Temat: This is a huge success, but the true meaning of this...

September 6, 2010 Herbalife: Battered, Yet Victorious

Herbalife reported its Q2 results few weeks ago, making the investors more than happy. Worldwide quarterly net sales increased by 21% to $688.8 million representing a record of all times.
Unlike some of the direct selling companies who solely rely on new market openings to sustain growth, Herbalife’s success was broad-based as reported, that included double-digit growths in mature markets as well.
The company now expects revenue of $ 2.7 billion in 2010 which means Herbalife is to grow by more than 15% as compared to last year.

This is a huge success, but the true meaning of this success cannot be understood enough without knowing what this company went through.

Herbalife’s history starts in February 1980. It was founded by the visionary entrepreneur, Mark Hughes. Mark had had a difficult life. Born in 1956, his parents had split before he was even born. He was formally adopted by his mother’s parents and he took their surname, Hughes, but not his father’s.

Mark’s mother was weight-obsessed and became addicted to weight-loss pills that eventually killed her. Mark Hughes would then, turn this tragedy into a strong motivational story to inspire Herbalife distributors all over the world.

Some sources say Mark was involved in narcotics use at young ages. At 16, he was placed by the juvenile court, in a school for troubled teens. Mark Hughes never had a formal high school diploma.

Hughes married his first wife Kathryn Whiting at the age of 23. Kathryn, a student at the time, leaves the university to join Mark Hughes in his endeavors to start Herbalife business. Herbalife becomes a quick success. They sell $2 million in their first year which becomes five times as much next year. In 1982, the company jumps to the Canadian market, and in 1985 to the UK, as Herbalife’s first European market. In 1986, Herbalife goes public, and begins trading on the NASDAQ.

Mark and Kathryn get divorced in 1984. Mark marries Angela Mack but this marriage lasts barely more than a year. Then, he marries Suzan Schroder. Suzan was a pageant winner, former Miss Petite USA. She, too, starts working for Herbalife. In 1991, she gives birth to Alexander, Mark’s only child. In 1997, Suzan files for divorce. According to some, she was deeply in love with Mark but she was fed up with Mark’s drinking and obsession with work. By 1997, Mark Hughes, the person who had been spreading the word of health and wellness to the world was already caught twice under alcohol while driving in Los Angeles.

In February 1999, Mark Hughes married his fourth wife, Darcy. Darcy was previously married to the film actor Jean-Claude Van Damme. Mark Hughes was told to have brought 700,000 South American roses to their wedding. Their marriage lasted until he died.

Mark Hughes, this high-school drop-out lived his short life like a movie star. It was said that diamonds sparkled from his gold ring and his watch. When he married his second wife Angela Mack, his 300 guests, including 30 flown at his expense from Europe, were entertained by famous comedians and a popular orchestra. He was a multi-millionaire who used to say he did not know how much money he had.

The year 2000 was a tragic one for Herbalife because the founder, the iconic figure behind this empire built on promoting wellness, suddenly died on May 21, at the age of 44. He was found dead in his bed following celebrating his grandmother’s birthday the night before. What made it even more tragic for this wellness company was the fact that Mark Hughes’ death was caused by him taking a combination of alcohol and anti-depressants. After he was found dead at his Malibu mansion, his blood-alcohol level was .21%. This was about three times as much for a Californian driver to be called legally drunk. The amount of anti-depressant in Hughes' body was at a normal level and would not have killed him, if not taken in combination with alcohol.

According to Los Angeles County Coroner’s report, Mark Hughes was being treated by a psychiatrist for his drinking problem and smoked six to eight cigars a day.

This whole thing was the type of buzz that a wellness company would not have wished to have. But the buzz did not end with Mark Hughes’ death, it even escalated.

After Mark Hughes’ death, Herbalife’s Chairman Jack Reynolds declared that he was the real father of Mark Hughes’, but not Stuard Marr Hartman as it was stated on his birth certificate. Then, there was a series of lawsuits between the executives who accused one another for almost anything.

In 2005, Mark’s third wife Suzan filed a sexual harassment complaint against Chris Pair, Herbalife’s CEO. This was one of the many legal battles that took place between Suzan and Chris Pair. Pair commented that although inappropriate his approach was, it did not reach the level of a sexual assault or an unwanted physical conduct. The Court believed his approach was ambiguous and did not support Ms. Hughes’ sexual harassment claim. Nonetheless, Herbalife was on the headlines.
In 2006, Herbalife once again made the headlines. The public learned that year that during the course of their divorce, Suzan Hughes had hired a private detective. This was to wiretap Mark Hughes because she suspected he was cheating on her and also she wanted to get information on his financial matters to help her in the divorce negotiations.
Then, there also was the battle going around Alex, so-called “America’s richest teenager”. When his father died, he was the sole beneficiary of a fortune. On one side was Alex's mother Suzan, who claimed that her son needed a good sum of pocket money for his daily needs. On the other side was the Hughes family trust, charged with looking after Alex's fortune until he reaches 35. They claimed that Alex would be corrupted by an instant wealth in his own hands.

So, looking at what made the headlines for Herbalife for almost ten years, one could conclude that this company could not have even survived. But what happened, as we all know, was the contrary.

The picture was not so bright, though, following Mark Hughes’ death. Sales lagged as the company tried to manage itself without him. In 2001, company’s sales decreased to $1,020.1 million from $1,085.5 million in 2000. Following a shuffle of top management, the decision was made to sell the company.

In 2002, an investor group led by private equity firms Whitney & Co. and Golden Gate Capital made the acquisition. The transaction, that also meant delisting the shares, was approved by the Mark Hughes Family Trust. The new ownership next year brought Michael O. Johnson to the CEO position. Michael O. Johnson was the President of The Walt Disney Company where he had served for 17 years. The rebound that had started with the acquisition, gained momentum with this appointment that took place in April 2003. Two years after the company was taken private, Herbalife began trading publicly, but on the New York Stock Exchange this time.

Under Michael O. Johnson’s direction, the company performed beyond many could have guessed before. In 2004 Herbalife’s sales was $1,309.7 m. This became $1,566.8 m in 2005, $1,885.5 m in 2006, $2,145.8 in 2007, $2,359.2 in 2008 and finally, $2,324.6 in 2009. In the meanwhile, Michael O. Johnson became also the Chairman in 2007.

Outside the boardroom, Michael O. Johnson is said to be a fitness enthusiast. He has been participating in triathlons for more than 20 years. After all what the company had seen in those difficult years, such a figure would be a real fit for this position, alongside with all his talents as a company leader.

Today, we are talking about a company operating in 73 countries, reaching consumers through a network of approximately 2,1 million independent distributors. As I mentioned in the beginning, Herbalife is now looking at a sales volume of $2.7 billion this year. This represents nearly a three-fold volume increase in ten years!

After the second quarter results for 2010, Chairman and Chief Executive Officer Michael O. Johnson, commenting on their success in their mature markets, said, "Not only was our growth broad-based, but some of the countries we have been operating in the longest like the United States, Mexico and Korea are each experiencing double-digit growth even though they have been open 30, 20 and 15 years respectively. These results demonstrate the opportunity in front of us as our distributors continue to build sustainable businesses with long-term customers."