Opening of China market, stabilizing input prices buoy outlook for MLMs

Herbalife, Usana and Nu Skin have all released results in the past few days. Earnings were down year over year across the board, but several factors show a trend toward renewed momentum.

All three companies are major players in the world of dietary supplements sold through the multi-level marketing platform.  According to industry publication Direct Selling News, Herbalife is the world’s No. 3 largest network marketing company, followed by Nu Skin at No. 9 and Usana at No. 15.

Herbalife derives almost all of its revenue from the sale of nutritional products, as does Usana. Nu Skin derives a significant amount of overall revenue from the sale of supplements, but has a large line of personal care products as well.

Taking it on the chin in China

All three companies have significant operations in China, with Usana deriving the largest share of its revenue from sales within that country. 

The tight lockdowns in China hit the trio hard. Herbalife’s annual revenue declined from $5.8 billion in 2021 to $5.2 billion in 2022. Nu Skin’s revenue shrank from $2.7 billion to $2.2 billion in the same period. For Usana, the figures were down from $1.2 billion to $999 million.

Usana reported quarterly revenue that trails its results from the same quarter last year: $248 million in Q1 2023 versus $273 million in 2022. However, the company pointed to a leveling off of input costs and new demand from China as positive factors.

“We saw increased demand for certain products in China following the government’s shift in Covid policy during the fourth quarter of 2022. We estimate that this increase in purchasing added approximately $12 million to our net sales results for the quarter,” the company said in an earnings press release.

Getting personal again

In-person meetings are a key part of the network marketing model as a way to energize the salesforce and build new relationships. While MLMs sought to cope with pandemic restrictions on large gatherings in China and in other markets via online platforms, it was far from a perfect solution. So the ability to host sales conventions again has been greeted with relief.

“One of our top priorities this year is to re-engage with our sales leaders by returning to in-person meetings and events. We made solid progress on this strategy with several events held during the first quarter. Notably, we also held our China National Sales meeting in Macau in mid-April this year. This was our first large-scale event in Asia Pacific since 2019,” Usana said in its statement.

Herbalife also welcomed the return of in-person meetings.

“The return of in-person events have engaged more than 400,000 attendees this year, building strong momentum and driving increased engagement in our business,” Herbalife Chairman and CEO Michael Johnson said.  “We expect this energy to drive continued improvement in our top line, resulting in growth by the end of the year.”

Herbalife reported first quarter net sales of $1.3 billion, which represented a 6.3% decline from the first quarter of 2022.

Nu Skin reported $481.5 million in revenue in the first quarter, which represented a 20% year-over-year decline.

But Nu Skin’s interim CFO James Thomas said in a press release that the company is keeping costs under control and, with the business situation looking up in mainland China, expects to halt the company’s earnings spiral by year’s end.

“We are reiterating our 2023 guidance with gradual sequential improvements in our business throughout the year despite a challenging global macro environment," Thomas said. "We are managing our cost structure conservatively.”

Staying relevant as social selling model evolves

A question for these three MLMs going forward—and for all network marketing companies for that matter—is whether they can remain relevant in the future in a world where social media influencers can quickly assemble audiences that can be easily monetized.

Online selling has of course been huge in China for years. Many consumer purchases, and many of the transactions of daily life, such as paying utility bills, take place through the WeChat platform. However, increasing state control of business operations clouds the future of that channel.

In North America, by contrast, the social selling phenomenon is skyrocketing and takes place with few, if any, government controls. There is some evidence to indicate that is eating into the attraction of MLMs as a business model.

According to Nutrition Business Journal, 13% of supplement sales in the U.S. in 2023 took place through MLMs. That’s down from 15.8% in 2018. NBJ’s data shows that MLM supplement sales declined by 5.5% in 2022 and are expected to fall again this year.