The smoke has long since cleared from the fields of Herbalife where William Ackman and Carl Icahn famously did battle for five years with stock purchases, research reports, threats of lawsuits, short-squeezes, claims of pyramid fraud and cultism, claims of stock manipulation, press conferences – all chronicled in a Netflix documentary. Wall Street revealed confusion and lack of knowledge about what exactly Herbalife’s “multi-level marketing” business model is, while also asserting that it did not need to know. Profit, growth data and longevity were sufficient. Even after an investigation and prosecution of Herbalife (HLF) by the Federal Trade Commission, which verified most of Ackman’s charges, Wall Street maintained financial support or neutrality toward the “MLM” sector. This is changing.
The aggregate equity of 10 of 12 publicly-traded MLMs, including Herbalife, lost over a third of its value since the beginning of 2019. Stock values of two companies, anomalously, increased but one of them, Avon (AVP), has been in a deadly decline for several years. It spiked a bit recently on expectation of a take-over. Avon and Tupperware (TUP), once industry icons touted to challenge anyone who questioned the legitimacy of “MLM” are both in steep decline. The market capitalization of the two together is down 74% in the last five years. One publicly traded MLM, Medifast (MED), has been spiraling upward in price and remains near record high though its stock suffered a double-digit drop in the last seven months. Altogether, 12 companies have dropped 20% in aggregate value since the start of this year.
The MLM sector consists of a dozen or so publicly traded MLMs, including Herbalife, with aggregate capitalization of about $20 billion. Added to this, there are hundreds of privately-held “MLMs”, some much larger than the public ones.
Amway, the template on which all other MLMs are based, is the largest with revenues over $8 billion globally. Collectively, MLMs solicit “business opportunity” investments from tens of millions of consumers in the form of “distributorships” with related fees, training costs, and product purchases. In the USA, MLM claims to generate over $35 billion in revenue (unverified) yearly. MLMs have their own PR and lobbying organization, the Direct Selling Association, based in Washington DC.
Though MLMs sell many different products, they require a unique trade group due to their anomalous business model. This model makes the amazing claim to a non-diminishing market, without demographic and economic limits. It claims to be able to expand and enlarge its distribution channel perpetually to “infinity”. This fantastic claim undergirds its equally unfathomable promise to provide “unlimited” income potential to all consumers it solicits investment capital from, no matter when or where they are enrolled. The claim is based on the alleged capacity to expand forever, regardless of competitors,…