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 Yet a visit to some of the clubs that have been set up to dispense
the company’s shakes, teas and other items, largely to the Hispanic
community in the U.S., shows that it has fans. These are consumers
who stress their health has improved and distributors who are
thankful to have the opportunity to run their own businesses.
In conversations at 10 such clubs that Reuters reporters visited in
recent weeks in the Los Angeles area, New York and Newark, New
Jersey, more than 20 people said they had lost a substantial amount
of weight while consuming Herbalife products. These claims could not
be verified by Reuters but if true the comments cast a favorable
light on Herbalife’s products, especially as Hispanics suffer from
higher rates of obesity than the overall U.S. population.
While some of the people running the clubs were struggling to make
ends meet, most were optimistic about being distributors of the
products. In particular, women with children said they were pleased
with flexible hours and the opportunity to bring their kids to work
when necessary.
Two customers sipping shakes in a club in Boyle Heights on the east
side of Los Angeles, Silvia Lopez and Ana Montenegro, were typical
of those who swear by the products.
"When I met her, her stomach was up to here," Lopez said, holding a
hand over Montenegro's belly. "And I said, 'Let's go. We can do
it.'"
"She lost 30 pounds!" Lopez said.
"Forty," Montenegro corrected her. Both said they have no interest
in selling Herbalife products, just consuming them.
Ruth Lozano, 41, who also runs a club in Boyle Heights, claims that
she dropped eight sizes through use of Herbalife products and her
cholesterol levels dropped.
And Angel Perez, a 29-year-old daughter of Mexican immigrants, says
she makes a “decent, honest living” selling Herbalife products,
earning about $3,000 to $4,000 per month. Her club in Inglewood,
just west of Los Angeles, encourages a friendly, cafe-like
environment, with monthly weight-loss challenges.
She resents the attacks from Ackman. "I am not a poor, dumb,
Hispanic person, and I am not trying to take advantage of people,"
she said. "I find that insulting. I'm trying to help our community."
SATURATION WARNING
Herbalife recommends that those seeking to lose weight replace two
of their three meals each day with shakes, which are made with a
powder that contains protein and vitamins that is then mixed with
soy or nonfat milk and some other ingredients depending on the
flavor desired.
Some doctors allied with Herbalife back the company’s diet claims.
The U.S. Food and Drug Administration, though, has not evaluated
those claims.
Ackman’s main line of attack has not been about the quality of the
products and whether they work in controlling weight or improving
health. Instead, he has argued that the whole Herbalife system is a
pyramid scheme that won’t survive – that it is based on recruiting
new distributors to pay existing distributors (their incomes are
based on their own sales and on the sales of those they recruit) and
that the market will get saturated as more clubs are established
often very near existing ones.
His team has produced a video in which a series of former Herbalife
distributors say they spent thousands of dollars on Herbalife
products and training but ended up with losses and products they
couldn’t sell. "These are pretend businesses," said David Klafter,
senior counsel at Ackman’s Pershing Square Capital Management. The
hedge fund estimates that sellers on average lose about $12,000 per
year once rent for the clubs is taken into account.
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Partly as a result of lobbying by Ackman, there are a series of
federal and state investigations into whether Herbalife is a pyramid
scheme and related questions. It is unclear what the precise details
of those probes are, and it is not clear whether they will lead to
any action against Herbalife and how serious any such action could
be.
Herbalife and its supporters argue that it is a legitimate
multi-level marketing company that has been growing now for 34
years, sells products that are in demand, and helps many of its 3.7
million distributors worldwide to make a living. “The overwhelming
majority of our consumers and members have been satisfied with their
Herbalife experiences,” a company spokesman said.
SOME COMPLAINTS
On the visits to the clubs in the U.S. there were a minority of
distributors who were skeptical about the business they had gotten
into.
One distributor in South Los Angeles says she spends about $1,200 a
month on Herbalife products but only earns enough to help pay the
rent at her exercise studio.
An 18-year-old Guatemalan-born mother who would only give her name
as Mary currently works up to half a day for no pay at a club in
Newark, though she does get free shakes. She has also paid a $110
registration fee to become a member and is taking classes to learn
more about the product as she wants to become a distributor.
Some of the distributors interviewed said they made a good living.
One 27-year-old, who only gave his name as Alex, pulled out a wad of
cash in one club in the Bronx to illustrate how well he claimed to
be doing.
The clubs vary from relatively sophisticated exercise studios that
sell and distribute Herbalife products to very basic rooms with just
a dozen chairs in a circle to encourage customers to relax and
socialize, sometimes watching Spanish-language soap operas while
looking after their kids.
John Hempton, an Australian hedge fund manager, who says he owns the
stock and has visited Herbalife clubs in Australia and the U.S.,
sees the clubs creating a sense of community. “The product is real,
and it fulfills a fairly real human need. It is a support group for
weight loss,” he recently told Reuters.
Still, some distributors warn it clearly isn’t an occupation for
everyone. Delmy Ruiz says she makes a couple of thousand dollars a
month selling Herbalife out of a club in Canoga Park in the San
Fernando Valley but the 64-year-old’s attempt to get her son to do
the same failed. “He did what I did step by step, but he didn’t make
it,” said Ruiz, adding that his heart wasn’t in it. “You don’t work,
you don’t get paid.”
(Additional reporting by Svea Herbst-Bayliss in Boston and Anjuli
Athavaley in New York; Editing by Christian Plumb and Martin Howell)
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