Estimates That 97% of Herbalife’s Products
Are Purchased for End-Use ConsumptionDetermines That
Herbalife’s Operations Are Consistent with Legitimate Multi-Level
Marketing – i.e., Not a Pyramid
Herbalife Ltd. (NYSE:HLF) today released the findings from
research and analysis conducted by Walter H. A. Vandaele, Ph.D. of
Navigant Economics, LLC regarding Herbalife’s U.S. business
operations. Dr. Vandaele, engaged by the Company to conduct this
economic analysis, assessed whether Herbalife’s operations
appropriately are classified as a beneficial, legitimate
Multi-Level Marketing (“MLM”) firm.
Dr. Vandaele is an economic expert with significant experience
in, among other areas, the regulation and operations of firms in
the consumer goods industry. Among his many professional
accomplishments, he has previously served as Economic Advisor to
the Director, Bureau of Competition and as Assistant Director for
Regulatory Evaluation, Bureau of Consumer Protection at the U.S.
Federal Trade Commission (“FTC”).
Among his numerous determinations, Dr. Vandaele concluded that,
“Herbalife’s U.S. business operations are consistent with the
socially beneficial MLM model and inconsistent with the socially
harmful pyramid scheme model.”
Dr. Vandaele conducted extensive research and analysis to
compile his report, which supports Herbalife’s U.S. business
practices and validates the Company’s classification as an MLM. Key
findings of his research include:
1. An estimated 97% of Herbalife’s U.S. product volumes are
purchased from Herbalife for end-use consumption. The vast majority
of Herbalife’s product volume (80%) is consumed by individuals
outside the Member network (39%), or consumed by Members who join
the Herbalife network primarily to receive product discounts for
their own use or that of their family (41%).
Applying an economic test that would require Member performance
payment incentives to be primarily funded out of retail-based
product sales to be classified as a legitimate MLM, Herbalife’s
U.S. business operations constitute an MLM and not a pyramid
scheme. Based on this test, at least 62 percent of total Herbalife
product purchases would need to be retail-based to represent the
primary funding source of Member performance payment incentives (or
at least 46 percent based on an alternative definition of Member
compensation that includes Members’ wholesale purchase
discounts).
- As already mentioned, an estimated 97%
of Herbalife’s product volume is purchased by Members for direct
and indirect retail end-use consumption. This percentage
significantly exceeds the 62% (and the alternative 46%) retail
threshold required by this economic test for classifying Herbalife
as a beneficial, legitimate MLM.
- Even if personal consumption by Members
who joined primarily to participate in the resale business
opportunity were excluded, an estimated 80% of product purchases
still would be considered retail end-use consumption, which also
exceeds the 62% (and the alternative 46%) threshold for classifying
Herbalife as a legitimate MLM.
2. Herbalife products have significant intrinsic value and
market demand.
3. The investment required for Members to join Herbalife is not
large and is mostly recoverable. Member starter pack purchases,
unsellable inventory, and discretionary training material purchases
can all be returned to Herbalife through a 100% money-back return
policy.
4. For those who choose to participate, the Herbalife business
opportunity offers a reasonable prospect of operating a financially
successful business:
- Members have a reasonable prospect of
being able to profit from reselling Herbalife products.
- The low participation costs allow lower
level Members to resell profitably.
- Many Members who choose to pursue the
resale business opportunity do in fact earn performance payment
incentives.
- An estimated 32% of those individuals
eligible for performance payments with one or more Members in their
downline earned at least $1,000, 7% earned at least $10,000, and 2%
earned at least $50,000.
- Members can earn significant
performance payments in reasonable periods of time. Of the three
highest level Members, 64% were only in this position 10 years or
less and 26% were Members for 5 years or less.
Dr. Vandaele’s findings are based on review and analyses of a
variety of information and data sources, which was performed
beginning in the summer of 2013. This information includes results
obtained from Herbalife-sponsored surveys of its U.S. customers and
Members that were undertaken by the market research firms Lieberman
Research Worldwide (“Lieberman”) and The Nielsen Company, B.V.
(“Nielsen”). For the Lieberman survey of Herbalife Members
conducted in June 2013, Dr. Vandaele participated in the design of
the survey sample, the development of the survey instrument and the
analysis of the survey responses.
In addition to survey results, Dr. Vandaele also obtained from
Herbalife an extract of profile and financial data for all
individuals enrolled as U.S. Herbalife Members at any time during
calendar year 2012. These data include for each Member, information
such as start and termination dates, level achieved in the
marketing plan, number of recruited downline Members, volume of
product purchases, and performance payment incentives received from
Herbalife for product purchases by their downline. The data did not
include any Member’s name, address, or other similar identifying
information.
Walter H. A. Vandaele, Ph.D.
Walter H. A. Vandaele is a Managing Director in the Washington,
D.C. office of Navigant Economics, LLC, a wholly-owned subsidiary
of Navigant Consulting, Inc. Navigant Economics is a consulting
firm providing expertise primarily in economics, finance, public
policy, and business strategy. Dr. Vandaele is an economist
knowledgeable in the fields of microeconomics, industrial
organization, econometrics, and statistics. His educational
background includes a Licentiaat (MBA) in July 1966 from the
University Faculties Saint Ignatius (University of Antwerp), in
Antwerp, Belgium, and a Doctorandus in Economics, cum laude, in
1969 from the Tilburg University, the Netherlands. He also received
a Master of Business Administration in 1973 and a Ph.D. in 1975,
both from the University of Chicago. Dr. Vandaele has held several
academic positions in the economics and business departments at the
University of Chicago, Harvard University, and the Massachusetts
Institute of Technology. He has published two books in the field of
statistics and econometrics and has over a dozen published articles
on economic subjects.
From December 1981 through January 1986, Dr. Vandaele served
with the U.S. Federal Trade Commission as Economic Advisor to the
Director, Bureau of Competition, and as Assistant Director for
Regulatory Evaluation, Bureau of Consumer Protection. Since 1986 he
has worked as a consultant on economic, financial, statistical, and
general business issues arising in commercial disputes. This work
primarily has involved analyzing competitive issues and estimating
corporate damages associated with various types of legal and
regulatory matters. He frequently has been designated as an expert
witness and has provided expert testimony and/or expert reports
that have been accepted in dozens of Federal, State, and
International trials and arbitrations.
About Herbalife Ltd.
Herbalife Ltd. (NYSE: HLF) is a global nutrition company that
sells weight-management, nutrition and personal care products
intended to support a healthy lifestyle. Herbalife products are
sold in more than 90 countries to and through a network of
independent Members. The company supports the Herbalife Family
Foundation and its Casa Herbalife program to help bring good
nutrition to children. Herbalife's website contains a significant
amount of financial and other information about the company at
http://ir.Herbalife.com. The company encourages investors to visit
its website from time to time, as information is updated and new
information is posted.
Herbalife Ltd.Julian Cacchioli, 213-309-9478VP, Worldwide
Corporate CommunicationsorAmy Greene, 213-745-0474SVP, Investor,
Corporate and Government Relations
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