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Disclosure: I am neither short or long. I wrote this on my own.
Investing in Herbalife (Short or Long side)
Setting the Record Straight with Bronte's Capital's John
Bronte Capital's John wrote the following yesterday:
"One of the dumbest arguments I have heard (made insistently by StocksDD amongst others) is that the turnover in Herbalife customers/distributors is enormous and therefore Herbalife must be evil or at least burning the customers.
I would love to see the customer retention rate scatter amongst Herbalife distributors (my guess is the average is low and the spread is wide) and say Weight Watchers (probably with a similarly low average and wide scatter). The people I have met who are the most convincing Herbalife sales people have lost a lot of weight and kept it off for several years. These people are I expect the exception. Turnover and failure would be the norm."
First of all, I never said Herbalife is evil or that Herbalife does not meet the threshold of retail sales. I just asked Bronte a question the answer to which ONLY people can speculate. Why do a large %(90%?) of distributors leave ?
1. How many people will take the pains of stock reselling ? They may as well keep it and consume it until it lasts.
2. Some may just trash it.
3. Some may just give it away to friends as gift or "sell" it for 20 cents to a dollar.
The survey would go something like this:
A. What was your Primary intent to join MLM ?
1. To be Consumer and avail the discount.
2. To make Full time income (>30k or higher).
3. To make Supplemental income (1k-10k).
4. I was simply obligated to buy it because of a friend/relative. If I had a choice I would not have bought it.
Depending on the answer to the 1st question, one of the 3 below groups of questions could be asked.
B. Primary Intent to join MLM: Consumer
C. Primary Intent to join MLM: Full time income
1. Are you quitting because you realized that you could never achieve the full time income that you expected to make when you joined ?
2. Were you misled to believe that you could achieve full time income ? Were you aware of the odds of first time distributor achieving full time income when you joined ?
D. Primary Intent to join MLM: Supplemental income
1. Are you quitting because you realized that you could never achieve the supplemental income that you expected to make when you joined ?
By having real responses from real distributors that fail to sign up again, regulators could get an idea of the following:
1. Of the distributors that are leaving (remember the 90% churn rate), what % were bona fide consumers or bonafide retail demand ? So 'yes' to A1B1 and A4, implies he/she is a real consumer.
2. Of the distributors that are leaving, what % answered Yes to question C/D.1) (Real distributors) and No to question C/D.2) ( were sold unreasonable expectations of income by the MLM).
Regulators could set threshold % compliance limits for each MLM. For example, >50% have to be consumers and >25% could not have been sold unreasonable expectations of income. In my opinion, when you have 10000's failed distributors taking these survey these statistics will not lie. You will ultimately know the reason for the demand.