OpTree

Stephen Ellison

It’s hard to go wrong in a business where some of your best customers are also your best salespeople.

Just ask Usana Health Sciences Inc. (NasdaqGS:USNA), a nutritional products maker based in Salt Lake City. Usana has built a global following through its direct-selling model, which contracts thousands of independent sales associates, most of whom began as Usana customers.

For those commissioned associates, direct selling is a thriving industry totaling $30.8 billion in the United States and about $112 billion worldwide last year, according to the Direct Selling Association. But the numbers don’t necessarily translate well for all consumer product companies, and those designated as direct sellers tend to come and go, the DSA says.

Usana arrived in 1992 and hasn’t gone anywhere but up. Annual revenue has more than doubled in the past five years, eclipsing $420 million in 2007. Usana credits a trusted product line and a proven marketing strategy for its continued success.

The company made three significant announcements at its annual convention on Aug. 28: a new energy drink product called Rev3; expansion into the Philippines; and new compensation incentives for associates.

Spurred by a challenge from CEO David Wentz, Usana scientists came up with an alternative to the sugary, “crash-and-burn” energy drinks common in today’s market. The resulting Rev3 is a green-tea based drink that contains an advanced formula of antioxidants as well as Usana’s patented olive-fruit extract, Olivol.

“This is a product that will appeal to a wide audience,” Wentz said in a statement.

During the company’s earnings conference call on Oct. 15, Usana chief operating officer Fred Cooper said a growing number of gen-X and gen-Y associates trying to build their businesses have been clamoring for an energy drink to sell.

“Rev3 is a fun product to talk about,” he said. “It’s a way to open doors to people, an ice-breaker. We see this as an opportunity with this (younger) demographic to gain a significant market share.”

The Philippines represents Usana’s 14th global market, and Cooper said the country’s $500 million direct-selling industry makes it “very promising for us.”

The two incentive programs are designed not only to increase sales volume but also to boost enrollment of new associates. One program is geared toward spiking competition among Usana’s top-selling associates. The other is a matching bonus where existing associates who enroll new business builders, referred to as “platinum pacesetters,” can earn up to 100% matching commissions produced by their recruits.

Usana is coming off a disappointing third quarter in which net income dropped 28.6 % year over year to $8.14 million, or $0.50 a share, and revenue increased less than 1% to $107.2 million. Analysts had expected earnings of $0.60 a share on revenue of $112 million. The company said decreased sales in North America, higher base commission payouts and expenses related to litigation contributed to the dip in net income.

Usana shares jumped nearly 10% to $44.22 a day after the earnings report, perhaps on the company’s fourth-quarter guidance. The company expects record sales of $114 million to $120 million and EPS of $0.64 and $0.70 for the period, above analysts’ average earnings forecast of $0.64 a share.

With that optimism, a new product to pitch and incentives for its salespeople to order more and spread the word, Usana can’t go wrong.

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More questions keep coming up about DSA Member company YTB and whether or not the company is completely legit. Lawsuits have been filed, board members have resigned, and allegations have been flying for months now that the company, an online travel site, is running an illegal pyramid scheme. There has also been some talk about insider deals within the company.

Now comes word that amongst the members of the Board of Directors is Florida State Senator Burt Saunders, (R-Naples). Saunders serves on the Board of YTB International which operates YourTravelBiz.com.

Saunders, who is currently running for U.S. Congress has been paid in the past by the company to be its director and has received money as a consultant for the company. Financial documents show that he had received $16,000 dollars in 2007 from the company, no word yet on whether or not he has been paid for any services this year.

Currently YTB is facing two class action suits each asking for over $100 million dollars, with California asking for restitution for victims in that state. California’s Attorney General even went so far as to call YTB a pyramid scheme.

Saunders has yet to release any official statement regarding his current affiliation with the direct sales travel company, although he did say that the law suits were “silly.” In this day and age, when every politician’s life is looked into so deeply, this could have serious repercussions for Saunders if YTB is found to have operated an illegal pyramid scheme. I wouldn’t be surprised if Saunders is the next in line to step down from the board.

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We have received a couple comments as to why we have not run the story on Gold Canyon Candles. So, in order to appease our readers, here is the whole story. I want to start off by saying there are many many conflicting reports, however I will get to the bottom of it the best that I can……

On September 10th, Maricopa County sheriff’s deputies along with an entire SWAT team raided the Arizona based Gold Canyon Candle Company. The candle company makes candles that are sold through a network of independent distributors. The raid was conducted for two reasons, 1) to arrest those suspected of being involved in identity theft and 2) arresting illegal immigrants.

The September 10th raid netted 23 arrests on suspicion of identity theft and 42 arrests for illegal immigrants. An additional five U.S. citizens were arrested on outstanding warrants.
Gold Canyon Company spokeswoman Rebecca Clyde said deputies showed up with a search warrant, not only looking for illegal workers, but also looking for specific individuals on charges of identity theft. The Sheriffs Dept says that they have already verified three victims of identity theft so far, including one person who is a Washington, D.C., White House staff member working in the Bush administration.

There have been raids on several businesses in the area in the last year and in response to those raids Gold Canyon claims they have taken steps to ensure that all of their employees are in compliance with the all immigration laws. Company spokeswoman Rebecca Clyde says the company has used e-Verify since last year and has always complied with federal law. “Gold Canyon has always used every single tool that the government has given them to verify documents and done everything it legally is allowed to do to verify employees’ status,” she said.

Gold Candle remains firm in their stance that they will be found innocent of all charges related to hiring illegal immigrants. Arizona recently passed an employer-sanction law that punishes employers for hiring and employing those who are not legal to work in the United States.

There have been claims back and forth of some shady activity by the Sheriffs department and by Gold Canyon. Reports from over 100 Gold Canyon employees say that their civil rights were violated by the Sheriff’s department by being held against their will in conference rooms for up to five hours. On the other side of the fight, the Maricopa County Attorney Andrew Thomas said that they received a tip that workers were told by someone in management to toss their IDs and run if the sheriff showed up.  If you want to read Gold Canyon’s response, click here.

Only time will tell what will come of all of this. The company thus far has not been charged with any wrongdoing. The sheriffs department and attorney general say that it will take some time to sort through all of the papers, but they will stay on top of it.

As details of the raid and its aftermath become more clear, we will definitely keep you up-to-date. In the meantime, its business as usual over at Gold Canyon Candle Co. Oh….and by the way, Gold Canyon is a member of the DSA- and no word or update on the status of the company from the DSA, another example of your hard earned money at work over at the DSA.

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Belegured home goods company, Home Interiors and Gifts, which in the past few months has had some major problems including bankruptcy and the announcement that they will seek a buyer for the company, has now notified employees at its Carrollton facility that the attempts to sell its operating entities is likely to have an impact on their jobs in the next few months.

I’m sure this comes as no surprise to the employees who have known for months now that the company is in some trouble. The company filed for bankruptcy some months ago, but was making an effort to turn things around. Unfortunately, those attempts were futile and last week the company asked for, and received permission from the U.S Bankruptcy court of Northern District of Texas for approval to sell its operating entities.

In a letter filed this past week with the Texas Workforce Commission Home Interiors says employees have been informed on the impact the sale could have on future employment. The company did say however, that the sale of the assets could also potentially lead to opportunities to staff members. “The company continues to conduct operations,” Home Interiors & Gifts said in the letter. “It’s possible potential buyer(s) of the company’s assets will hire employees who received Warn Act notices, although the company cannot make any guarantee.”

Currently there are over 130 employees at the Carrollton facilities. While I commend the company for finally warning employees of the possible termination of their positions, although a bit late in the game, it would also be great if they released a statement to their distributors. The distributors have given their time, and money, and committed themselves to working for the company. The distributors are the ones that have kept the company going. It would be great if they could be honest with those distributors about what a sale of assets could do to their employment as well. And of course, needless to say, still no word from the protective folks over at the DSA.   It’s great to know how on top of these things the Direct Selling Association is - makes ya really confident in their ability to provide timely information to the people that subsidize their business and salaries.

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