herbalife-logoMid last year saw a number of organisations write to the FTC and ask that they investigate Herbalife. One of those organisations was the League of United Latin American Citizens (LULAC), and they’ve remained at odds with Herbalife ever since.

“I’m mad,” said LULAC’s National Executive Director Brent Wilkes. “I’ve seen Latinos ripped off by banks and others, but this scheme really takes the cake.”

After talking with Herbalife “and not getting the answers I wanted to hear, I concluded they are defrauding upwards of 300,000 Latinos a year,” he said.

Another consumer activist planning to attend the meeting said, “We think the problem is getting worse, and we think that the FTC is really important.”

In attempts to appease LULAC of their concerns, Herbalife have since met with them on three separate occasions. Those meetings however appear to have achieved little, with Herbalife President Dan Walsh now penning an open letter , sounding a little frustrated at the lack of progress, now penning an open letter to Brent Wilkes.

Sounding frustrated at the lack of progress, Walsh writes

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

We at Herbalife 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 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.

Much of Walsh’s letter is directed at the involvement of the Latino community in Herbalife. That I’m neither here nor there on, but what did interest me was Walsh’s comments regarding retail activity within Herbalife.

Like most consumer product companies, including but not limited to direct sellers, Herbalife 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.

Why Herbalife needs to rely on any third-party company to tell them how much retail activity is going on within their own company remains a mystery to me.

Herbalife know who is and isn’t an affiliate, and as such tracking product purchases made by affiliates and comparing it to products bought by retail customers is straight forward.

Part of the problem I suspect however, is Herbalife erroneous conclusion that what their affiliates do with products they purchase, has anything to do with the company’s own retail figures.

Third-party, independent research conducted by two leading research companies demonstrates that Herbalife has 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.

What anyone pays Herbalife affiliates for is neither here nor there. Retail revenue within Herbalife is what they have on the books, that being product orders made by retail customers.

What are those figures?

Nobody knows.

Well, Herbalife do but it’s a closely guarded secret that has never been made public.

Walsh claims that

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, and receive precisely the value they do expect and pay for – a great, high-quality product at a discounted price.

No source is provided for Walsh’s statistics, and given events last year the truth of the above is extremely questionable.

In response to criticism that Herbalife was trying to pass off affiliates as retail customers, Herbalife announced they would introduce a wholesale customer class last February.

The wholesale customer class is an industry-standard. Offering a wholesale discount to customers in exchange for a monthly product commitment, wholesale customers are cut off from the compensation plan and are unable to earn.

This fits Walsh’s description of 73% of Herablife affiliates above and, by introducing the class, Herbalife would prove unequivocally prove Walsh’s claim.

April came and went however, and there was nary a peep from the Herbalife camp. Infact it wasn’t until June that Herbalife addressed the issue, providing the results of a company commissions survey that was supposed to act as a substitute.

Problem was though that the Neilsen survey they paid for was a poor substitute, and was in reality nothing more than a smoke and mirrors attempt to bury the problem.

Why Herbalife never introduced the promised wholesale customer class I can’t say. If I had to guess though, I’d say the facts being Walsh’s statements don’t reflect the reality.

To this day I have a hard time taking anything Herbalife put out seriously, and I suspect LULAC and similar organisations do to.

The fact of the matter is Herbalife could introduce a wholesale customer class and put out their retail versus affiliate revenue ratios in a heartbeat, but they continue to refuse to do so.

Instead, we continue to get misdirection and puffery such as this:

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.”

So how is this established? Primarily via looking at the volume of revenue generated via retail sales.

What are Herbalife’s company-wide retail figures? Again, we don’t know and the company refuses to make the information public.

Strangely enough, that doesn’t stop them from citing rulings that would in all likelihood see them sunk:

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.

The BurnLounge appeal cited above held that, due to upwards of 90% of BurnLounge’s revenue being derived from affiliates, that there was an insufficient lack of retail demand for their services. Thus it followed that despite commissions being paid out on the sale of a service (product), the demonstrated lack of retail meant that these were incidental to the business opportunity.

If we were to apply the ruling to Herbalife, we’d need those retail figures.

What are Herbalife’s retail figures? Again, we don’t know and to date the company refuses to release this information.

No one is paid anything merely for sponsoring new Members, so we do not compensate any “recruiting machines.”

Until they do, I doubt LULAC or anyone else with half a brain are going to take statements like the above from Herbalife seriously. How can we when the basis such statements are made on are surrounded in a veil of secrecy?

I don’t know how many lawyers went over Walsh’s letter to Wilkes before it was published, but it couldn’t have been shorter than the five minutes it would have taken Walsh to provide Wilkes with Herbalife’s retail revenue figures.

We’re still waiting Walsh, where are they?


Footnote: You can read Walsh’s logic-vacuum response to LULAC over at their “I am Herbalife” website.