Monday, July 25, 2016

Herbalife and the end of the world

A necessary part of Herbalife being a pyramid scheme is that distributors are buying huge amounts of Herbalife that they cannot sell and are being encouraged to do so.

The term in the industry is "inventory loading". The FTC in their press releases mention inventory loading but do not specifically allege Herbalife is a pyramid scheme.

Inventory loading seems unlikely to me because Herbalife offers a 100 percent refund to distributors for unsold inventory including postage. (The length of time that refund is offered however is increased by the FTC settlement.)

I have looked hard for excess inventory (for example contacting sellers on EBAY or the like) and cannot find it. Truly I never found anyone who had $6000 worth of Herbalife sitting unsold, uneaten in their cellar.

Until now.

There are it seems a small class of customers who have signed as distributors and buy tens of thousands of dollars worth of Herbalife product precisely so they can store it in their cellars. They also shatter my preconception that personal use is limited to $200 or so worth per month.

They are millennial members of the Church of the Latter Day Saints who carry vast food stores in their cellars awaiting the end of the world. Herbalife shakes with a variety of flavours and long shelf lives are part of that store.

No I am not kidding. Sure it is an edge case - but the FTC settlement limits distributors to "reasonable personal use" volumes and members of the LDS millennial community are prone to buy quantities of Herbalife for personal storage far in excess of FTC/Company agreed volumes.

These people are real. And the Government is enforcing a deal which financially disadvantages them for their religious beliefs.




Davey Nelson said...

x-Mormon. Can validate-- my parents have 1 years worth of food for the apocalypse, most of my family's stuff (for 5 kids, 2 parents) is vacuum sealed camping stuff. MRE's are popular but hard to get. My aunt in southern Utah has stockpiled some herbalife and .22 bullets (although they don't own a gun for 2 adults and 6 kids x 1 year), other aunt did a bunch of shakes (not sure if herbalife or not), Not sure what everyone else has in their basement and only 1 data point, but not surprising having grown up there.

Mak said...

These guys are in most countries proselytizing. Finally someone has uncovered the secret to Herbalife's global domination. These bunkers full of Formula One must be everywhere and accounted for most of Herbalife's international growth. Case solved thanks to Mr. Hempton!

Anonymous said...

Your premise is totally off base. Inventory loading is a symptom of a pyramid a scheme and not the underlying disease. The underlying disease is a structure that results in recruiting driving more consumption than actual retail demand. People may purchase small amounts in attempts to join the scheme and there may not be inventory loading.

Just like inventory loading isn't part of a ponzi scheme, it doesn't have to be part of a pyramid scheme.

Wayne said...

You are an absolute tool. I honestly can't believe people give you money to manage. the ftc agreed with ackman on everything except the word pyramid scheme and yet you are still defending this pos company.

Robert in Chicago said...


Anonymous said...

I love it how the short thesis has morphed substantially in the last week

Sean DiTullio said...

What is the appeal of Herbalife to Mormons? Since they are not benefiting from the diet club aspect of HLF. They would seem like a group that would just buy bulk from GNC

Anonymous said...

Fan of your blog. Just wanted to say that ebay is probably not the best place to find sellers sitting on large quantities of the product, since well they are still on ebay and chances are they are having some luck selling the stuff. If there was a list of customers/partners/whatever-the-jargon-is who have purchased large quantities of the product for resell, and are not anywhere to be found, then these are the guys who gave up/failed trying to sell. this list will be of high value.

JawbonePapa said...

"And the Government is enforcing a deal which financially disadvantages them for their religious beliefs."

No constitutional provision I am aware of requires that U.S. citizens get government subsidies. If a church wants to worship a golden calf, that's fine. It just has to buy the gold itself.

John Hempton said...

Sean, the incentives for people storing it are (a) they like it, (b) it is actively sod, and (c) on that quantity -especially if you are related to their upline it is super cheap after discounts.

theambler said...

John, I enjoy your blog and you usually talk sense, but you are making a fool of yourself before the eyes of the world with Herbalife. Let it go.

dede said...

Theambler: I am a fan of this blog too. John Hempton might be making a fool of himself before the eyes of the world but most importantly, it is in front of the eyes of his trusting investors (of which I am not, unfortunately): this makes this blog even more valuable!
Thank you John, keep sharing your convictions and insights that will make us all better investors (potentially against you although I would not pretend this will be the case for me).

Conscience of a Conservative said...

Seems like a reach.

Michael Biddington said...

I do enjoy the comments on how he's such a fool regarding Herbalife. How much money has he made on this trade so far? Maybe that's way people trust him to manage their money.

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The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.