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The world is now flat. We now all compete on a level playing field: e-commerce. Hence, we will have to find a way to create a virtual product demo experience (which includes the Consultant) that is leaps and bounds better than what e-commerce pure-plays can offer without a Consultant. This hybrid will be based on some “push” e-commerce complemented by the personalized advice from the Consultant. If not, it will be hard for us to stay alive and compete when we carry a 40 percent to 45 percent cost of compensation plans, and they don´t. 

-— Jacques Mizrahi, CEO, SwissJust

Digitizing new life into an iconic brand

By:  Teresa Day Craighead

Founded: 1973

Executive: Bob D’Loren

Location: Dresden, Ohio

Website: Longaberger.com

SSN: What motivated you to acquire Longaberger last year? 

At Xcel brands, we were looking for something in the home sector to diversify our category offering and reach the consumer directly, and I saw the opportunity to acquire the company. I’ve always been excited about iconic brands. I like to say that icons live forever. Sometimes they just need a little bit of tender, loving care to get people reengaged with the brand. 

Skeptical court probes FTC’s approach to seeking ill-gotten gains

By:  Larry Steinberg, Guest Contributor

If the FTC loses this case, the agency will no longer be able to rely on Section 13(b) to obtain an order requiring a wrongdoer to return all of the money it illegally obtained.

FTC Commissioner Rohit Chopra, who will leave the FTC  after the  Senate confirms him as the newly appointed director of the Consumer Financial Protection Bureau, is known as one of the more prolific commissioners. He has spoken and written extensively in his three years on the FTC including, notably, in a November 2020 paper wherein he called the AMG Capital Management v. Federal Trade Commission case an “existential threat to the agency’s ability to hold wrongdoers accountable.” 

The previous month, in a letter to Congress, Commissioner Chopra, joined by the other four FTC commissioners, described Section 13(b) as the primary tool that the FTC uses to return money to consumer victims, and pleaded for Congress to amend the statute so that it would expressly provide for monetary relief.

Virtual events open up opportunity for companies to reach more people

By:  David Rauf

“This is attractive. It’s less travel, less stress. Virtual has really opened things up, and I don’t think it’s going to go away. That means hybrid events are coming.”

—Jeff Poe, creative director, Multi Image Group

“From a cost point of view, it’s literally one-fifth of our normal conference budget, and we’re reaching five to 10 times more people than we normally reach. For us, that makes sense.”

—Al Bala, CEO, Mannatech

“It’s such a broad reach. It’s global. That’s what these virtual conferences are allowing us to do. It’s really opened up a lot of doors for network marketing companies.”

—Jack Fallon, chief vision officer, Total Life Changes

Since early 2020, when the coronavirus outbreak upended normal business for corporations around the globe, direct sellers have relied on virtual events to host everything from training sessions to their splashy conferences.

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Activist investor Carl Icahn, who once defended the company against attacks from short sellers, reduces stake

By:  Dave Rauf

“Herbalife Nutrition’s products and business opportunity are needed now more than ever, and I look forward to remaining a shareholder of the company.”

—Carl Icahn, founder, Icahn Enterprises

Billionaire investor Carl Icahn has sold the majority of his shares back to Herbalife Nutrition and has given up his five board seats at the direct selling giant.

As part of a deal announced in mid-January, Herbalife agreed to buy back roughly $600 million worth of shares from Icahn at a price of $48.05 per share. He now holds about 8 million shares, a roughly 6 percent stake in Herbalife, down from 15 percent. Icahn is no longer the company’s largest stockholder.

Analysts who track Herbalife say they were not surprised by the move. Icahn has been steadily whittling down his position in Herbalife in recent years, and his exit as the majority shareholder was expected at some point.

In a statement, Icahn says he believed in Herbalife’s products, its strategy and business model when he made his initial investment more than eight years ago—a time when the Federal Trade Commission (FTC) was investigating the company as part of a high-profile probe.

Icahn says Herbalife has moved well beyond its FTC controversy, and “the time for activism has passed.”

“When I began purchasing the shares, I believed it was undervalued for extraneous reasons that I thought made little sense. At the time, I believed the Company was in need of an activist, and that certainly turned out to be correct,” he says. “Yet, the time for activism has passed as the Company has grown, and I don’t typically invest billions of dollars in companies where our role as activist is not needed. That being said, Herbalife Nutrition’s products and business opportunity are needed now more than ever, and I look forward to remaining a shareholder of the Company.”

Icahn’s remaining stake in Herbalife is worth about $400 million.

Since 2013, Herbalife has been a part of Icahn’s portfolio. He bought into the stock months after fellow activist investor Bill Ackman took a short position in the company and labeled it a pyramid scheme.

The two billionaires publicly clashed over Herbalife multiple times, including during a memorable half-hour debate on CNBC about the company’s stock in which Icahn and Ackman traded insults.

Throughout, Ichan defended Herbalife’s marketing model, and the company denied the pyramid-scheme allegations.

Herbalife settled with the FTC in 2016, and the company’s stock price has soared since that time.

After taking a position in the company, Icahn has made more than $1 billion in profit off his shares, says Doug Lane, principal at Lane Research, a firm that tracks Herbalife and other publicly traded direct selling companies.

“The point is, he got involved as an activist taking the long side to Ackman’s short, and he turned out to be right,” Lane says, noting that Icahn covered his short position in 2018 when Herbalife bought back 10.5 million shares from him. 

He adds, “By then, the stock had increased in value, and Icahn had made money in the trade. That’s the entire reason he was interested in Herbalife in the first place.”

Herbalife has launched several aggressive share repurchase programs in recent years, including an announcement in July 2020 that it will purchase up to $750 million of its stock as part of a modified Dutch auction priced between $44.75 and $50.00 per share.

A company typically buys back its shares to reduce the number of outstanding shares. That can make the fewer remaining outstanding shares become more valuable. Companies also buy back shares if they believe they are undervalued.

The latest Icahn sell-off is part of a larger share repurchase program Herbalife launched in 2018. Herbalife has bought back more than $1.5 billion worth of stock through the 2018 program—most of it from Icahn.

After the 2018 deal, Icahn still retained about 21 percent ownership in the company with 35.2 million shares. But in the past six months, he’s sold more than $1.3 billion in Herbalife shares. That includes an August 2020 deal in which the activist investor sold 14.7 million shares back to Herbalife valued at more than $700 million.

Lane, the analyst who tracks Herbalife, says it was just a matter of time before Icahn unloaded his majority position in the company. 

Lane says. “In our opinion, the investment conclusion is that the Icahn overhang has been removed,” Lane says. “At this point, he’s off the board. He’s just another passive investor.”

In a statement, Herbalife CEO John Agwunobi says he is grateful for Icahn’s investments in the company. “Our decision to repurchase these shares is a testament to the strength of our business and our long-term growth prospects.”

He adds, “I am grateful to Carl for his friendship, advice, and support and deeply appreciate his unwavering faith in our company, our products, and our distributors.”

“He was certainly there when we needed him. Carl took the time to get to know us and understand the benefits of our products and our direct sales business model, and we have delivered value for him and our other shareholders. I look forward to his continued contributions as he will remain one of our largest shareholders. I am also grateful for his board representatives, who have provided invaluable guidance and insight that has contributed to our impressive growth.”

When Ichan invested in Herbalife in 2013, the company agreed to give Icahn Enterprises five board seats for as long as he retained at least 14 million shares. 

All five of the Icahn-backed board members have stepped down from the board, according to a regulatory filing.

Lane says he doesn’t expect any disruption at the company as a result: “They still have the usual people overseeing day-to-day operations of the company.”

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Direct sellers seek clarity from FTC and FDA

By:  Claire Wilson

There are a lot of cannabis companies out there that don’t care about the industry and are just trying to make a quick buck. They hurt all the hard work that’s been done. It’s good to make sure everybody plays by the rules.

—Blake Schroeder, CEO, Kannaway

Marketers and direct sellers of CBD products are hopeful that these two initiatives are a start to a meaningful restructuring of the way CBD products are regulated and sold in the U.S. 

In December 2020, The Federal Trade Commission (FTC) announced a crackdown on deceptive claims in the cannabidiol (CBD) products market. 

Operation CBDeceit targeted six sellers of CBD-containing products for allegedly making scientifically unsupported health-related product claims about CBD’s benefits in treating conditions such as cancer, hypertension and heart disease.

Five of these companies paid fines ranging from $20,000 to $85,000, and the sixth received a warning letter.

Days later, the Food and Drug Administration (FDA) sent warning letters to five companies for allegedly violating the Federal Food, Drug, and Cosmetic Act. 

As with the FTC actions, the FDA expressed concern over products that were unlawfully marketed as medical treatments. It also flagged products that have unique forms of delivery, such as eye drops or inhalers containing CBD.   

Marketers and direct sellers of CBD products are hopeful that these two initiatives are a start to a meaningful restructuring of the way CBD products are regulated and sold in the U.S. Key players in this inconsistently-regulated sector are eager for a level playing field with clear guidelines.

According to statements on fda.gov by the principal deputy and principal associate commissioners for policy, one of the biggest difficulties with setting universal CBD marketing standards derives from the fact that, in terms of legal requirements, products marketed as therapeutic drugs are regulated differently than products marketed as food or dietary supplements.

The FDA initially investigated CBD as a therapeutic drug used in the treatment of two rare forms of epilepsy. By categorizing the substance as a drug before also assessing the CBD’s dietary benefits, many believe the FDA set the stage for the regulatory disorder happening now. Others speculate that the FDA is moving slowly because it is bankrolled by powerful pharmaceutical companies that want to limit competition.

The commissioners state, “The Agency is committed to science-based decision making when it comes to CBD, while also taking steps to consider if there are appropriate regulatory pathways for the lawful marketing of CBD, outside of the drug setting.”

The Direct Selling Association (DSA) has, to date, held off on endorsing CBD products, and said in a statement that it urges the FDA to provide clear guidelines so products can safely meet the growing demand among consumers. “We support clarity on it, and the clarity is just not out there,” says Brian Bennett, the vice president of government affairs and policy at the DSA.

Steve Mister, president and CEO of the Washington D.C.-based Council for Responsible Nutrition, cautions the FDA against a continued reluctance to establish firm guidelines on CBD marketing. 

He suggests that a “no decision is better than a wrong decision” approach might lead to dangerous products reaching the market, setting the entire sector back. 

“An unregulated CBD marketplace that demolishes consumer confidence in the supplement category that we have worked so long to build could be our greatest threat,” Mister wrote in the Nutrition Business Journal. 

The number of new players coming to the CBD industry after the 2018 Farm Bill delisted hemp as a Schedule 1 drug poses just that threat. Manufacturers decry the number of new companies selling CBD products that do not meet existing guidelines set by the FTC or those that add CBD to existing products just to enhance their marketing cachet.

Kannaway CEO Blake Schroeder agrees that companies not playing by the rules reflect poorly on all players, especially established pioneers in the relatively new field.

“There are a lot of cannabis companies out there that don’t care about the industry and are just trying to make a quick buck,” he says. “They hurt all the hard work that’s been done. It’s good to make sure everybody plays by the rules.”

Contributing further to the difficulty in establishing comprehensive guidelines is the disparity in cannabis-related laws, which differ from state to state. Federal cannabis law adds yet another layer of complexity to this problem.

Federal regulations still don’t allow CBD to be added to food, yet 16 states allow it in gummies, teas and other ingestibles, according to the Brightfield Group, a Chicago-based cannabis research firm. Such differences are a source of consternation for manufacturers wanting to expand into other categories but are afraid of a misstep.

“The FDA has to say ingestibles are legal and put out standards for them,” the DSA’s Bennett says.

Despite the lack of clarity from federal regulators, many CBD companies are moving ahead with their business plans. 

“CBD and cannabis are here to stay, and the states will continue to move forward, even if the FDA doesn’t come out with further guidance,” says Kerry Brown, co-founder and CEO of Utah-based Factory 6. “They are essentially giving the bird to the federal government.”

U.S. sales of CBD products are on a solid upward trajectory despite taking a hit last year from the COVID-19 pandemic. Sales in 2020 are expected to hit $4.7 billion, up 14 percent from 2019, according to Brightfield.

That’s lower than pre-COVID-19 predictions of $10 billion for 2020 and $23 billion by 2023. Adjusted sales predictions for 2023 are now at $12.4 billion, and for 2025, $16.8 billion.

Losses during the COVID-19 pandemic were attributed to stay-at-home orders that kept people from patronizing their regular retail stores. 

However, lock-downs presented opportunities for online and direct sales, according to the Brightfield Group, which noted that 45 percent of consumers moved their purchases online. 

Millennial shoppers, meanwhile, have moved 54 percent of their purchases online. This gives savvy direct sellers the chance to build a network.

While brick-and-mortar sales of CBD products over the pandemic were boosted by the stresses of boredom, unemployment, and lack of resources, according to Kannaway’s Schroeder, CBD purchases will be the first to go if the family budget is tight.

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Experts fear other social platforms may follow

By:  David Bland

The loss of TikTok as a potential tool for reaching the dynamic Gen Z market is a blow to the channel.

Most concerning to direct sellers and the DSA is the prospect that TikTok’s decision will act as a bellwether for platforms more vital to the direct selling channel, such as Facebook and YouTube.

The social media platform TikTok took the direct selling channel by surprise in December 2020 when it announced a sweeping addition to its community guidelines that included a ban on multi-level-marketing content. It is the first online social platform to place an outright prohibition on direct selling and MLM activity.

The “Frauds and Scams” section of TikTok’s guidelines had already advised “we remove content that deceives people in order to gain an unlawful financial or personal advantage, including schemes to defraud individuals or steal assets.” The additional language now specifically prohibits “content that depicts or promotes Ponzi, multi-level marketing or pyramid schemes.” Previously the bans focused on phishing content, betting and investment scams.

TikTok recently topped 1 billion active users worldwide, surpassing LinkedIn, Reddit and Tumblr in activity, according to Utah-based digital agency Wallaroo. The app was marketed specifically to Gen Z at the time of its launch in 2016, which has been the driving force behind the platform’s success and currently accounts for over 60 percent of its users.

Due to the specialized, short-form, video-sharing format of the platform, the distributor presence on TikTok has been relatively limited, shielding most direct selling companies from any immediate harm. 

However, experts say the loss of TikTok as a potential tool for reaching the dynamic Gen Z market, known for its affinity for personalized products and unique, digital marketing, could be a blow to the channel long term.

Brian Bennett, vice president of government affairs and policy at the Direct Selling Association (DSA), says the association has made contact with TikTok to gather more information. “We share the objectives of TikTok and other social media platforms in banning pyramid schemes, get-rich schemes, and other fraudulent activities,” he says. “Legitimate direct

sellers will continue being committed to the highest standards of consumer protection and ethical business practices.”

Concerns That Other Platforms Could Follow

Most concerning to direct sellers and the DSA is the prospect that TikTok’s decision will act as a bellwether for platforms more vital to the direct selling channel, such as Facebook and YouTube. “The worry isn’t about TikTok, really,” says Jonathan Gilliam, CEO of Austin, Texas-based compliance-monitoring firm Momentum Factor. “It’s about other platforms possibly following suit. If Facebook decided to ban all direct sales-related content, that would be an existential threat to the channel, rather than just annoying.” 

Facebook, for its part, takes issue with promotional content, often putting users in “Facebook jail” for posting what it deems as guideline violations. But it has not yet indicated any plans to ban content categorically.

Indeed, Facebook’s own advertising guidelines seem to support responsible, promotional content in general. Its guidelines regarding direct sellers state that “ads promoting income opportunities must fully describe the associated product or business model, and must not promote business models offering quick compensation for little investment, including multi-level marketing opportunities.”

Unlike TikTok’s complete ban, Facebook’s more nuanced guidance give reputable direct selling businesses and distributors 

the opportunity to advertise, as long as they are transparent regarding their business and compensation plans.

Reputational Threats

Crayton Webb, CEO of Sunwest Communications, describes the potential big-picture ramifications of TikTok’s ban. “Over the years, the critics of the industry have, in my opinion, become more formidable and more credible, and have increased their following on their own channels,” he says. “Fifteen years ago, it was a couple of angry individuals, and then it was an academician or two, and then TINA (Truth in Advertising organization). Now you’ve got a social media platform that’s a media darling everybody is watching closely.”

Webb adds, “Therefore, when they make this decision as it relates to multi-level marketing, that’s going to garner attention. And if all the little bits of negative attention on direct selling, from a reputation perspective, amount to BBs fired against this reputational iceberg, we have to wonder if TikTok’s decision is not a proverbial cannon.”

TikTok was perhaps more vulnerable than other platforms to draconian user restrictions, according to a recent article in The Atlantic. The user base on TikTok trends much younger than other social media platforms, and there is strong public sentiment to protect kids from dishonest marketing tactics, including pyramid and Ponzi schemes.

Indeed, TikTok recently emerged from several negative news cycles after former President Trump threatened to ban the platform in the U.S. Forbes reports 47 percent of respondents said they had at least somewhat unfavorable attitudes toward TikTok. The platform has been undoubtedly eager to change the narrative after this negative publicity.

“You’ve got to wonder if TikTok is questioning what they have done here and if they didn’t fully understand the ramifications,” says Webb. “Because as a growing platform, direct sellers are a fantastic audience and represent formidable businesses that have been around for a long time and are paying big advertising bucks to TikTok’s competitors.”

Staying Positive

Rather than fighting TikTok on this decision, Webb believes it’s important for direct selling companies to use this moment to re-energize their commitment to positive social impact, focusing on ways to promote the best attributes of their own businesses. 

“I think there’s little benefit for a direct selling company, whose field is not prolific on TikTok, to go public against them in any way,” he says. “There’s no upside. They only spread the news, which is bad news, of TikTok’s decision to go after multi-level-marketing companies. The best thing that direct selling companies can do is to continue to tell their own story on their own platforms and through whatever earned media they can garner about their great products, their great enterprise, their entrepreneurial spirit, their unique leaders, and their corporate citizenship activities.”

The DSA’s Bennett adds that it is up to companies in the channel to build and protect their own reputations. “In my opinion, the most successful direct selling companies are the ones that have created a brand that people are following

 because the products are great and the field is representing them well on social and all other public platforms.”

Major Policy Effort, or Public Relations Move?

With the combined scrutiny of recent negative political stories and rising public pressure to protect younger users, joined by a growing and vocal contingent of anti-MLM influencers on YouTube and Reddit, perhaps it should come as no surprise that TikTok responded with disproportionate policy changes against perceived bad actors to generate positive chatter between users, and positive press for the TikTok brand.

“Now is the time for direct selling companies to double down on compliance,” says Webb. “I think it’s really important for direct selling companies to understand that their responsibility to their ownership and their field, first and foremost, is to their individual brand and not the channel as a whole.”

“Many companies aren’t assertive about telling their own story,” Webb continues. “So many probably don’t do enough to build up that goodwill in the bank of public trust by telling positive stories about their enterprise, their products, their leaders, and their corporate citizenship efforts when times are good. If you wait for when times are bad, it’s too late.”

Some experts believe bans by social media platforms may constitute more bark than bite and are not really enforceable. 

“While bans make for great press, it’s very difficult to truly ban content on social media,” says Momentum Factor’s Gilliam. “The platforms themselves have been notoriously powerless in addressing even criminal content from their users.

“I don’t see how (social platforms) could begin to effectively police our little corner of the internet,” he adds. “It’s a major endeavor, and from a compliance standpoint they have much bigger fish to fry.”

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Major changes in compensation plans, digital approach in the new normal

By:  Teresa Craighead

We’ve heard over and over all the ways in which 2020 was denounced as terrible, catastrophic, and unbearable. But from the perspective of many companies in the channel, those words don’t really apply. Strange, unpredictable, and unprecedented may be more apt, and for many companies, bountiful, outrageous, and exciting are better descriptors.