Herbalife CEO: New survey shows critics lack direct selling industry understanding

The survey included 10,525 consumers described as a nationally representative sample of entirely adults, aged 18 and over in the US.

The Nielsen study found that 87% of the 349 respondents who purchased Herbalife products for personal use in the past three months self-reported that they did not purchase it from the company as a distributor.

Extrapolating these numbers, gives the projection that 7.9 million customers in the total US adult population (3.3%) are Herbalife product consumers. Herbalife customers would include their distributor network, which totaled approximately 550,000 in the US as of the end of the first quarter 2013, said the company.

Understanding the model​

The results go some way to responding to criticism of the company’s business model: Herbalife has been the subject of a struggle between activist investors Bill Ackman, who has challenged the company’s business model, and Carl Icahn, who lauds the company’s continued strong financial performance.

“We believe the results of this study substantiate our belief that many of those who attack our model lack a clear understanding of the direct selling industry, and Herbalife in particular,”​ said Michael Johnson, Herbalife's chairman and CEO.

“Meanwhile, Herbalife continues to deliver record results in sales and profitability as our independent distributors go deeper into existing markets, developing more customers using our nutrition products every day.”​

'Strong credibility'​

Herbalife is the world’s biggest direct-selling company focused solely on nutrition and reported net sales of $4.1 billion in 2012.

"This survey, conducted by one of the world's most respected research organizations, confirms what we at Herbalife already know to be true: that Herbalife's products have a broad consumer base here in the US – nearly 8 million in the last three months – and that the majority of individuals that purchase Herbalife products do so for personal consumption,"​ said Johnson.

"Many of the national polls sponsored by major news organizations during the recent presidential election relied on sample sizes of 800 to 1,000 participants. Importantly, in this research, the sample size of more than 10,000 consumers and the corresponding very low margin of error give this survey strong credibility.” ​

The survey also revealed that weight management is the most commonly purchased type of Herbalife product for personal use, with 95% of past three month Herbalife purchasers claiming to have bought this type of product.

Noise​

During the company’s recent call with investors following publication of its first quarter results – when it reported a 17% rise in net sales, hitting $1.1 billion - Des Walsh, Herbalife’s president, said the negative press the company had received as a result of the investors’ tussle has not affected the company’s operations.

 “We believe that the noise out there is not having any material effect on our business,”​ he said.

Nevertheless, while the company is not budging on the nutrition clubs concept (it has 54,000 of them now, with that number growing), it is responding to these criticisms in other ways.  It is developing a new nomenclature to address questions about distributor compensation, according to Walsh. And Herbalife will prohibit the purchase of leads by its distributors as of June.

New VP of Consumer & Distributor Insights​

Herbalife has also the appointment of Monica Wood as Vice President, Consumer & Distributor Insights, to help advance Herbalifes commitment to ongoing, in-depth market research.