Avon Products, Inc. (NYSE:AVP) has announced that it is withdrawing from the Direct Selling Association, sparking speculation that the withdrawal may have something to do with the controversy over Herbalife Ltd. (NYSE:HLF). Avon actually helped found the DSA, but the company recently sent a letter to other direct sellers explaining why it feels the need to distance itself from the organization.
Avon sends letter to other direct sellers
A copy of that letter was shared with ValueWalk. In it, Avon Products, Inc. (NYSE:AVP) said its management considered withdrawing from the organization for more than a year before actually doing it. The company cited two main issues.
First, it said that it believes the organization’s U.S. “agenda” is “overly focused on the issues of a few specific brands rather than industry-wide challenges.” And second, the company said that the DSA should update its code of ethics to “better reflect the current state of the industry in the U.S.”
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Pyramid scheme problems
Many direct selling companies, including Herbalife Ltd. (NYSE:HLF), which is also a member of the DSA, have been accused of being pyramid schemes in recent years. By withdrawing from the organization, Avon may be feeling the heat and want to set itself apart from companies that have faced these allegations.
The Washington Post asked a spokesperson for Avon Products whether the “few specific brands” it mentioned in the company’s open letter is a reference to Herbalife. A spokesperson said it’s more about general “opportunities and innovations in multilevel marketing,” reports The Post.
Avon indirectly criticizing Herbalife?
The letter also highlighted some of Avon Products, Inc. (NYSE:AVP)’s key principles, one of which is having representatives selling products to end consumers rather than consuming products themselves. Another is a “reasonable” return policy that does not leave representatives left holding too much extra inventory.
Both of these two issues are things Herbalife has been blasted over as part of the pyramid scheme allegations. Some of the company’s former distributors have come forward to say that they were left holding a lot of extra product that they were forced to take huge losses on because they couldn’t sell it.
Also Herbalife itself said in the past that only approximately 39% of its products are sold to consumers who are outside of its network. The fact that Avon chose to highlight these two issues seems to speak to the Herbalife debate—whether or not the direct seller actually meant to do so indirectly.
Herbalife Ltd. (NYSE:HLF) has said repeatedly that it operates within the law and that its policies protect its salespeople and maintains that it is not a pyramid scheme, as activist investor Bill Ackman has alleged for nearly two years now.