Editor's Note: This article was originally published at 8:08 a.m. EDT on Real Money on Aug. 13. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.
Could it shift out of the recruit model -- which entails simply trying to pile on hosts -- to a model that involves new, best-in-class kitchenware that seems to be loved the world over? Could Herbalife become a retailer of product via parties?
On Monday night, as I talked with Rick Goings, the terrific CEO of Tupperware, I was conscious of the differences and similarities between the two companies. First, Tupperware is a great business. Several million women are hosting parties for the product, one every second and a half around the globe, and the products are constrained in supply. Tupperware's offerings are proprietary, and innovation has kept the company ahead of the game. In Turkey, Indonesia, China and Mexico -- wherever emerging markets are -- there are women selling these products to earn a little extra money or just to be the breadwinner.Herbalife has parties, too. It has new product. But this is a recruitment company that is graded by its own point system, and not its actual end-market sales -- although it has data showing that most of the product does go to end markets. It is true that an unscrupulous Tupperware salesperson could try to bury an unsuspecting individual with product in order to get sales done, but I haven't heard that charge being made. But getting more salespeople in each country is a priority in the same way that opening new stores is a priority for any retailer, and you just have to consider this method a handy way to open new stores. I think Herbalife could emulate the Tupperware model, but I think its earnings would proceed to be much lower in the short term. Still, if the product is as good as Herbalife claims, it would likely have nothing to worry about were it to adopt Tupperware's strategies. Here's the issue, though. Why bother? Herbalife has terrific cash flow and lots of good expansion plans, and its model is working for shareholders. It's just not working for short-sellers and failed recruiters. Imagine if tomorrow Michael Johnson said, "OK, that's it. We are going Tupperware's way." The sales would fall dramatically, the firm would miss estimates and the stock would take a severe hit -- and Bill Ackman would make a ton of money.