoTrax

Even though the concept originated with the SEC, the FTC applies the pyramid scheme definition to a direct selling company when it appears to perform similarly by emphasizing and rewarding recruiting over selling products, and by overpromising financial rewards available with little work.

Washington State Attorney General (AG) Robert Ferguson has brought the latest lawsuit against California-based clothing company LuLaRoe. The suit—filed on Jan. 25—claims the company is operating as an illegal pyramid scheme in violation of state laws concerning pyramids and consumer protections. Though this isn’t a new tactic against direct sellers, what’s surprising here are the concepts used to support the allegations. Going further than actions in the past, this suit strikes at the foundations of the entire business model—namely, team building and the resultant commission structures.

By David Rauf

Some direct sellers increased their efforts; others decreased.

“The connections we are building help our legislators understand and protect the channel.”
—Brian Bennett, vice president of government affairs and policy, DSA

The power to persuade is aided by money, and in the U.S. during 2018 $3.42 billion was spent on the professional efforts of 11,586 lobbyists attempting to influence public officials to lean one way or another, according to the Center for Responsive Politics (based on data from the Senate Office of Public Records).

Pharma and health topped the list with over $279 million spent on lobbying. Insurance came in a distant second at $160 million, followed by electronics manufacturing and equipment at $146 million. Fourth on the list, coming in at $137 million, was business associations (which includes the highest single lobbyist group, the U.S. Chamber of Commerce).

By David Rauf

Smaller firm LifeVantage on pace for record year.

Note: We listen in on the public company earnings calls and read the transcripts so you don’t have to. Check back each quarter for our review with insights and takeaways for your own business.

Publicly traded direct selling companies reported a mixed bag of earnings for Q4, with Tupperware Brands and USANA Health Sciences both missing key sales estimates that led to major declines in their respective stock prices. Meanwhile, Utah-based LifeVantage, which reported Q2 figures, says it’s on pace to have a record 2019 in terms of revenue.

This issue contains the filings that were available at press time. SSN will report on additional filings next month.

By David Rauf

Wall Street and consumer groups failed to stop the nutritional giant, but industry still facing challenges raised in settlement.

“They took a more aggressive approach with Herbalife and Vemma, and I don’t think they got the outcomes they wanted.”
— Kevin Thompson, attorney, Thompson Burton PLLC

“Companies would be wise to have data readily available that shows that they meet at least some of the provisions of the Herbalife consent decree. For example, the ability to show what percentage of sales are made to end consumers as opposed to distributors.”
—William Miller, shareholder, Buchalter

“... any companies or operations that choose not to cooperate can be identified to the government for further action, and to the public as those who will not cooperate.”
—Joseph Mariano, president, DSA

One year ago, hedge fund investor Bill Ackman officially turned the page on one of Wall Street’s most bitter and high-profile activist investor battles when he called it quits on a $1 billion gamble against Herbalife Nutrition Ltd. (HLF—NYSE).

Ackman’s bet backfired. As Herbalife’s stock rallied, the company remained a giant in the direct selling industry and his allegations that the nutrition supplement maker was running an illegal pyramid scheme never panned out.

By James Tenser

Maintaining relevance to customers means adapting to their choices.

Where multiple channels are available, each with its own benefits, shoppers intuitively use and combine physical and digital touchpoints to assemble their own best purchasing solutions.

More than 36,000 retail industry professionals gathered in New York City last month for the 2019 National Retail Federation Expo, one of the largest conventions for retail sellers in the world. The four-day conference bills itself as the place to discover what’s next for buyers and sellers, and this year the agenda included no less than 23 sessions with “omnichannel” in the description.

By Steve Jamieson

The only pathway to dominating Amazon is by disruption.

Other alternative income opportunities have had record-setting exponential growth during the same three-year period in which direct sales companies have struggled to evolve.

New compensation plans have to look different, feel different, be different.

In 1999, a record 457 companies went public and doubled in value on their very first day of trading. By October of 2002, those very same companies had lost on average 78 percent of their total net worth. The dot-com bubble had officially burst.

The following year, Walmart—the Goliath of retail marketing—held a board meeting to evaluate the fallout. One of the companies that received attention that day was a lone dot-com still attracting investment interest. This company had burned more cash before the crash than virtually any other company, but was still standing because it had focused on acquiring a rare commodity during the dot-com era: a paying customer.