Controversial multilevel marketing firm claims 10,000 ‘members’ after first full year in country
Under the purple chandeliers of a NagaWorld conference hall, Alan Lorenz, a 72-year-old Englishman dressed in a grey suit and polka-dot tie, is a rock star.
As Lorenz makes his way to the stage, more than a dozen young Cambodians flock to him to get a signature and a selfie.
“I only came here for one reason,” Lorenz tells the crowd of more than two hundred.
“To make Cambodia the fastest growing country in Asia!”
Lorenz is one of the top “members” of Herbalife, a US-based multilevel marketing company that sells nutritional products and began operating in Cambodia in November 2013.
Herbalife members, formerly called distributors, gain access to varying levels of discounts through which they buy Herbalife products in bulk that they can sell to other customers or members.
In the US, Herbalife is reeling from plummeting share value and a federal investigation into its marketing practices, while its Cambodian operation faces the challenge of marketing high-priced nutritional products to low-income consumers where the company has little brand recognition.
On January 10, Herbalife Cambodia organised its largest event of the year at NagaWorld, called a “Spectacular,” to rally its members.
Speakers from Thailand, Vietnam, and Cambodia praised the virtues of Herbalife. A Khmer rap duo sang with multicoloured lights flashing in the background.
Lorenz told of his success as one of the first Herbalife distributors in the United Kingdom in the early 1980s after he lost $100,000 in a failed dance club venture.
“[Friends and family] only believed me when I made my first million dollars,” he said, referring to the lucrative virtues of Herbalife.
Duangjai Kraus, a Herbalife member from Thailand, told the audience that thanks to Herbalife, she had lost 15 kilos in three months – and made big money. “My husband was a US diplomat, and I was a fat housewife,” she said, referring to her life in the Philippines.
But now, thanks to Herbalife, “I’m a housewife with pocket money of $10,000 per month.”
For years, critics have said that Herbalife is an elaborate pyramid scheme, relying on thousands of distributors to sell their healthcare goods to other distributors, with few of Herbalife’s products being bought by actual customers, making it unprofitable for those at the bottom of the ladder.
Herbalife’s marketing tactics have come under fire from rights groups in the US for preying on vulnerable lower-income communities.
“The schemes make a false promise, covered over with a sophisticated disguise, using business language and playing upon belief and hope,” said Robert FitzPatrick, president of watchdog group Pyramid Scheme Alert.
According to Fitzpatrick, 99 per cent of Herbalife distributors end up losing money.
“The electrifying promise and the essential spirit of all these companies is the claim of offering income to all people who, otherwise, do not see much opportunity,” he added.
In March, the Federal Trade Commission announced it was investigating Herbalife for potentially being a pyramid scheme.
Bill Keep, dean of the business school at the College of New Jersey and an expert on multilevel marketing schemes, said he hopes the Federal Trade Commission investigation will help put an end to what he considers deceptive business practices.
Although Herbalife has persisted through the criticism and seen record multi-billion dollar revenues, 2014 was challenging for the Los Angeles-based company.
Over the past year, the company’s stock lost over 50 per cent of its value, going from $64 a share at the end of January 2014 to $31 yesterday.
Despite its troubles in the US, after its first full year of operation in Cambodia, Herbalife says it sees “no obstacles to growth.”
“The case that happened in America did not happen in Cambodia,” said country manager Sin Dina.
Dina touted Herbalife’s memorandum of understanding with the Anti Corruption Unit, signed on December 9 last year, as proof that the company “fully complies with the laws of Cambodia”.
“We believe Cambodia needs nutritional products for a healthy life,” he said. “In life, you don’t need only dollars.”
Still, according to Dina, Herbalife Cambodia has yet to turn a profit.
“We’re still at the startup stage, and any country, you cannot make money the first year,” he said.
Herbalife has continually denied the accusation that it operates a pyramid scheme, saying that most members join so they can obtain a discount and consume Herbalife products for a cheaper price, while all money made comes from selling Herbalife products rather than adding new members.
Its operation in the Kingdom has now racked up 10,000 members, 44 “nutrition clubs” where people try Herbalife products, and three product lines, according to Dina.
Although Dina said the primary goal of Herbalife members is healthy living, a major draw remains the promise of making vast amounts of money.
But for some, easy money remains out of reach.
In a one-room nutrition club in the capital’s Sen Sok district, Herbalife “supervisor” Han Muy Ngin told her story.
In the Herbalife system, supervisors are a rank above members – their role is to recruit more members into the system and sell them Herbalife products.
But after two months of operating the nutrition club – located in a moto garage and festooned with Herbalife posters asking questions like “Have you had your shake today?” – Muy Ngin has not recruited any new Herbalife members.
“My customers are housewives or old people, they’re not interested in business or health.”
She does sell Herbalife products, but only by the cup – $2.50 for two cups of Herbalife tea.
A can of Herbalife shake mix, which supervisors purchase at a 50 per cent “discount”, is still meant to be sold at $36 – a high price for a product which is not well known in Cambodia.
Muy Ngin, who quit her real estate agency job to go full-time into Herbalife, has not made much money, she admits. But she remains hopeful, crediting Herbalife with helping her lose six to seven kilos.
“I can survive myself now, but I expect in the future I will get more [money],” she said.