Herbalife, Under Fire for Alleged Pyramid Scheme, Owes Success to Latinos

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Published February 20, 2013

| Fox News Latino

While some in the investment world squabble over Herbalife’s scrutinized business structure, Latinos seem to be the ones keeping the embattled company on life support.

The L.A.-based maker of protein powders, vitamins, supplements and beauty products operates through a network of independent distributors, mostly Hispanics who set up "nutrition clubs" in their own homes. Much like Mary Kay or Amway, the focus of the nutrition clubs is not on selling the products – but to encourage customers to make money by selling the product themselves.

As of now, Hispanics account for up to 60 percent of Herbalife's sales in the U.S. and their involvement in this home-based business seems to be growing, despite allegations the company is a pyramid scheme that aggressively targets vulnerable minority communities.

But Herbalife says there is nothing wrong with its system, which allows the distributors to profit from their own sales as well as sales made by the distributors they recruit.

“It’s the one-on-one and face-to-face interaction in the nutrition clubs that really resonates with Latinos because in our culture we’re used to that,” Herbalife’s Senior Vice President Ibi Fleming told Fox News Latino.

“Our affinity for personal customer care means Latinos have a different mentality and cultural when it comes to service,” he adds.

Developed in Mexico several years ago, these clubs have experienced tremendous success for Herbalife distributors since being brought stateside.

“We consume the same products we sell, and in that way we can tell our own story,” Estuardo Loza, an independent distributor of Herbalife Products, said in an interview with Fox News Latino.

“Latinos feel they are contributing to this country by sharing the benefits of these great products.”

Using sponsorship deals with athletes like soccer great Lionel Messi and sports teams including the MLS’ Los Angeles Galaxy, many of Herbalife’s outreach efforts are skewered specifically toward Latinos.

But now some are worried that many Latinos buying into the Herbalife brand aren’t aware of the inherent risks in the company.

Bill Ackman, a hedge fund manager whose company has shorted more than a billion dollars' worth of Herbalife stock, argues that the company is all about recruiting new distributors, and not about selling weight loss shakes and vitamins to customers.

“What the company doesn’t tell you is the tiny fraction of people who actually make a living off selling these products,” Ackman told Fox News Latino. “They target financially unsophisticated people.”

As the company itself points out, 90 percent of their distributors make little or no income off sales from the products.

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http://latino.foxnews.com/latino/money/2013/02/20/herbalife-under-fire-for-alleged-pyramid-scheme-owes-success-to-latinos/