Herbalife Ltd. (HLF) Responds To LULAC Amid ‘Concerns’

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There has not been much news on the Herbalife Ltd (NYSE:HLF) front lately (by lately we mean more than 24 hours, but in this case it could be over a week or so of no news!). However, finally there is some news on the debate between Bill Ackman and the ‘controversial’ MLM company. The company issued a very lengthy response after LULAC reader ‘raised concerns’ about the company, which LULAC has opposed (see more here) due to allegations that Herbalife Ltd. (NYSE:HLF) ‘rips off’ latinos. The letter was not enough, as Herbalife took to its HerbalifeTruth twitter account and attacked LULAC on the micro blogging website. Below are a few tweets from HerbalifeTruth.

It would require far too much time (and likely bore readers) to embed each tweet, but if readers are interested just go over to HerbalifeTruth Below is the full letter fromHerbalife toLULAC.

Herbalife Ltd. (NYSE:HLF) in it’s letter, responds to the concerns raised by LULAC leader Brent Wilkes .

Herbalife Responds To Concerns Raised By LULAC Leader

June 18, 2014

Brent A. Wilkes

National Executive Director LULAC
1133 19th Street, NW, Ste. 1000 Washington, DC 20036

Dear Mr. Wilkes,
I write to address your May 31, 2014 letter to LULAC’s membership regarding Herbalife.

We at Herbalife Ltd. (NYSE:HLF) are proud of our presence in the Latino community and the role we play in helping people achieve healthier lifestyles through education and the use of our healthy and nutritious products. We also are proud of the business opportunity Herbalife provides to those who choose to earn part-time or full-time income. Indeed, our strong support in the Latino community is directly related to the widespread popularity of our products and the business opportunity we make available to those who choose to pursue it.

Herbalife Ltd. (NYSE:HLF) executives and representatives have met with you on three separate occasions. We have explained to you our industry-leading policies and procedures designed to protect Herbalife Members and consumers, and have responded to the issues you have raised during those meetings and elsewhere. Yet, in your letter you continue to state as “evidence” what are in fact misconceptions and unfounded, inaccurate allegations.

Because Herbalife strongly supports the general mission of LULAC and is closely aligned with that mission – indeed, we work hard every day to empower all our Members – I write to respond to each of your 9 pieces of purported “evidence.” I note that much of the support for your claimed “evidence” is in fact inaccurate or based on data and sources that are a decade or more old. Rather than relying on such outdated and inaccurate sources, we hope that you will take the time to learn the true facts about Herbalife. We also encourage you to meet with our broad base of Members – over 550,000 in the United States alone – and hear from them regarding their overwhelmingly positive experiences with Herbalife. You will find that Herbalife is a responsible company that improves the lives of its customers, both Members and non-Members alike.

1. You suggest that Herbalife Ltd. (NYSE:HLF) recruits new Members through the use of “testimonials that regularly feature six and even seven figure incomes,” and that Herbalife lacks sufficient disclosures about “the average net income that they can expect to make – information that we consider essential to anyone who is considering becoming an Herbalife distributor.” 

The majority of new Members join Herbalife primarily for the ability to purchase products they intend to use themselves, not to earn money. For those Members that do join for the business opportunity, Herbalife’s disclosures are among the best, if not the best, in the industry. Our Statement of Average Gross Compensation goes above and beyond the level of disclosure you recommended in a prior letter to LULAC’s membership on October 18, 2013. All Members certify that they have read and understand the Statement before they join. The Statement expressly explains that the vast majority of Members join primarily to obtain a discount on products for their own use and that most Members receive no compensation directly from Herbalife.

The Statement also discloses that for “the 13.6% of Herbalife Members who are Sales Leaders with a downline, the average compensation received from the Company in 2013 was (USD) 5,381.” The Statement includes the caution: “There is no shortcut to riches, no guarantee of success.”

Herbalife membership is low risk, offering both an easy entry and easy exit. The costs to join are minimal – as little as $59.50 for a membership pack that contains product with retail value that exceeds the price of the pack. Our Gold Standard Guarantee (http://opportunity.herbalife.com/the-gold-standard), provides a 90-day money back guarantee for the full cost of the membership pack, as well as a 100% refund (including return shipping costs) on unsold product purchased within the past 12 months if membership is resigned or not renewed for any reason. Included in each product order is a brochure communicating our Gold Standard Guarantee as well as a hotline for reporting any concerns or issues.

Herbalife Ltd. (NYSE:HLF) has always prohibited improper or inappropriate testimonials or income claims. Over the last 12 months, we have implemented several enhancements as additional steps to ensure testimonials are in compliance with the law. These enhancements include requiring all Member income claims and representations to include a disclaimer, upgrading the Member packets with additional disclosures, offering training to Members on claims and testimonials, and increasing headcount and resources to monitor income claims made on the web, at live events, or in Nutrition Clubs.

Importantly, independent third party research has confirmed that Herbalife’s disclosures, training programs, compliance efforts and consumer protection policies are effective. New participants have realistic expectations when joining Herbalife: In one survey, 73% of former Members reported they joined primarily for a discount on products they intended to use themselves, while 23% were interested primarily in part-time income and only 4% were interested primarily in full-time income. Former Members surveyed are overwhelmingly satisfied with their Herbalife experience, with 63% reporting that they would recommend Herbalife’s direct selling opportunity to a friend or family member, and 87% saying they would recommend Herbalife’s products to a friend or family member.

2. You claim that Herbalife “apparently targets low income, often undocumented, Latinos” because between 60 to 83% of Herbalife’s 525,000 U.S. distributors are Latino—4 to 5 times their representation in the U.S. population. 

Herbalife Ltd. (NYSE:HLF) does not “target” any community in the predatory sense you imply. Herbalife is proud of the diversity of our membership. We welcome everyone regardless of age, race, ethnicity, national origin, language ability, disability, gender, religious beliefs, sexual orientation, veteran status, or any classification protected by federal, state or local law. Indeed, one of our company values is to make all of our communities stronger and healthier. We do this by providing quality products aimed at tackling difficult problems facing too many communities today, like obesity and diets that are poor in nutritional value. The strength of Herbalife within the Latino community is entirely organic; a result of overwhelmingly positive product experiences over several decades, both in the United Stated and in Latin America.

We want to empower all of our Members and their customers to live healthier lives and, if they choose, to take advantage of the direct selling business opportunity that a multilevel marketing business model, like that also used by Amway, Avon or Mary Kay, can offer. Herbalife’s model rewards an entrepreneurial spirit and supports the development of successful Members, all while providing low risk and easy entry and exit for the business opportunity. An objective review of our performance shows this model effectively serves our Members and non-Members and is appropriately well-regarded in the Latino community. For example:

  • In addition to the profits made by individual Members from their own sales of our products, Herbalife paid approximately $180 million in commissions and bonuses to 33,602 self-identified Spanish-speaking Members in 2012.
  • Among Latino Members who operate Nutrition Clubs, 85% report that they break even or make a profit.
  • Among Latino consumers of Herbalife products, 85% rate Herbalife Ltd. (NYSE:HLF)’s product quality as good, very good or excellent.

We take pride in the support we receive from within the diverse communities we serve and from the leaders of those communities. As part of our continuing efforts to protect our Spanish-speaking Members and their customers, the Gold Standard Guarantee is also available in Spanish. (http://oportunidad.herbalife.com/es/estandar-de-oro). In fact, whether they are interested in the discount-purchasing opportunity or in the direct selling business opportunity, all new Members are required to review and acknowledge their understanding of the Gold Standard Guarantee. For Spanish-speaking Members, the Gold Standard Guarantee acknowledgment in the application process is also in Spanish. If you know of people with specific complaints, we request once again that you convey those specifics to us so that we can investigate immediately and take remedial action wherever appropriate. Individuals can also call our complaints hotline at 1-866-866-4744. We have processes in place to deter inappropriate conduct and will take action if we find violations of these policies and protections.

3. You suggest that “[o]nly 1 out of every 10,000 new distributors appears to make anything close” to the income “regularly” touted through Herbalife testimonials, and only do so by becoming “recruiting machines.” 

The vast majority of Herbalife’s Members (73%) join primarily to obtain a discount on products for their own use. In other words, most new Members do not expect to earn a paycheck from Herbalife Ltd. (NYSE:HLF), and receive precisely the value they do expect and pay for – a great, high-quality product at a discounted price. Most of the rest of our Members expect only part-time income. They too receive the value of the product they purchase to enjoy themselves, and also have a low-cost opportunity to earn supplemental income.

No one is paid anything merely for sponsoring new Members, so we do not compensate any “recruiting machines.” Rather, compensation is paid to Members solely based on product sales to their downline Members for their own consumption or to sell to others. This multi- level compensation opportunity is detailed in Herbalife’s Sales & Marketing Plan, which is available to all Members as part of the membership pack, and online at www.MyHerbalife.com.

4. You suggest that “the company’s own Statement of Average Gross

Compensation Paid by Herbalife to U.S. Members in 2013” is problematic because Herbalife discloses “that 88% of Herbalife’s distributors earned no payments from Herbalife in 2013, and only 0.47% received more than $25,000 for the entire year gross.” 

As the Statement conspicuously discloses (and again as you fail to acknowledge), 73% of new Members joined primarily to obtain a discount on products for their own use. Additionally, third-party, independent research conducted by two leading research companies demonstrates that Herbalife has

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