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

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millions of customers in the US, approximately 78% to 87% of whom are non-Members. Moneys paid by these customers directly to Members for product purchases are not reflected in the numbers you quote from the Statement. As mentioned above, Herbalife Ltd. (NYSE:HLF) fully discloses to entering Members all relevant aspects of the business opportunity, thereby empowering them to make decisions that are best for them. The excerpts from our Statement that you quote above are accurate so far as they go, but you again fail to acknowledge, as the Statement makes clear, that the moneys reported are only of payments from the company, and do not include profits made by Members from the retail sales of products to non-Member customers, or the economic benefit from a discounted price on products they purchase for personal and family use.

5. You suggest that, “[f]actoring in operating expenses, the vast majority of Herbalife’s distributors appear to lose money even after working long hours, full time.” 

This statement is unsubstantiated, and is predicated once again on the false assumption that all Herbalife Members are interested in a full time business opportunity. As previously stated, the vast majority of Herbalife’s Members (73%) join primarily to obtain a discount on products for their own use.

For those Members who do seek to build a part-time or full-time business, Herbalife Ltd. (NYSE:HLF) encourages them to have realistic expectations of the possible earnings potential. As described to all Members, the Herbalife business opportunity is like a gym membership: results vary depending on the time, energy, and dedication directed to it. Each Member seeking part-time or full-time income has different goals and needs, and each Member knows that hard work is required, with no shortcut to riches and no guarantee of success. However, for those who devote the time and energy to develop a stable base of customers and then mentor and train others to do the same, the opportunity for personal growth and an attractive part-time or full-time income exists.

6. You suggest that “[c]lose to 90% of these distributors will quit within a year, and Herbalife apparently replaces them each year with hundreds of thousands of new distributors.” 

Again, you cite as “evidence” what is in fact stale and distorted information. The disclosure that you selectively (and misleadingly) characterize was from 2004, and did not pertain to participants in the business opportunity.

Recent data confirms not only that our retention rates for sales leaders – those Members who are most clearly invested in the business opportunity – are strong and rising, but that more of them are re-qualifying through the accumulated method, where qualification is based on modest but steady sales over longer periods, than through the traditional method, where qualification is based on higher sales over shorter periods.

In the 10 years between 2002 (when we first introduced the accumulated method for requalification) and 2012, our retention rate for supervisors increased from 27.3% to 51.8%, with re-qualifications under the accumulated method steadily increasing as a proportion of all re-qualifications. Far from suggesting that 9 in 10 Members seeking a business opportunity quit within 12 months, these numbers confirm that the majority of those who pursue Herbalife as a business and invest the time and energy needed to succeed, remain active Herbalife sales leaders.

7. You suggest that Herbalife’s policy is not to track retail sales to consumers from its distributors and not to report any data on retail sales to new recruits and the public. You claim the “Federal Trade Commission has clearly stated that robust retail sales to non- distributors are the key to separating legitimate multi-level marketing companies from pyramid schemes.” 

Like most consumer product companies, including but not limited to direct sellers, Herbalife Ltd. (NYSE:HLF) relies partially on independent, third-party research to understand point-of-sale information. Research by Lieberman Research Worldwide and Nielsen shows that Herbalife has millions of customers in the United States and that 78% to 87% of our customers are not within our network of Members.

While we require our Members to keep receipts as a matter of good business practice and for audit purposes, we do not require that these be submitted routinely to the company. The customer list of each our Members who participates in the business opportunity is sensitive commercial information, which is the result of their own hard work. Our approach to receipts is similar to that utilized by the IRS. Each taxpayer need not submit receipts along with his or her tax returns because this requirement would be overly burdensome. Like the IRS, however, we conduct spot audits, in our case to ensure that purchases are supported by consumption. The company’s low product return rate (less than one percent), despite the industry’s leading and clearly communicated return policy, also confirms that products are purchased for consumption and that inventory loading is not occurring.

You misstate the FTC’s position and recent legal precedent regarding multi-level marketing companies. As the FTC stated in its January 14, 2004 Staff Advisory Opinion, the critical question relating to a multi-level marketing company is “whether revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money- making venture.” On June 2, 2014, the Ninth Circuit confirmed this accurately stated the law. FTC v. BurnLounge, Inc., No. 12-55926, — F.3d — (9th Cir. June 2, 2014). As the BurnLounge decision makes clear, a legitimate multi-level marketing company sells real products for which there is genuine demand, by members and non-members alike.

Herbalife’s products are the lifeblood of its business model, which emphasizes daily consumption. Since 1980 when Herbalife was founded, the Company has focused on the production of conventional foods, dietary supplements, and personal care products. According to a 2013 survey, nearly eight million Americans used an Herbalife product during a recent three-month interval. These products are the output of the more than 7,000 employees who work at Herbalife’s facilities throughout the world, and are consumed and/or distributed by the more than 3.7 million Members of Herbalife’s network, including more than 550,000 Members in the United States alone. As a result of the efforts of the Company and its dedicated employees and independent contractors, Herbalife sold approximately $5 billion worth of products last year.

Moreover, the Company’s business strategy of promoting a healthy, active lifestyle, along with the use of nutritionally balanced weight management products, directly addresses public health concerns relating to obesity, weight management, and general health. The Company’s structure and operations demonstrate a commitment to meeting the strong and increasing demand for its products in large part by developing the infrastructure to ensure a consistent and high quality manufacturing process and integrity in all aspects of production and distribution.

8. You suggest that Herbalife distributors exaggerate the health benefits of its products through testimonials, relying on “a small disclaimer that discloses that its health claims have not been evaluated by the Food and Drug Administration nor are its products intended to diagnose, treat, cure, or prevent any disease.” 

Herbalife does not exaggerate the benefits of any of its products. You criticize Herbalife for stating that “health claims have not been evaluated by the Food and Drug Administration,” but this disclaimer is required by law of all companies that make structure-function claims for dietary supplements. Not all products and not all claims trigger the disclaimer, but for those that do, the disclaimer is mandatory. Similar disclaimers can be found on supplements from other manufacturers in the industry – some obvious examples are GNC and Abbott Laboratories (EAS brand of products), as well as other well- respected direct sellers such as Amway (Nutrilite Brand).

We are proud of our products, which are manufactured to the highest level of quality in the industry. This is one reason why Herbalife is the global leader in meal replacement protein shakes.

According to Euromonitor, in 2013, Herbalife Ltd. (NYSE:HLF) accounted for 29.6% of the entire Meal Replacement category. This level of market share is significant – greater even than Coca Cola’s 2013 market share in the soft drinks category (20.9%).

Herbalife expressly forbids Members from making false or misleading comments about our products and all orders are shipped with our Gold Standard in Consumer Protection brochure, which includes a phone number to report or inquire about any claims. Moreover, the company engages in extensive training and monitoring on permissible claims and actively enforces relevant rules when a violation is discovered.

9. You suggest that Herbalife’s nutrition clubs are required to follow a “bizarre set of rules,” supposedly to avoid various laws. 

Nutrition clubs are social gathering locales, not retail stores or franchises. They are structured to preserve the personal relationships at the heart of our sales model. People typically come into a nutrition club under invitation of the owner or another customer; the nutrition club may charge a fee to participate in the club. Nutrition clubs create a social dynamic around healthy lifestyle and weight management that helps individuals achieve their goals.

The Nutrition Club rules that you characterize as “bizarre” are designed in part to ensure a level playing field, so that each Herbalife Member pursuing the business opportunity has an equal opportunity to compete. They are also designed to ensure that Nutrition Clubs do, in fact, operate in full compliance with the law.

As part of our safeguards and proactive compliance policy, we have a team of employees who visit nutrition clubs to monitor compliance with Herbalife rules. If you have never visited a Nutrition Club, we would encourage you to do so, and would be happy to help arrange a visit at a representative club. If you do so with an open mind, we are confident you will see the value these Clubs bring to communities throughout the United States, including in the Latino communities who provide so much of LULAC’s membership.

We support LULAC’s work to advance the economic conditions, educational attainment, health and civil rights of Hispanic Americans through community-based programs. Because we care about LULAC and what it stands for, we take seriously the concerns it has raised – and when we agree, we act. That is why last year we launched a re-training initiative for our Members and now ship a guide book with every product order. We also changed how we talk about our relationship with our Members, clarifying the terminology we use. LULACs members are our Members and consumers; like any business we listen to our most important audience and respond.

At Herbalife Ltd. (NYSE:HLF) , we are proud of our products, Members, and the business opportunities that we provide. We are changing and improving people’s lives, as you can see on www.iamherbalife.com. Our business is thriving because the people who know it believe in our high-quality products and our industry-leading practices. We welcome the opportunity to work with Members of your Board or local chapters, as well as any organization interested in an open and constructive dialogue.


Des Walsh President

cc: Margaret Moran, President of LULAC

LULAC National Board of Directors

LULAC State Directors

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