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| herbalife |
Friday, 15 June 2012
Business Model
Herbalife is a multi-level marketing (sometimes called MLM or network marketing) company. In addition to profits from product sales, Herbalife distributors can earn additional commissions from sales by their 'downline' distributors. Supporters of MLM contend this is a fair compensation system, while critics contend that it is similar to a pyramid scheme. Critics also argue that the company does not make enough effort to curb abuses by individual distributors, though Herbalife has consistently denied such allegations. Herbalife is a member of the Direct Selling Association in most countries in which it operates.
In its filings with the United States Securities and Exchange Commission (SEC), company management note problems with inappropriate business practices in the past, their subsequent long-lasting effects and the need to avoid any repetition. Company management considers the number and retention of distributors a key parameter and tracks it closely in financial reports. By January of each year, sales leaders are required to requalify. In February of each year, they remove from the rank of sales leaders those individuals who did not satisfy the sales leader qualification requirements during the preceding 12 months. For the latest 12-month requalification period ending January 2011, approximately 48.9 percent of the eligible sales leaders requalified, reflecting an improvement from 43 percent in 2009. The company was cited as one of the most profitable companies in Los Angeles County.
A 2004 settlement resolved a class action suit on behalf of 8,700 former and current distributors that accused the company and distributors of "essentially running a pyramid scheme." A total of $6 million was to be paid out, with defendants not admitting guilt.
In a California class action suit, Minton v. Herbalife International, et al., the plaintiff is "challenging the marketing practices of certain Herbalife International independent distributors and Herbalife International under various state laws prohibiting "endless chain schemes", insufficient disclosure in assisted marketing plans, unfair and deceptive business practices, and fraud and deceit".
In a West Virginia class action suit, Mey v. Herbalife International, Inc., et al., the plaintiffs allege that some "telemarketing practices of certain Herbalife International distributors violate the Telephone Consumer Protection Act, or TCPA, and seeks to hold Herbalife International vicariously liable for the practices of these distributors. More specifically, the plaintiffs' complaint alleges that several of Herbalife International's distributors used pre-recorded telephone messages and autodialers to contact prospective customers in violation of the TCPA's prohibition of such practices". Herbalife management insisted they have meritorious defences in both cases and that in the West Virginia case, any such distributor actions also went against Herbalife's own policies. Management also contends that any adverse legal outcomes Herbalife might suffer would not significantly affect their financial condition, particularly since they have already set aside an amount that they "believe represents the likely outcome of the resolution of these disputes". The case was resolved with Herbalife and its distributors paying $7 million into a fund for class members part of the suit. :42 Herbalife International did not acknowledge wrongdoing, or admit culpability for the actions of its distributors.
As of April 2008, a series of commercials featuring a large red animated fox advertising home-based business opportunities have been running on American television. The advertisements typically feature a series of testimonials from actors playing individuals who have made sums of money between $5,000 USD and $15,000 USD per month as a result of participating in an undescribed business program. The adverts direct viewers to a website that allows them to purchase a "success kit". The kit also provides no information about how the business opportunity works.
These adverts have been found to be run by independent Herbalife distributors, as a method of recruiting new 'downline' distributors. While it is not illegal, critics of this type of advertising prefer advertisers to be up front about their company associations.
In its filings with the United States Securities and Exchange Commission (SEC), company management note problems with inappropriate business practices in the past, their subsequent long-lasting effects and the need to avoid any repetition. Company management considers the number and retention of distributors a key parameter and tracks it closely in financial reports. By January of each year, sales leaders are required to requalify. In February of each year, they remove from the rank of sales leaders those individuals who did not satisfy the sales leader qualification requirements during the preceding 12 months. For the latest 12-month requalification period ending January 2011, approximately 48.9 percent of the eligible sales leaders requalified, reflecting an improvement from 43 percent in 2009. The company was cited as one of the most profitable companies in Los Angeles County.
A 2004 settlement resolved a class action suit on behalf of 8,700 former and current distributors that accused the company and distributors of "essentially running a pyramid scheme." A total of $6 million was to be paid out, with defendants not admitting guilt.
In a California class action suit, Minton v. Herbalife International, et al., the plaintiff is "challenging the marketing practices of certain Herbalife International independent distributors and Herbalife International under various state laws prohibiting "endless chain schemes", insufficient disclosure in assisted marketing plans, unfair and deceptive business practices, and fraud and deceit".
In a West Virginia class action suit, Mey v. Herbalife International, Inc., et al., the plaintiffs allege that some "telemarketing practices of certain Herbalife International distributors violate the Telephone Consumer Protection Act, or TCPA, and seeks to hold Herbalife International vicariously liable for the practices of these distributors. More specifically, the plaintiffs' complaint alleges that several of Herbalife International's distributors used pre-recorded telephone messages and autodialers to contact prospective customers in violation of the TCPA's prohibition of such practices". Herbalife management insisted they have meritorious defences in both cases and that in the West Virginia case, any such distributor actions also went against Herbalife's own policies. Management also contends that any adverse legal outcomes Herbalife might suffer would not significantly affect their financial condition, particularly since they have already set aside an amount that they "believe represents the likely outcome of the resolution of these disputes". The case was resolved with Herbalife and its distributors paying $7 million into a fund for class members part of the suit. :42 Herbalife International did not acknowledge wrongdoing, or admit culpability for the actions of its distributors.
As of April 2008, a series of commercials featuring a large red animated fox advertising home-based business opportunities have been running on American television. The advertisements typically feature a series of testimonials from actors playing individuals who have made sums of money between $5,000 USD and $15,000 USD per month as a result of participating in an undescribed business program. The adverts direct viewers to a website that allows them to purchase a "success kit". The kit also provides no information about how the business opportunity works.
These adverts have been found to be run by independent Herbalife distributors, as a method of recruiting new 'downline' distributors. While it is not illegal, critics of this type of advertising prefer advertisers to be up front about their company associations.
Thursday, 14 June 2012
PRODUCTS
Herbalife's product range includes protein shakes, protein snacks, nutrition, energy and fitness supplements and personal care products. The Formula 1 protein shake, a soy-based meal-replacement shake, is the company's number one product and was one of the first products sold by the company. The range also includes products for heart health, digestive health, skin care, and the new 24 sports line released in 2011. Some products are vegetarian, kosher or halal, and Herbalife provides testimonials and advice from health professionals as part of their product marketing.
According to the 2009 Form 10-K, many of its weight management, nutritional and personal care products are manufactured by third party manufacturing companies, with the exception of products distributed in and sourced from China, where they have their own manufacturing facility and several products are manufactured in its recently acquired manufacturing facility in Lake Forest, California. Herbalife is currently making modifications to its recently acquired manufacturing facility in order to increase capability and capacity, and upon completion of these modifications, expect to increase self manufacturing.[9]:16
In October 2010, Herbalife held a ground-breaking ceremony in Changsha, Khanh Hoa Province, Viet Nam for its extraction facility for botanical extracts, powders and pure compounds to be used in its inner and outer nutrition products. The new facility is expected to open in the second half of 2011. The new extraction facility will purchase botanicals directly from farms in Hunan province, China and other regions, perform extraction and other conversion processes and then send these processed raw materials directly to Herbalife’s manufacturing facilities in Suzhou, China and Lake Forest, Calif. or to its third party manufacturers throughout the world. The new extraction plant will produce botanical extracts including teas, guarana, chamomile, broccoli and bilberry, among others, for use in many of its products.
According to the 2009 Form 10-K, many of its weight management, nutritional and personal care products are manufactured by third party manufacturing companies, with the exception of products distributed in and sourced from China, where they have their own manufacturing facility and several products are manufactured in its recently acquired manufacturing facility in Lake Forest, California. Herbalife is currently making modifications to its recently acquired manufacturing facility in order to increase capability and capacity, and upon completion of these modifications, expect to increase self manufacturing.[9]:16
In October 2010, Herbalife held a ground-breaking ceremony in Changsha, Khanh Hoa Province, Viet Nam for its extraction facility for botanical extracts, powders and pure compounds to be used in its inner and outer nutrition products. The new facility is expected to open in the second half of 2011. The new extraction facility will purchase botanicals directly from farms in Hunan province, China and other regions, perform extraction and other conversion processes and then send these processed raw materials directly to Herbalife’s manufacturing facilities in Suzhou, China and Lake Forest, Calif. or to its third party manufacturers throughout the world. The new extraction plant will produce botanical extracts including teas, guarana, chamomile, broccoli and bilberry, among others, for use in many of its products.
HISTORY
In February 1980, Mark Hughes began selling the original Herbalife weight management product from the trunk of his car. Hughes often stated that the genesis of his product and program stemmed from the weight loss concerns of his mother Joanne, whose premature death he attributed to an eating disorder and an unhealthy approach to weight loss. His goal was to change the nutritional habits of the world.
His first product was a protein shake designed to help people manage their weight. He structured his company using a direct-selling, multi-level marketing model which attracted thousands of distributors (Herbalife Independent Distributors) who sold its products door-to-door or through word-of-mouth, without relying on commercial distribution in retail stores.
The company's slogan, "Lose Weight Now, Ask Me How", became a marketing theme for distributors, featuring heavily on badges, flyers and posters. Early methods to recruit distributors included seminars, which would feature distributors giving health and weight loss testimonials on the Herbalife products and a keynote address by Hughes. By 1982 Herbalife had reached USD 2 million in sales and had expanded into Canada.
In 1985, the California Attorney General sued the company for making inflated claims about the efficacy of its products. The company settled the suit for USD 850,000 without admitting wrongdoing. In 1986 Herbalife became a publicly traded company on the NASDAQ, and in 1996 Herbalife reached USD 1 billion in annual sales.
Mark Hughes died at age 44. The Los Angeles County Coroner autopsy results ruled that the entrepreneur had died of an accidental overdose. The company continued to grow after his death and in 2002 was acquired by Whitney and Co LLC and Golden Gate Capital for USD 685 million, who took the company private again.
In April 2003, Michael O. Johnson joined Herbalife as CEO following a 17-year career with The Walt Disney Company, most recently as president of Walt Disney International.[4] On 16 December 2004, the company had an initial public offering on the NYSE of 14,500,000 common shares at $14/share. 2004 net sales were reported as USD 1.3 billion. In April 2005, the company celebrated its 25th anniversary with a four-day event attended by 35,000 Herbalife Independent Distributors from around the world. In August 2005, Dr. Steve Henig joined the company as Chief Scientific Officer, responsible for product research and development. In 2008, President and COO Greg Probert resigned after it was reported that he had not completed the degree requirements for the MBA he claimed on his resume.
His first product was a protein shake designed to help people manage their weight. He structured his company using a direct-selling, multi-level marketing model which attracted thousands of distributors (Herbalife Independent Distributors) who sold its products door-to-door or through word-of-mouth, without relying on commercial distribution in retail stores.
The company's slogan, "Lose Weight Now, Ask Me How", became a marketing theme for distributors, featuring heavily on badges, flyers and posters. Early methods to recruit distributors included seminars, which would feature distributors giving health and weight loss testimonials on the Herbalife products and a keynote address by Hughes. By 1982 Herbalife had reached USD 2 million in sales and had expanded into Canada.
In 1985, the California Attorney General sued the company for making inflated claims about the efficacy of its products. The company settled the suit for USD 850,000 without admitting wrongdoing. In 1986 Herbalife became a publicly traded company on the NASDAQ, and in 1996 Herbalife reached USD 1 billion in annual sales.
Mark Hughes died at age 44. The Los Angeles County Coroner autopsy results ruled that the entrepreneur had died of an accidental overdose. The company continued to grow after his death and in 2002 was acquired by Whitney and Co LLC and Golden Gate Capital for USD 685 million, who took the company private again.
In April 2003, Michael O. Johnson joined Herbalife as CEO following a 17-year career with The Walt Disney Company, most recently as president of Walt Disney International.[4] On 16 December 2004, the company had an initial public offering on the NYSE of 14,500,000 common shares at $14/share. 2004 net sales were reported as USD 1.3 billion. In April 2005, the company celebrated its 25th anniversary with a four-day event attended by 35,000 Herbalife Independent Distributors from around the world. In August 2005, Dr. Steve Henig joined the company as Chief Scientific Officer, responsible for product research and development. In 2008, President and COO Greg Probert resigned after it was reported that he had not completed the degree requirements for the MBA he claimed on his resume.
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