Newsgroups: misc.fitness
Date: Thu, 30 Jul 1992 07:25:51 -0400 
From: David Greene <dg1v+@andrew.cmu.edu>
Subject: Fwd: Heard On Street: Herbalife's Plan Ambitious, But Criticized

I thought this might be of interest in lieu of past discussions

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Subject: Heard On Street: Herbalife's Plan Ambitious, But Criticized
Date: Thu, 30 Jul 1992 06:06:32 -0400 (EDT)

  By Laurie P. Cohen  

  Mark Hughes, president and founder of Herbalife International Inc.,
set this agenda for his company: "All we have to do is recruit 400,000
new distributors in 1992 to give us our goal of $400 million" in revenue,
he told the company's sales force early this year, The Wall Street Journal
reported.  

  With only $190.9 million in sales in 1991, Hughes's plan for the maker
of weight-loss products and nutritional supplements is ambitious by anyone's
standards. Yet some question what they see as the company's emphasis on
recruiting sellers instead of building a customer base.  

  To help Herbalife meet its revenue goal, Hughes last year proposed
a special distributorship called Lauren Nicole. This Santa Monica, Calif.,
partnership is owned by Lawrence Thompson and Larry S. Huff. Hughes said
the partnership's Wealth Building program is intended to "shake up America"
and "show distributors" -- the company's name for its sales force --
"how to sell" Herbalife's herb-based beauty and diet products, such as
Thermojetics and Cell-U-Loss.  

  Thompson is Herbalife's executive vice president of sales; as previously
reported, he recently sold 10% of his Herbalife stock for $2 million.
Huff, who was involved in several previous failed marketing ventures,
is an ex-convict who joined Herbalife in 1990, after serving a prison
term at the federal prison camp in Lompoc, Calif.  

  Some marketing executives believe Herbalife's Wealth Building program,
run by Thompson and Huff, is more focused on getting distributors to
recruit new ones who will buy an inventory of products from Herbalife
than it is on building a broad base of customers who will buy Herbalife
products.  

  Herbalife encourages distributors to "put a push on recruiting hundreds
of thousands of distributors" who will load up their garages with products,
said Bob Schar, vice president of sales for Neo-Life Co. of America,
a Herbalife competitor. "They want to show a profit real quick."  

  Herbalife's president, Hughes, disagrees. Herbalife is "a great company
with a great marketing plan and great products," he said. The Wealth
Building program has engineered "a major turnaround" in Herbalife's U.S.
business.  

  "The whole premise of our program is getting customers," Hughes added.
Herbalife "is built on retail selling; we don't allow people distributors
to load up" on products.  

  The Wealth Building program, based on an idea of Hughes, entitles Herbalife'-
s distributors to a 50% discount when they buy a minimum of $1,000 of
Herbalife products. That is twice the company's usual discount for its
sales force. The program is a centerpiece of Herbalife's marketing strategy.
 
  Huff was sentenced to two years in prison in 1987 after pleading guilty
to conspiracy and fraud charges for his role in a scheme that sold kits
for home-grown sour milk cultures to be used in a line of cosmetics.
In a 1985 indictment of Huff and nine others, federal prosecutors charged
that the scheme raised more than $80 million from 27,000 investors before
regulators stepped in.

  Huff said he is qualified to help supervise the Wealth Building program.
"I've been involved off and on in this kind of business for many, many
years, and I had a lot of experience in product sales," he said. Discussing
his past legal difficulties, he stated: "This culture deal was a real
mistake. I just wasn't thinking. I got involved with a group of people
I shouldn't have been involved with."  

  Hughes said he and Thompson met Huff when they worked for him in 1978
and 1979 at Golden Youth Marketing, a now-defunct company based in Santa
Monica. Like Herbalife, Golden Youth sold weight-control products, he
said.  

  At first, Herbalife executives played down their affiliation with Huff.
When asked about Huff, Dr. Norman Friedman, who identified himself as
a "consultant to Mark Hughes," said, "I've never heard of Larry Huff"
and added, "He has never been paid by Herbalife in any way." But later,
Hughes called and said Huff is, indeed, affiliated with Herbalife. "I'm
not going to judge people based on their past," he said. "Larry Huff
has been involved in a number of different businesses that are not real
ethical, and he's loaded up people with product. But there isn't any
loading up going on here." He said Huff is "just a distributor."  

  Yet Huff's role in the company appears to be larger than that.  

  Distributors who sign up for the Wealth Building program participate
in weekly conference calls and get pointers from Thompson, Huff and others
about how to get rich. "You get really good hints about selling and making
serious money," said Herbalife distributor Enna Zaltzman of New York.
For recruiting new distributors into the program, distributors like Zaltzman
get cash "overrides," depending on how many Herbalife products the recruit
purchases from Herbalife.  

  Most of Herbalife's sales now come from overseas. The company posted
U.S. sales of nearly $400 million in 1985. But by last year, U.S. sales
had shrunk to only $42 million. The company blames competition in the
U.S. and previous regulatory problems. In 1985, the Food and Drug Administrati-
on ordered Herbalife to stop making false claims that a product eliminated
cellulite. In 1986, Herbalife agreed to pay $850,000 to settle a California
lawsuit in which the state attorney general's office alleged the company
made false claims about its products. And in 1987, the year Herbalife
went public, Herbalife was fined in Canada for making money by recruiting
sellers, rather than by selling products.  

  Hughes said Huff's relationship with Herbalife began only after Huff's
release from prison. But there is evidence that Huff may have been involved
with Herbalife even before it went public.  

  Thomas Rasmussen, a former employee of the culture company, Culture
Farms Inc., who cooperated with government authorities, was deposed by
lawyers in 1990 in a civil lawsuit against Huff and others filed in federal
court in Kansas. Rasmussen testified that Huff and another Culture Farms
defendant bought stock in Herbalife before it went public. "It was supposed
to be some insider deal," Rasmussen said.  

  Huff said, "I have never gone and put one cent of mine" in Herbalife
stock.