Features

By Steve Jamieson

Inspired change can create a competitive advantage.

Companies that become inspired by the opportunity to lead the change and make the decision early on to invite outside critical analysis of their “stagnant” quo will rise to the forefront.

Transformation can take you in a new direction but, if executed successfully, can also strengthen your core product line.

Does your company feel lethargic, stuck and uninspired? Has your company been poised for success but struggles with results that don’t meet your expectations? Are you disappointed you own or work for a company whose intentions aren’t matched by the company’s sales?

By David Rauf

Avon grows slowly; Michael Johnson settles in at Herbalife; Nu Skin continues expansion.

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.

This report includes an update on the earnings calls from Avon Products, Herbalife, and Nu Skin. Avon is progressing slowly overall but is experiencing growth in its online sales. Michael O. Johnson has very comfortably stepped back into the CEO role at Herbalife, and Nu Skin opens 2019 with a Latin American presence.

Scott Gottlieb, resigning FDA Commissioner

By Jennifer Anderson

Commissioner resigns shortly after announcing policy shift.

Between 1994 and 2019, dietary supplements grew from a $4 billion a year industry to one that pulls in over $40 billion per year.

Going forward, [FDA Commissioner Scott Gottlieb] warned DSHEA would be used to crack down on supplement products that were being “illegally marketed” as new drugs. Less than a month after revealing this crack down, however, Gottlieb announced his unanticipated resignation from the FDA.

In 1994, Congress passed the Dietary Supplement Health and Education Act (DSHEA). Among other things, the law gave the U.S. Food & Drug Administration (FDA) broad authority to prohibit misleading dietary supplement labels.

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.