Network-marketing companies doing business in the nutrition industry have seen an increase in the recruitment of new distributors, though many of the top companies are reporting downward sales trends for 2008 and the first part of 2009. Companies have capitalized on people looking for new ways to save money or supplement their income in a down economy, but the distributor increases have not translated to higher sales numbers.
Herbalife, one of the largest network-marketing companies in the industry, reported a net sales decrease of 13.7% for the first quarter of 2009, citing unfavorable impact of currency fluctuations. Nu Skin would have posted a 4% revenue gain for the first quarter, but when factoring in foreign currency fluctuations, the company reported a 1% decline. USANA Health Sciences was no different, reporting a 4% decline in revenues for the first quarter and pointing to a strong U.S. dollar that negatively impacted the business. Scott Van Winkle, managing director of equity research with Canaccord Adams, noted that a large exposure to international markets has been particularly challenging for network marketers in the nutrition industry. “They have simply been walloped by the strength in the U.S. dollar. That has impaired earnings and sales right across the group. That’s been one of the most significant themes in the direct selling industry,” he told NBJ.
As companies work to offset the negative impact of currency fluctuations, many have rolled out new promotional programs to attract more distributors in an attempt to increase sales. Mannatech unveiled a program called the Economic Stimulus Plan (ESP) in February 2009, which created a compensation plan that allowed for a shortened selling curve and entry into the business without the accumulation of excess product. The company’s distributor base of approximately 530,000 increased as a result, according to CEO Wayne Badovinus.
Even after network-marketing companies bring in more distributors, it can often take between three and four months before they have any noticeable impact on the business. Dr. Tim Wood, vice president of research and development for USANA Health Sciences, noted the difficulty of trying to turn more distributors into more sales. “While our base of customers is growing, there is pressure to purchase fewer products every month. It’s a wallet-share deal. People feel the pinch and are going to spend a little less on supplements,” he explained.
Van Winkle told NBJ that the big dilemma network marketers are dealing with in this recession is: “Are there enough new distributors to offset lower sales per existing distributor?” Right now, the answer appears to be no. However, the outlook for direct selling may be more favorable than some retail environments. “The fact that there are more distributors is a counterbalancing effect, so the good news is that [the direct selling industry] is not counter cyclical, but it is less cyclical than other segments, assuming you’re selling the right products,” said Van Winkle. As it stands now, the decline in consumer spending has outpaced the ability of network-marketing companies to offset those declines with production from new distributors. However, nearly all network marketers are seeing an increase in interest from potential distributors, so it will be interesting to see if the influx of new sellers has a measurable effect on the sales growth of the major network-marketing companies in Q2 and Q3.
NBJ’s May issue, Direct Selling in the Nutrition Industry IX, will feature a complete breakdown of the MLM market in 2008, including supplement sales estimates and a feature story on raw material and ingredient supply to network marketers. The issue will also include market quantification and detailed analysis of all 2008 U.S. direct-to-consumer sales in the nutrition industry.