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.

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

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.

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