China’s direct marketing crackdown hits NuSkin hard; COVID-19 will add insult to injury

By Hank Schultz

- Last updated on GMT

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Getty Images

Related tags Carotenoids Beauty from within

Provo, UT-based MLM NuSkin saw year-over-year revenues fall by 10% as a result of the continued regulatory pressure in China. The COVID-19 disease outbreak is expected to depress results even further in the coming year.

In an earnings call with analysts NuSkin CEO Ritch Wood said the company brought in $2.42 billion in revenue in its fiscal 2019, which represented a 10% decline from the year before, or 7% when currency fluctuations were taken into account.

NuSkin markets a number of premium-priced skin care topical products and beauty-from-within dietary supplements coupled with various beauty devices via a network marketing model.  

The company’s first device was a skin scanner that could detect the levels of protective carotenoids in the skin.  That device was meant for sales associates to use in combination with the marketing of skin health supplements and topical formulas.

Subsequent devices marketed by the company are meant to be sold directly to consumers. Those include one called LumiSpa, a skin scrubber. The latest device is called Galvanic Spa. It uses galvanic currents to purportedly increase the rate at which beneficial ingredients cross the skin barrier by using, for example, a positive current to drive positively charged formulas.

Wood said the crackdown by the Chinese government on network marketing operations has had an significant effect ont eh company’s performance.  One key facet of the model is hosting large scale meetings where new products are introduced, existing sales leaders are motivated and new sales leaders are recruited.  Even before the disease crisis, the ability to have these meetings had been curtailed, and required the approval of local officials for each meeting.  That development had made it difficult for the company to both retain existing sales leaders and find new ones.

Meetings suspended in China

In light of the current coronavirus outbreak, NuSkin has suspended meetings altogether in the country.  How soon they can be resumed is unknown at this time.

“Our top priority is the health and wellness of our customers, our sales leaders and our employees in Mainland China and around the world. And we are taking proactive and appropriate measures to protect them. We're also working carefully with local and international authorities regarding this issue,”​ Wood said.

“Accordingly, beginning in mid January, we suspended in-person meetings in China and have asked our corporate employees in Shanghai to work from home. Based on collaboration with officials in Shanghai, we plan to keep our corporate offices closed through February 24, when we will reevaluate based on conditions at that time. As of this week, our manufacturing and distribution centers are starting back up, and we expect it will soon be fully operational,” ​he added.

Outlook dims for 2020

NuSkin has ratcheted down its financial guidance for the coming year.  The company expects top line revenue to decline by as much as 25% in China. In 2019 NuSkin brought in 30% of its overall revenue in Mainland China.  Other major markets for the company include South Korea (14%), Southeast Asia (12%) and Japan (11%). Full year revenue for the coming year is forecast to be in the $2.17 to $2.30 billion range.  

The company’s regulatory problems in its biggest market have spooked stock traders.  The company’s shares are trading at about $30 today, down from a recent high of more than $84 in September 2018 and a brief all time high of more than $134 in January, 2014.

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