Distributors harmed by what the Federal Trade Commission (FTC) calls deceptive practices may be excited to receive a portion of the $200 million settlement Herbalife International of America, Inc., (Herbalife) reached with the agency on July 15, 2016. In addition to the monetary settlement, Herbalife will have to restructure its business model and change how it compensates distributors.
For over two years, the company has battled the FTC over allegations that Herbalife mislead consumers into believing they could earn substantial money selling Herbalife products. The global multilevel marketing organization markets weight management, dietary supplements, and personal care products in both English and Spanish. According to the FTC complaint, Herbalife’s marketing materials promised distributors part-time income of $500 to $1,500 monthly, and substantial full-time income, oftentimes displaying their distributors enjoying lavish lifestyles.
In reality, only a small minority of distributors have made anything near what Herbalife promises. A large number of distributors made little or no money and a significant percentage lost money on the opportunity. Herbalife compensated distributors for recruiting new distributors to purchase products, not for selling the product at retail to persons outside of the Herbalife network.
Under the settlement, Herbalife will have to calculate its compensation based on verified retail sales. Herbalife will have to differentiate between participants who join simply to buy products at a discount (members) and those who join in search of business opportunity (distributors). Discount buyers will not be eligible to sell the company's products or earn rewards. At least two-thirds of the rewards the company pays to distributors must be based on tracked and verified retail sales, and at least 80 of Herbalife's product sales must involve sales to legitimate end users. Herbalife will have to pay for an independent observer to oversee their operations for seven years. The independent monitor will report to the FTC and can be replaced at the FTC’s discretion.
Herbalife will also have to:
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enhance training provided to distributors;
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require a business plan and one-year waiting period before participants can open a nutrition club;
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extend the amount of time a distributor may return an initial membership pack;
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pay for all shipping costs associated with any returned products;
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prohibit auto shipment of products;
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extend protections on income claims.
Details regarding how the FTC will distribute the $200 million monetary settlement are forthcoming. It should also be noted that the settlement only affects Herbalife’s sales in the U.S., which comprises only 20 percent of the total net sales of the company. It is unclear how or if the settlement will influence the future of Herbalife.
If you are considering a business opportunity similar to Herbalife or any multilevel marketing opportunity, it is important to do as much research as possible. BCA’s Resource Guide, “Multilevel Marketing”, is a great resource for information, tips, and questions to consider.
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About Business Consumer Alliance
Business Consumer Alliance (BCA) is a non-profit company that started in 1928. The broad purpose of BCA is to promote business self-regulation. BCA's mission is achieved by assisting consumers in resolving complaints with businesses and using that complaint information, along with other relevant information such as customer reviews, to forecast business reliability. With community support, BCA can identify trustworthy and ethical businesses and warn the public to avoid unscrupulous businesses whose purpose is to defraud the marketplace. BCA also helps businesses promote themselves by providing services and tools to protect their business and reach out to their customers. BCA obtains its funding from member businesses who support the mission and purpose of the organization and who agree to abide by high standards of ethical business practices.