This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greenberg: Should Herbalife, Usana Worry in China?

SAN DIEGO (TheStreet) -- It's the question that now has to be asked: Should all multi-level marketers in China be worried?

Probably, or at least a little nervous.

Multi-level marketing is banned in China, where direct-selling licenses are required in all municipalities and provinces. Nu Skin (NUS) lays out the challenges in its10-K, with the kind of boilerplate the most investors gloss over:

As a result of restrictions in China on direct selling activities, we have implemented a retail store model utilizing an employed sales force and contractual sales promoters, and we are currently integrating direct selling in our business model in this market pursuant to applicable direct selling regulations. The regulatory environment in China remains complex. China's direct selling and anti-pyramiding regulations are restrictive and contain various limitations, including a restriction on the ability to pay multi-level compensation. Our operations in China have attracted significant regulatory and media scrutiny since we expanded our operations there in January 2003.

Must Read: Will Valeant Overdose on Acquisitions?

Even so, it has been one of the hottest growth areas for companies like Nu Skin, Herbalife (HLF - Get Report) and Usana (USNA - Get Report).

Nu Skin has been the hottest, with China sales skyrocketing last quarter by 240%. China now represents roughly half of all revenue.

At Herbalife, where China accounts for 11% of revenue, sales in China zoomed 77% off a low but rapidly rising base.

Sales growth in China for Usana, meanwhile was flat last quarter -- mostly the result of a change in internal policy. Still, China represents 40% of Usana revenue.

Herbalife hasn't mentioned whether it has received any inquiry from China officials, but a spokeswoman said: "We are confident in our consumption-based business model in China." And on its last earnings call President Des Walsh countered a question from an analyst who had mentioned "issues" in China by saying: "In China, as you know, we recently received another license. And as you know, any time we get licenses in China, part of the process is the central government goes out to all of the existing provinces in which we have licenses, and asks for local officials to give us a good housekeeping seal of approval. And based on that, then further licenses are granted."

That may be, but reality: On its analyst day in November, Dan Chard, head of Nu Skin's global operations said, "The certain important things about Mainland China that make it unique as a market beyond just the size is government licensing and we're now licensed in over half of the provinces in Mainland China and that's enabled us to do with our direct selling business in most of the major populated cities in Mainland China."

And they're still being investigated.

Usana hasn't responded to a request for comment.

-- Written by Herb Greenberg in San Diego

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security.


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Herb's Tweets

Select the service that is right for you!

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Growth Seeker

Chris Versace, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Daily Swing Trade

Master swing trader Alan Farley uses his sophisticated software screens to review thousands of stocks each day for you, to find just the handful that meet his demanding criteria.

Product Features:
  • Daily commentary and coaching on swing trading
  • Technical charts and analysis
Top Rated Stocks Top Rated Funds Top Rated ETFs