I am amazed at the comments we have been getting here at the MLM Blog. Thank you for sharing. You will notice that this is the place where both sides of the story are shared, not just one side.
Here is a thought provoking comment from one of the readers:
One of the interesting things about a Chapter 11 Bankruptcy filing of a privately held company is that it is forced to release financial information that might not otherwise come to light. If you review the company court filings, you will find some interesting data.
One interesting point is the summary of why the filing was necessary:
"Although the Company had experienced a high rate of revenue growth through 2006 and early 2007, this was driven primarily by unusually higher levels of recruitment of new AICs, which was unsustainable. In 2005 and 2006, on a net basis, the Company added approximately 434,000 and 612,000 AICs, respectively. Because recruitment of AICs tends to be a leading indicator of later attrition, the historically high numbers of new consultants in those years resulted in attrition exceeding the recruiting levels in subsequent years. In 2007, 2008 and 2009, on a net basis, the Company lost approximately 108,000, 270,000 and 145,000 AICs, respectively. This attrition, combined with the downturn in the economy and the financial crisis later in 2008, caused a reduction in the Company’s overall net sales." [Proposal to Restructure, p. 31]
Go back and check that against the company’s official statements at the time about the number of independent consultants and sales growth. Has the company been accurately reporting that it was losing consultants and had declining sales in 2007 and 2008?
Exactly how successful was the company during that period? Check the financial statements [Schedule 5]:
2007 Sales: $722,494,000
2008 Sales: $569,157,000
2009 Sales: $370,993,000How did that translate into profit or loss ?
"For the year ended December 31, 2007, Natural Products Group reported a $3 million net loss on a consolidated basis.
For the year ended December 31, 2008, Natural Products Group reported a $48 million net loss on a consolidated basis.
For the eleven months ended November 30, 2009, Natural Products Group reported a $40 million net loss on a consolidated basis."
Does that seem consistent with how company executives have portrayed the company during that period?
This whole story really is an unfortunate thing to happen to the MLM industry.
While I wasn’t involved in Arbonne, I always looked at it as one of the bedrock companies of the network marketing industry.
As this article points out, it seems some of it was hollow rhetoric, no matter how you spin it, decrease in net revenue is BAD for any kind of company.
Is Arbonne (and other MLM companies) legally required to disclose sales figures to consultants? I know publicly traded companies are required to disclose this information, but what about a company like Arbonne? If they’re not required to do so, of course they’re going to crank out the feel-good PR machine and make it seem like everything is great. They do this to recruit consultants and motivate the ones they have. Recruiting new consultants is probably more of a focus for them than selling products. I’m not defending Arbonne, just providing an explanation. Looks like their heavy recruitment efforts came back to bite them. I personally think they should focus more on selling products than recruiting anyone they can to be consultants. I love their products, and think this is their strong suit. I hope the company straightens itself out so it can continue creating and selling wonderful products.
Yes, a private company can choose to disclose whatever it wants (until they file bankruptcy), but I sure hear a lot about the “integrity of Arbonne” and this financial disaster has a massive impact on the lives of tens of thousands of hard working consultants. I also hope they straighten themselves out. Arbonne was once one of the good companies in Network Marketing.
A privately held company is not required to file public documents disclosing its finances, but that does not mean it is free to mislead people when it chooses to speak on a subject. If a company makes false statements to someone for the purpose of inducing that person to act in a way that benefits the company at the expense of the individual, there is a name for that: fraud.
Unfortunately, one of the dangers with MLM organizations is that they surround themselves with a layer of representatives who are cloaked with titles and information that make them appear to be closely affiliated with company management (e.g. “national vice president”), but who do not legally speak for the company (the company, at least, takes the view that these are “independent consultants” who are not agents or employees of the company). To the average person dealing with the company, these folks seem to be speaking for the company, and they tell people all kinds of things – some true, some not.
Careful research would reveal that Arbonne and its parent company took out large loans in 2005 and 20066 (roughly $800M in total), and that the money from these loans was used to pay dividends to the hedge fund that bought the company (for roughly $93M). [see Citigroup analyst report at: http://www.romingermedia.com/media/citigroup_indushelliport_2006%5B1%5D.pdf%5D Arbonne and its parent have therefore been saddled with debt for years now. How onerous was that debt ? The second set of loans were at LIBOR + 3 and LIBOR + 6.5; in 2006, LIBOR was running around 5%, so the company was borrowing $175M at 11.5% interest, and $365M at 8% interest. But how many people who are getting MLM pitches do analyst report research ?
How far did Arbonne push the limit here? Take a look at the published statement of “Regional Vice President” Denise Wurgler in July 2006 (available on Arbonne’s web sites in the US and internationally for years after that date): “Arbonne is a 26-year-old, debt-free company with Dun and Bradstreet’s highest credit rating.” That was false when it was published, and plainly is false now. You can still get this promo publication, with its obviously false information, on the Arbonne web site today: http://www.arbonne.com/company/opportunity/people/eoa.asp?vp=wurgler_d
This is just one of many little misrepresentations that float through the industry (and the history of Arbonne) in this fashion. Right now, the “vice presidents” are repeating the tag line that the Chapter 11 is simply a restructuring in which the company will exchange debt for equity. Is that technically accurate? yes. And when you default on your home mortgage, and the bank comes in and forcloses on your house, you’re just exchanging debt for equity, too. Your debt (the mortgage) is being exchanged for equity (the bank now owns your home). No big deal, right? The hedge fund has basically defaulted on their loans, and the banks who are owed the money will end up owning the company. They will run it in a manner designed to pay themselves back.
For consultants, the bigger issues of honesty and disclosure actually involve the mathematics of the compensation plan, what kind of leverage is actually necessary to make material money on the plan, and how realistic it is to achieve that kind of consultant leverage with a company that has been around for many years and has burned through a million consultants already. That math is not pretty, but it was bad before the bankruptcy. For consultants, the current issues probably involve two principal concerns: (1) are the new owners going to change the compensation plan in the future in order to increase company profits (ie. increasing personal volume requirements; decreasing wholesale discounts, etc.); and (2) is the company going to fold up if it cannot service the new debt and continues to lose money.
Note that the bankruptcy plan projects that the company will lose money in 2010, and will make a small profit in 2011. But that plan also projects Arbonne sales to grow by 7% this year, and 5% next year. [Bankruptcy Disclosure Statement, Schedule 7, p. 8] If sales are flat, the company will lose another $20M or so each year.
Do you think any of the “vice presidents” are disclosing that to their consultants ?