Ackman’s Claims Against Herbalife
You don’t suppose Acman’s claims against Herbalife are slightly motivated by greed? He would make money if Herbalife fails. No, I am sure his good nature and integrity would not allow that. It amazes me how him and others in this world tend to accuse without any sense of the fullness of human compassion and truth. I have been part of Herbalife since 2004 and even knowing what I know, I can confidently state Ackman’s claims against Herbalife are ridiculous.
Ackman’s claims against Herbalife are simply unfounded and a waste of everyone’s time. Although, what he meant for harm, it has turned out good for Herbalife and the people the company helps, as they continue to grow and stock grows. Below is an interview back in January, 2013 with Herbalife’s president, who addresses some of Ackman’s claims against Herbalife.
Full video and transcripts below.
Herbalife Defends Itself Against Critics
Thu 10 Jan 13 | 07:34 AM ET
(Transcript of video, some words have been changed slightly to fit sentence as CNBC transcripts frequently only show partial words).
CNBC: Now for the big story of the morning, activist investor bill ackman unveiling a massive short position on herbalife last month on CNBC. He then went on the attack. Take a listen, Herbalife is a pyramid scheme. Herbalife inflates the suggested retail price of its products and overstates retail sales, substantially greater than the retail profit they generate.
Yesterday fellow hedge fund manager, Dan Loeb, challenged the validity of Ackman’s claims. Herbalife is holding an investor meeting later this morning to respond to the claims made by Ackman’s concerns about the company.
Joining us now from New York is Des Walsh, President of Herbalife, with a review of what we are likely to hear at this meeting later today.
CNBC: Good morning to you, Des.
DES WALSH: Good morning, Andrew. Good to be with you. Let’s help set the record straight.
CNBC: Let’s do that and if you could, spend 30 seconds just teeing up what exactly you plan to say today about Bill Ackman’s claim that this is a pyramid scheme.
DES WALSH: Here’s what we’re going to say and what you’re going to hear, that Bill Ackman’s claims represent a gross distortion of the reality, that Herbalife is a great company, we’re a legitimate company. We’ve been in business 32 years. We have tremendous science-based products that are very high in health and safety and efficacy. We’ve got a tremendous business opportunity. We’re proud of where we are today and confident about our future.
CNBC: Okay, Des, let’s talk about the pyramid scheme thesis for a second. First, of your distributors, every year, new distributors join the forces of Herbalife, and invariably the argument is made that a large majority of those distributors at the end of year haven’t become millionaires or even making $100,000 or $50,000 or$10,000 that they see in the ads but ultimately that they lose money. Is that true?
DES WALSH: Absolutely not. Here’s one of the fallacies we’re hearing from Pershing square. What the research shows is the majority of our distributors become distributors because of their affinity with the product and they want to receive a discount. Essentially they’re almost like members, club members just like in Costco. That’s the reality. Most of the distributors come for product discount. For those distributors who come for the business opportunity, absolutely they make money. Our core training is for a new distributor who wants to build a business is to talk to10 customers a day, 10 people a day about the products and business. I have never spoken to any distributor who is doing that, who’s actively engaged, who is not making money.
CNBC: Now, you have said, and the company has said, that it requires all of its distributors keep the name, contact information, item purchased, and paid price for each customer and to retain those records for years. So, there’s a question. why wouldn’t you take all of that information, and disclose it about your distributors, about what they’ve sold, about the numbers, to help clear up some of this information about, and allegations about a pyramid scheme?
DES WALSH: So here’s the reason. First of all, we recognize that we are a b2b, we sell to our distributors. So we have a tremendous data base with the activity of our distributor customers. What you’re talking about is something entirely different. You’re talking about the customers of our distributors. We recognize that our distributors are independent sales people. This is their business. So that customer data is their data. and that’s why from our perspective we recognize their right to privacy on that data. Secondly, think about it from a customer point of view of that distributor. If you’re a customer of that distributor and you’re a weight loss customer maybe, you don’t want your data being stored by a company that is remote from you. So regardless of your affinity you say I’m a weight loss customer, I’m not sure I want my name in a data base.
CNBC: I understand what you’re saying except for this, ultimately, when the FTC looks at companies, what defines what a pyramid scheme is, it’s whether your distributors are making more money on the distribution side, signing up new people, than actually selling products. If you can answer the question about selling the products by providing this information, wouldn’t that actually help your cause?
DES WALSH: So, Andrew, in our presentation to our analyst investors you’ll actually hear a detailed response to that because we’re absolutely committed and we have to validate that the vast majority of revenues of sales comes not from recruiting, but from the sale and consumption of product. That’s absolutely critical. The other thing I’d mention is this, Andrew, because of all the noise on this, we commissioned a well respected research firm, Lieberman, to actually identify the number of consumers. What their research found is that we have 5 million US households purchasing products in the last three months. So, let’s just lay this ghost to rest. We not only have a huge distributor customer base but, in addition, we have a huge number of customers outside the network.
CNBC: Des, one of the issues that Bill Ackman raised was this issue of the pop and drop. which is to say that Herbalife has said that in markets where you opened, there are oftentimes, after you’ve opened, there’s a pop and drop with sales, experiencing in the first few years. why is that — and what other company, consumer company like this, has the same experience, and it goes, again, to this issue of a pyramid scheme to suggest that it starts off well, and ends badly within a year or two, because there’s not enough other people to get the scheme?
DES WALSH: Andrew, one more time, another gross distortion, and gross misrepresentation of the truth by a short seller motivated by profit. Here’s the reality. The reality is when you look at the numbers, and we’re going to show these numbers today in our investor meeting, what you’re going to say is literally approximately 90% of our volume in 2012 through September, over 90% came from markets open more than five and ten years. it is mature markets that are driving our business, not new markets. So, again, what he’s saying is absolutely distortion of the truth.
CNBC: One of the other issues that came up was the disclosure that the company made about what is a very high percentage of Latinos doing your distribution in the US, and the question has been raised by Bill Ackman and others about whether these distributors are undocumented immigrants. Do you have a number on that?
DES WALSH: Absolutely. So here’s what our policy is. Every single distributor who comes to Herbalife is required to provide a taxpayer ID number. There’s no issue here. Again, this is just one more case of you’ve got somebody motivated by profit and greed helping to frankly create smoke and create distortion. If you think about it, another charge is we’re actually going after the Latino community because in some way this is an impoverished, uneducated group. Frankly our Latino distributors and customers find that insulting. If a supermarket chain begins to operate or opens up a new store in an area that is economically deprived, they’re cheered and applauded because they are bringing good nutrition and jobs to that community. Yet when we support the Latino community in some way, this is a company going after people who aren’t able to make an educated decision regarding their nutrition? Frankly it insulting to us, it’s insulting to our customers, it’s insulting to the entire Latino community.
CNBC: Des, I sat through Bill Ackman’s presentation live and one of the most compelling parts of it was when he put up images of your brochure for Herbalife clothes which looked beautiful and gorgeous, and then went in what he describes real life, they sent cameras around the country to look at some of these quote/unquote clubs and they looked very different. They look nothing like the brochure. There was no signage on the outside. There was no lights. Literally the windows were closed. They were in horrible neighborhoods. The whole thing, I have to say, was one of those moments in the room where I think a lot of people said, huh. What did you make of that?
DES WALSH: You know, Andrew forgive me, but you characterize those neighborhoods as horrible neighborhoods. Let me tell you, that may not be where you live, Andrew, it may not be where Mr. Ackman lives, but the reality is those neighborhoods are warm, caring neighborhoods. We all wish we lived in a neighborhood like that. and today, in our analyst investor meeting, we’re going to show you some of those same clubs so you can get to see the heart and the soul, the warmth and the love that exists in those clubs. So, please, let’s not characterize these places as horrible.
CNBC: I apologize for that — these are wonderful places. These clubs were in back alleys, some of the images were — really did raise questions relative to the marketing piece, and I think that’s the important piece.
DES WALSH: Absolutely. So Andrew, let me explain to you. First of all, why do we not permit signage? We are direct b2b business. We’re person to person. We’re not in the retail business. We don’t want to attract customers in off the street. That would be a retail location. These are clubs. These are places where people come together in a social environment to enjoy Herbalife products, to learn about good nutrition and the benefits of a healthy, active lifestyle. It’s not about attracting passersby. That’s why we restrict signage. For that new distributor who’s working from home, we don’t want them to feel that their economic opportunity is less because of those fixed locations. So when you understand the logic behind the rules, then I think you understand that this is simply to protect our business model, to protect what we term the second sale of another distributor.
CNBC: Des, can I ask you a question? I sat down and watched Herb Greenberg’s documentary, the 20 minutes of it that are available online from last night and one of the biggest question that I came away from it was, what kind of turnover rate do you have for people who sign up to be distributors? Because it did interview a few people who said that they had signed up, they thought this was going to be something that helped them, help their family get by, something they could do maybe while they were a mom working at home and they felt that they were misled. What kind of turnover rates do you have and how many complaints like that surface?
DES WALSH: Yeah, so, you know, I watched the same video and whenever we see those stories it’s always stressing to see, but here’s the reality. Those stories are not representative. How do we know? Again, research. So again, one of our commitments is to a fact conversation. So let’s have that fact-based conversation. Here is reality. What the research indicated and remember they went out and surveyed distributors who had failed the business, (these so-called by Pershing square as people they determined as failed distributors) and they went and spoke to some of these people What they found is that over 60% would still recommend the business opportunity to friends and families. Frankly, in any new business, there is a risk of not doing well. The reality is, the majority of people, who even if they “failed” still hold it is a great company, great products, just wasn’t right for me. I would still recommend this to friends and family. But what is the turnover rate for people who try and sign up to be a distributor? How many of them are still doing it a year or two years later? So, here’s what we share. What we share is that our sales leader level, because that’s the level where people are building a business, we have the highest retention rates in the industry, in excess of 50%. If you compare that to the success rates of anybody else starting a traditional business, what you’ll see is those success rates are significantly higher.
CNBC: A sales leader, does that mean of all the people who sign up a year later 50% are still selling it? Or is that people who make it to a certain level, they’re still selling it?
DES WALSH: People who make it to a certain level.
CNBC: So let’s talk about all the people who don’t make it to that level? In terms of the way you market the company, when you see some of the advertisements and things on Youtube and the magazines and other publications you put together, invariably, you think, when you join Herbalife as a distributor that there’s a good chance that you could become wealthy and the question is, whether you think it should be better disclosed in those ads to say, whatever percent, and you’re not telling us what the percent is, but whatever that percent is that your chances of this actually happening, to say, 50% of the people don’t actually, you know, wind up with a Lamborghini or more? And I imagine it’s more.
DES WALSH: Sure, yes. Every time we run one of those business ads, we tell people to go to our website where we list the levels. In Herbalife we have a tremendous business opportunity. We are proud of that business opportunity. What we say to people is this, if you come in to this, if you want to build a business, and remember the majority of our distributors, they become distributors in order to receive that discount to become part of Herbalife, but if you come to build a business and you work hard and you operate your business with integrity and consistency over time, maybe a few years you can achieve a level of income. That’s the reality and we don’t want to run from that, but at the same time you’re absolutely right, we do want to make it very clear to people that it has to be based on hard work, consistency and operating your business with integrity.
CNBC: Des, my question, I have, you know, I used to live in LA, I’ve watched the company for years, and I just never really thought, I guess, in my own view that there was anything really proprietary or special about the product, whether it’s a soy shake to lose weight. I mean maybe they’re not harmful, maybe they’re, you know, maybe people do lose weight, but you could get the same thing in a Slimfast or a weight watchers. So, if the distribution system was normal, just in some store and everybody had their product on the same shelf, there would be no way of putting Herbalife in the forefront. So, that’s what people’s questions are. That the whole distribution network is to make it possible to sell this stuff as if it’s advantageous to the product that other companies are selling in any way, Des? Is it superior?
DES WALSH: Absolutely, and here’s why. Here’s what you’re missing. Look, here’s the reality. We are 32 years in business, consistent growth over that period of time. In the United States our oldest market is growing by double digits and yesterday, as was pointed out, we don’t spend a lot on advertising. So what is it — distribution, but what about the products themselves? What is superior about the products? (News guy trying hard to interrupt) Let me finish, here’s what’s driving that growth. It’s product results. That’s the only thing that would be fueling this growth after all these years and that’s what you’re missing. It’s two things. It’s product results, and secondly it’s the fact our products come with support of the distributor. Look, let’s get real here. The reality is this, if you are trying to the products for weight loss or the nutrition program, the hardest part is sticking with it, right? So many people, they join gyms, they get personal trainers, six months later they’re off them. The hardest part is sticking with it. What a distributor adds in terms of value, in terms of training and support, in terms of mentorship, in terms of consistency, that’s part of the magic of Herbalife. If you’re not part of this business you simply don’t understand.
CNBC: Des, two more questions for you very quickly. The first, have there been any impact on sales or distributor sign-ups since Bill Ackman went public?
DES WALSH: Our distributors are focused, totally engaged, and you know what, if anything, this situation has absolutely energized them.
CNBC: So it’s not gone up or down?
DES WALSH: I get to talk to distributors — has it gone up or down? Listen we’re a public company. I can’t comment about what’s happening in the fourth quarter. Here’s what I can tell you. Our distributors have never been more energized, talking to more customers every single day.
CNBC: News emerged yesterday that the S.E.C.’s enforcement unit is looking into this situation. Have they contacted you and do you know what this investigation is about?
DES WALSH: We’ve issued a statement. That statement says that we contacted regulators, beyond that I’m not going to comment.
CNBC: Final question, there’s a long, and questionable issue about Barry Minkel, the short seller who was involved shorting your company several years ago. Our CEO came on CNBC, they ended up paying Barry about $300,000. He said he was paid $300,000 originally because there was a lawsuit that he was trying to settle. After he left the set, it became clear that there was actually never a lawsuit. Can you give an explanation for why your company paid a short seller $300,000?
DES WALSH: Absolutely. So here’s the nature of the conversation. We knew that what Barry Minko was coming forward with was absolutely false and distorted facts, misrepresentations. By the way, very similar to what’s happening today. Barry Minko is now in jail again as a convicted felon. So when all these noises were coming out, we had a discussion, do we sue him, engage in a lawsuit in order to protect the reputation or simply say, look, this is a non-issue, let’s make this thing simply go away because it’s a distraction on the business? That was a business decision we took. Today it’s being mischaracterized but, that’s the reality. That’s what companies do every day. There are nuisance issues, nuisance lawsuits and you pay people to go away. Not sure it’s right but it’s frankly part of the American legal system and what’s happening today.
CNBC: Des, we are grateful for you joining us this morning to try help clear up some of these issues and I should also mention coming up this morning after the Herbalife conference the company’s CEO, Michael Johnson, is going to talk to CNBC first.
Proof Ackman’s Claims Against Herbalife Are Unfounded
Want proof Ackman’s claims against Herbalife are unfounded, simply check the actual facts and try the products yourself. You don’t have to dig for “secret company facts” that no one knows, just the obvious, in your face facts. This whole thing is ridiculous. Why does the company continue a steady and phenomenal growth over 32+ years, why do millions of people use the products? There is only one reason, people are getting results. I don’t know all the business details and I wouldn’t even begin to pretend to, but what I do know is this… The 5 years prior to starting on the Herbalife products, I suffered from Lyme disease. In those 5 years, nearly every body system was failing, fatigue was so great I had to lie down every 1-2 hours or pass out, trouble walking, fogging thought processes, joint and muscle pain, heart problems, other neurological problems, stomach problems, vision problems, gynecological problems etc. I tried traditional and non-traditional treatments including famous nutrition shakes. Nothing worked. First day on Herbalife’s products, I had more energy than I had in the prior 5 years. In 2-3 weeks, my pain was gone. That’s why I love Herbalife. Since that time, I have seen many people regain their lives back by getting to a healthier weight and/or using the nutrition to better their health. Being a nurse myself and seeing people feel better just by using these products is all the proof I need. So, Ackman’s claims against Herbalife, in my opinion, can only be driven by greed and/or ignorance and/or something else not positive; I think that is clear.