Why is USANA Important? Disclosure under the New FTC Rule
Barry Minkow and his researchers have brought to the forefront a number of serious issues which impact public companies which have network marketing as their business model.
Avon, Herbalife, Immunotech, Nu Skin, and Tupperware are public companies which use network marketing as the primary method of distributing their products.
Minkow and his researchers are asking a very simple question. If a public MLM company reports that it has X distributors working for it, then how do we calculate the value of this work force? We need to know the turnover rate of the distributors, how many are actually selling, and the average sales for each distributor, excluding their personal use.
USANA has reported that according to their internal survey, done 2 years ago, only 25% of its "distributors" actually join to sell the product. This should be of some concern, given the that the USANA website is largely devoted to expounding on the benefits of running a USANA business.
Importantly, for public disclosure, as Minkow in his response notes that "Moreover, this 75% statistic is found nowhere in Usana’s 10‐Ks or 10‐Qs, and has only been reintroduced because it appears to serve as a mitigating factor to failure and collapse rates that the company can no longer conceal based on the findings of our report. "
The USANA report is very important, even if it only comprised 48,000 distributors. We need to know exactly what questions were asked, the purpose of the survey, and whether other surveys of this nature were undertaken.
But taken on its face, USANA's admission that only 25% of its work forces is actually selling product is stunning. Imagine having a company in which only 25% of the workforce shows up to work.
If 75% of USANA's distributors are not selling product to customers, then why report them as distributors at all? Wouldn't the accurate figure be material to investors? Do analysts care about this material fact?
Well, at the recent conference call with analysts, Zac Bissionette reports "Fast-forward to Wednesday's conference call. Every question asked seemed to have a bullish slant, and assumed that the company was innocent. Questions centered around whether the company has seen an impact on sales from Minkow's report, and whether the company saw this as an opportunity to buy back more shares. I spoke with Barry Minkow about the conference call and he said, "I don't believe one thing they say" and also pointed out that "There was not one tough question allowed to be asked during the conference call."
Tracy Coenen has taken the trouble to illuminate in great detail her concerns about the entire USANA telephone conference with analysts. But, I would remain focussed on the essential question for all these public MLM companies: how many distributors do you have that are working at a business and how long on average do they work selling?
