Submitted by admin on Fri, 2005-10-07 00:00. ::
There's nothing like the ringing of a doorbell and the appearance of a salesman on your front porch to let you know you've arrived in the world of free enterprise.
On Sept. 2, the country's Ministry of Commerce announced plans to lift its seven-year-old ban on direct sales. The rule changes - required by China's entry to the World Trade Organization - will take effect in December.
The new rules will turn salesmen loose to knock on doors, make pitches and close deals. One company that stands to benefit is Herbalife, (HLF ) the maker of weight management, nutrition and personal care products.
Still, just being in China gives Herbalife access to what analyst Scott Van Winkle of Adams Harkness expects will become the world's largest direct selling market.
Multilevel marketers typically operate through direct, person-to-person sales gatherings, often held in people's homes. New recruits tend to become customer/distributors, in search of new ranks of enlistees.
The country requires companies to sell through retail shops and special sales counters. It also requires that companies build factories in China to produce the goods.
Amway China has a reported 130,000 sales reps and 130 retail stores in China. Its manufacturing facility in Guangzhou employs more than 3,000 workers.
Herbalife operates in 58 countries other than China. Its sales in the Asian and Pacific Rim region accounted for just more than 23% of the company's $1.3 billion in 2004 revenue.
It recorded a $10 million loss in operating expenses in China last year. Chief Financial Officer Richard Goudis says China remains a minuscule piece of the Herbalife pie.
"We tell the investment community we are not a China story," Goudis said. "Our biggest opportunity in the near term is improving some of our turnaround markets."
Through its 25-year history, Herbalife has steered through a maze of legal and management obstacles. Not the least of those was the untimely death of founder and former chief executive Mark Hughes in 2000.
Herbalife struggled through declining earnings and flat sales in 2000. Sales decreased the next year, though profit moved up. In 2002 earnings fell and sales rose in single digits. It wasn't until 2003 that the company grew both the bottom and top lines.
Herbalife was taken private by an investment group led by Whitney & Co. and Golden Gate Capital. The group convinced Michael Johnson, a former head of Disney's Buena Vista Home Entertainment, to take on the mantle of chief executive.
Johnson, a triathlete and avowed Herbalife shake drinker, has since accelerated the rate of new product introductions. He set up medical and advisory panels to support the new products and established a Cellular and Molecular Nutrition Laboratory at UCLA, named for Herbalife's Hughes.
The stock debuted at 14 and began a steady climb upward in May. Shares retreated somewhat on Sept. 21, following an announcement from Avon that it was lowering its 2005 earnings expectations. Avon's sales in China were key to the announcement.
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