Nu Skin stop Chinese pyramid scheme, profit drops 63%
Early last year saw Chinese regulators move in on Nu Skin.
Suspecting it of conducting pyramid scheme operations in China, the company’s affiliates were also running amok and making all sorts of false claims to bring in new recruits.
Long story short? Nu Skin suspended its Chinese business operations pending a formal review and, along with some of its top Chinese affiliates, was fined $781,000.
Nu Skin resumed Chinese business operations on May 1st, claiming to have reined in its local business practices and affiliates. Thus far they’ve managed to avoid further regulatory scrutiny in China.
As a company however, turns out that while $781,000 might sound like a paltry fine for a company that generates hundreds of millions of dollars in revenue, losing $78.8 million from your bottom-line? Not so much.
As I see it, the big question for Nu Skin going forward is whether or not business activity in China will continue to decline, or whether the company can rebound.
At the heart of the answer to that is the extent to which Nu Skin has put a stop to pyramid scheme recruitment taking place in China.
Quite obviously, Nu Skin’s Chinese business operations were fueled by rampant affiliate recruitment, with not much retail activity taking place.
The company claims to have addressed the issue, but to what extent?
We know that in 2014 revenue generated in China fell 56%. Is that figure going to further decrease in 2015, or will it stabilize and eventually show signs of growth?
And if it does, is that because of strong retail sales? Or because Nu Skin affiliates in China were only subject to pseudo-compliance and have gone back to their drum-beating recruitment drives?
Perhaps the recruitment is more covert now that Chinese regulators have given the arena style spectacles Nu Skin’s Chinese affiliates previously held. And if so, how long till Nu Skin again finds itself in regulatory hot water there again?
What with the SEC having recently confirmed they are investigating the company back in the US, 2015 might turn out to be quite an interesting year for Nu Skin.
A big question mark looms over whether Nu Skin’s business practices in China are deployed elsewhere in the world.
around 72% of nuskin sales are from asia, and in 2013, 19 % of sales were from china specifically.
in 2014, we know nuskin got in trouble with china for pyramid selling, and sales got halved, because all recruitment and selling activities were stopped for 3 months, and must have suffered consequently.
now nuskin , is restructuring its china business in line with ‘direct sales’ rather than ‘MLM’ sales. naturally stabilization of the sales graph is to be expected, rather than any real growth, over the next year.
their new china program includes
1] new ageLOC products
2] working to rebuild china with a more sustainable, but slower-growing business model
if we want to be mean to nuskin, we could just say : recruitment in china will go under the radar, hereon.
Really makes you wonder what’s going on in the other countries Nu Skin operates in.
Global retail sales figures in Nu Skin are likely to be appalling compared to their affiliate recruitment revenue.
If the whole business is built on recruiting affiliates and getting them to recruit affiliates etc (with no external sales), things aren’t going to get any better when those at the bottom have trouble recruiting (no support from Nu Skin corporate with drum-beating galas to brainwash new recruits).
the thing is, nuskins china’s problems have come home to roost in the US. this will be a big problem for the company moving forward.
after the january 2014 announcement of the china investigation, several class action suits have been filed in the district court of utah, which is nuskins home state.
the plaintiffs include the State-Boston Retirement System, which was a large shareholder of nuskin stock. when ‘retirement systems’ are affected by non disclosures of listed companies, courts can come swinging at the company!
once these cases start moving and getting reported in the press, nuskins sales will inevitably feel the heat.
the essence of these class actions is that:
not good. not good.