Herbalife

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Herbalife

Definition

Herbalife is a U.S. company—formally named Herbalife International—which sells weight-loss, weight management, personal care, health, food/dietary, and nutritional supplement products. The company uses network marketing, also called multi-level marketing, which is a type of marketing plan that uses direct marketing along with franchisers and/or independent contractors to sell its products. According to the company’s Website, “Herbalife’s innovative products have been developed by scientists, doctors and nutritionists with your personal wellness goals in mind.”

Herbalife is headquartered in Los Angeles, California, with about 3,500 employees worldwide, as of 2006. The company is part of the nutrition and skin care products industry. Its website is http://www.herbalife.com

The company sells a wide range of herb-, botanical-, and other such health-based products including Male Factor 1000, 21-Day Herbal Cleansing, NiteWorks, HeartBar, Shapeworks, MentalBalance, Health & Fitness Bulk & Muscle Program, Dermojetics skin-care products, Cell-U-Loss supplement, and Nature’s Raw Guyana. As of 2006, Herbalife sells products in 63 countries, and has annual retail sales of $3 billion. Over one million (qualified and unqualified) independent distributors are associated with the company.

KEY TERMS

Botanical— Relating to plants.

Doxepin— A psychoactive drug characterized with helping treat depression and anxiety.

Macronutrient— Any carbohydrate, fat, or protein.

Micronutrient— Essential elements needed for human life such as minerals and vitamins.

Pyramid scheme— A fraudulent act in which per-petrator(s) recruit other people to pay money to those above them in a structured hierarchy with the expectation that they will get a portion of that money.

Purpose

According to information contained in the Herb-alife website, the company sells its products to consumers so they can manage and control their weight, add nutritional supplements to their diets, and provide personal care items to their daily body regimen. Weight management and weight-loss products include protein snacks, enhancers for energy support, enhancers for appetite support, and enhancers for digestive support. Nutritional supplements sold by the company include herbs, minerals, and vitamins . Some of its nutritional supplements are devoted to specific body parts such as the heart and digestive system, and on certain physical and mental conditions such as stress, energy/fitness, and aging. Its personal care products emphasize nutritional and herbal ingredients such as aloe vera and vitamin C , and deal with such matters as skin essentials and skin revitalizers, anti-aging, body essentials, hair essentials, and fragrances.

The Herbalife mission, according to its website, is to “change people’s lives by providing the best business opportunity in direct selling and the best nutrition and weight management products in the world.” The company states that it provides safe weight control products that supplement a balanced low-calorie diet and a regular exercise program. Its weight management and nutritional products use macronutrient and micronutrient food formulas. Macronutrients include carbohydrates, fats, and proteins, which together provide most of the energy needed by humans. Micro-nutrients are essential elements (minerals and vitamins) that are needed in minute quantities for a healthy body. Such essential elements include chromium, cobalt, copper, iron, manganese, molybdenum, selenium, and zinc .

As part of their advertising and marketing strategy, Herbalife relies on testimonials from health professionals. Customer testimonials also appear on the company’s website.

Description

The company was incorporated in 1979, but essentially started operations in February 1980 when its first distributor, Mark Hughes, began selling Herbalife products from the trunk of his automobile. As his customers tried and liked the products Hughes’ business quickly grew. He rented an office and a warehouse in the Beverly Hills, California area, and soon developed a network of distributors.

Within two years, the company had grown to over two million dollars in sales through its distributorships in the United States and its sole distributor in Canada. Vehicles all over the United States were seen with the company’s slogan: “Lose weight now, ask me how!”. At this time, the Herbalife plan recommended only one meal each day, which was supplemented with protein powders and nutritional pills.

By 1985, Herbalife was listed on INC. magazine’s fastest growing private companies. Its five-year profits from 1980 to 1985 went from $386,000 to $423 million. More than 700,000 distributors in the United States, Canada, the United Kingdom, and Australia had total gross sales of about $500 million.

In 1994, Hughes started the Herbalife Family Foundation in order to help children worldwide. In 1996, Herbalife reached one billion dollars in sales. However, four years later, Hughes died from an overdose of alcohol and doxepin (a psychoactive drug with antidepressant and anti-anxiety properties).

Today, signs posted on telephone poles, fences, mailboxes, newsstands, vehicle windshields, and other public structures and locations state such slogans as: “Lose Weight Now—Ask Me How”, “Have a Com-puter?—Work from Home”, and “Lose 30 lbs in 30 days!”. These and other advertising means are often seen promoting a way for people to earn cash. When people call the toll-free number or browse the listed website they are directed to Herbalife.

Precautions

Historically, there has been controversy with Herbalife due to the way the company operates its business. This controversy, specifically, has been directed to potentially dangerous ingredients in some products, perceived inaccurate marketing claims, and unconventional distribution methods. Company supporters stress that Herbalife is a profitable and reputable business that is a member of the New York Stock Exchange (NYSE). Critics state that the company is run like a pyramid scheme, its independent distributors use improper customer methods, and the company has poor organization and management of distributors.

Some of the early products sold by Herbalife consisted of ma huang (Ephedra sinica). The herb contained ephedrine (EPH), which is one of the active ingredients in the plant genus Ephedra. Ephedrine was used widely as an appetite suppressant, asthma and hay fever aid, decongestant and cold reliever, and hypotension treatment. Eventually, Herbalife eliminated ephedrine after consumers complained of adverse reactions and its insurance premiums were increased. The U.S. Food and Drug Administration (FDA) banned the sale of all ephedra-contained supplements beginning on April 12, 2004.

In 1981, the FDA began receiving complaints from Herbalife consumers with symptoms of constipation , diarrhea, headaches, and nausea from various products. Initially, Herbalife officials informed distributors to tell customers that such symptoms were the result of the removal of poisons and toxins from the body by the use of such products. The FDA acted against Hebalife in 1982 for making claims that its Herbal-Aloe drink helped to treat bowel, kidney, and stomach ulcers , and that its Herbalife Formula ndash2 should be used to treat bursitis, cancer , herpes, and impotence. Consequently, the FDA required the company to eliminate the ingredients of mandrake and poke.

The Canadian Department of Justice filed numerous criminal charges against Herbalife for false medical claims and misleading advertising practices in 1984. The California Department of Health, California Attorney General, and FDA brought a civil lawsuit against the company in 1985. The company was charged with making misleading consumers, improper product claims, and operating an illegal ‘endless-chain’ scheme. Herbalife reached an out-of-court settlement by paying $850,000 in costs, fees, and penalties.

In 1986, Herbalife expanded into other countries, including Israel, Japan, Mexico, and New Zealand, after U.S. and Canadian sales declined due to negative news stories. In order to raise cash, the company merged with an Utah-based public company, and called itself Herbalife International.

In 2001, the U.S. Federal Trade Commission (FTC) provided to interested parties, in response to the Freedom of Information Act (FOIA), numerous customer complains against Herbalife International. The customer complaints are listed in the following FTC website: http://www.ftc.gov/foia/herbalife.pdf

Still later, the company was cited by the U.S. Securities and Exchange Commission (SEC) for numerous violation involving is business practices. Herbalife officials promised to fix their managerial problems. In 2006, the company reported to the SEC that it now annually re-qualifies distributors as a way to better manage its independent contractors. As of the first-quarter of 2006, Herbalife stated that it has 240,000 qualified distributors worldwide, with about 80% outside of the United States and Canada.

Complications

Information gleaned from various sources indicate that it is often difficult for Herbalife distributors to make a profit. Initially, they must pay large amounts of money to become a distributor. For example, according to interviews and research performed by Rob Cockerham (whose website is considered a well-known anti-scam site for Herbalife) between March and July 2002, potential distributors must purchase an informational packet for $36 and, later, an International Business Packet for $195. After completing a distributor’s application, the new independent distributor receives a catalog, order forms, sales and marketing manuals, product samples, and other such literature.

The distributor then signs up for Herbalife Advantage Program, which costs $80 each month for informational brochures and Web pages that describe products. In addition, the company recommends that distributors buy a Herbalife diet and skin product website for $315 and a Herbalife business promotion website, each for $315. Furthermore, Gold and Platinum E-Commerce Business Packages cost between $952.90 and $1,994.22.

There are many websites on the Internet that advertise Herbalife products, both on the corporate and individual distributor levels. Distributors, according to Herbalife, can earn up to $250,000 annually. However, the average earning per distributor is estimated at only around $1,500. As independent contractors, distributors do not earn salaries nor benefits from the company.

Parental concerns

Herbalife, as do many other companies, sells products that are not under FDA regulatory protection.

The FDA, under the Department of Health and Human Services, is responsible for the regulation of foods, drugs, dietary supplements , biological medical products, blood products, medical devices, radiation-emitting devices, veterinary products, and cosmetics. With respect to dietary supplements, the FDA, under the Dietary Supplement Health and Education Act of 1994, can only take action against manufacturers if their dietary supplements are proven unsafe. Manufacturers can legally claim their products have health benefits, however, they cannot claim these products diagnose, treat, cure, or prevent disease.

Cosmetics are regulated by the FDA’s Center for Food Safety and Applied Nutrition. Cosmetics are generally not approved before they reach the marketplace. However, color added to cosmetics must be FDA approved before being sold. The FDA does regulate cosmetic labeling. According to the FDA, cosmetics that have not been thoroughly tested must advise so on its label.

Network marketing, or multi-level marketing, is legal in most U.S. states under the stipulation that a company’s sales force receives earnings from customers other than relatives. In the Herbalife network marketing plan, new distributors buy products up front at 25% off the retail price. Once a distributor buys $2,000 to $4,000 of products, the distributor becomes a supervisor, at which time they get 50% off the retail price. Distributors also become supervisors by bringing other distributors into the network. Distributors then get a percentage of each recruit’s sales, generally about 8%. As supervisors increase in rank, they gain the potential to earn more money. This pyramiding of earnings often is criticized as being a pyramid scheme.

In addition, Herbalife sponsors many sporting events that are especially attractive to children and young adults. For instance, the company is a regular sponsor of AVP Pro Beach Volleyball, at times being the event’s Official Nutritional Advisor. It has also been the sponsor of the JPMorgan Chase Open WTA tennis tournament, the Los Angeles Galaxy, the Tour of California bicycle road race, the Michelob Ultra London Triathlon, the Nautica Malibu Triathlon, and the Thai Airways International Laguna Phuket Triathlon. Parents need to be especially concerned that children do not associate products with sporting, entertainment, or other such events, thus, thinking they are safe to use based solely on sponsorship in such events.

Before parents give children any unregulated FDA products such as nutritional supplements— whether it be from Herbalife or any other company—they should consult their family doctor. Any company or individual can make, market, and sell nutritional supplements, for instance, without adhering to quality control requirements from the FDA. They also are not required to perform research to prove the safety or effectiveness of such products. Only products under FDA regulation are required by their manufacturers to perform such activities.

In addition, parents need to be aware that some medical conditions that children may have (and which any human can have) may be adversely affected when used with unregulated products. Even though a product is advertised as being natural, this does not mean it is necessarily safe to use in all situations and with all people. Also, since nutritional supplements, for instance, are not regulated by the FDA, there is little way to determine if each dosage is identical in quantity and quality with the advertised labeling. In fact, in 2004, the Commission for Scientific Medicine and Mental Health (CSMMH) formally requested that the FDA require manufacturers of herbal remedies and dietary supplements to insert label warnings on products that have been associated with adverse health reactions in consumers.

Resources

BOOKS

PDR for Nutritional Supplements Montvale, NJ: Medical Economics Company, 2001.

Skidmore-Roth, Linda. Mosby’s Handbook of Herbs and Natural Supplements St. Louis, MO: Mosby, 2006.

Talbott, Shawn M. The Health Professional’s Guide to Dietary Supplements. Philadelphia, PA: Lippincott Williams and Wilkins, 2007.

OTHER

FOIA Request No. 2002-324 Herbalife International Federal Trade Commission. [Cited April 19, 2007].

Index to Information about Herbalife International Dr. Stephen Barrett, MLM Watch: The Skeptical Guide to Multilevel Marketing. [Cited April 19, 2007].

Work from “Home”. Rob Cockerham, Cockeyed.com. [Cited April 19, 2007].