What to Make of Direct Selling?
By Piyush Arora - March 27, 2013 | Tickers: AVP,HLF, NUS
Nu skin an MLM?
Going by FTC’s definition:
“Multi-level marketing (MLM) is a purported income opportunity, in which persons recruited into a pyramid of participants make on-going purchases of products and services, and recruit others to do the same, and they still others, etc. – in an endless chain of recruitment and personal consumption, in order to qualify for commissions and bonuses and to advance upward in the hierarchy of levels in the pyramid. Product purchases become the means of disguising or laundering investments in what is in fact a product-based pyramid scheme.”Upon close reading, its not hard to figure out that Nu Skin is not classified as an MLM. The company does not have a pyramid structure based on commissions, and its distributors get their commissions on every sale -- just like any other marketing company. Furthermore, unlike other direct selling companies, Nu Skin hires distributors to sell its products.
These distributors are entitled to healthcare and retirement packages, which are common in almost all marketing companies. This creates a sustainable growth trajectory, without having the need to aggressively expand.
Avon Products(NYSE: AVP) and Herbalife, however, comfortably fit into the definition. Though it's unfair to treat Avon Products and Herbalife as absolute MLM scams, it cannot be denied that these companies need to constantly grow in order to sustain their existence.
So where is Nu Skin headed?
Nu Skin has close to 550,000 distributors across 53 countries and has been reporting stellar growth in the recent quarters. It manufacturers and markets skin care and anti-aging creams, and has a major presence in China.
According to a report, the healthcare industry is expected to grow at nearly 15% annually, which is up from 13.9%, through 2020. Nu Skin will reap its share of rewards.
