Nu Skin Enterprises, Inc.
) surged 18.2% on March 24 after the company escaped a harsh
judgment from China regulators, having to pay a
smaller-than-expected fine. The move sent waves of optimism with
the company believing that an investigation into its sales
practices in China could have come to an end. Nu Skin can now
normally operate in the country.
The regulatory reviews conducted by China's Administration of
Industry and Commerce in Shanghai and Beijing disclosed that Nu
Skin will be penalized only $781,000 for illegal product sales
and for misleading consumers. Nu Skin will have to pay $524,000
for the sale of certain products by direct sellers, which were
not registered appropriately in the country, $16,000 for product
claims that lack sufficient documents, and $241,000 for
unauthorized promotional activities carried out by six Nu Skin
The penalty came as a warning to all direct-selling companies
operating in China of the pitfalls of not abiding by Chinese
laws. And just adhering to these laws does not seem to be enough.
It is also important to train the staff about the correct
protocol and trade practices.
Nu Skin, on its part, said that it is taking up necessary
steps to correct the issues raised in the review and will
cooperate with the government with the investigation. The company
is also working towards enhancing training programs for its sales
representatives in order to resume normal business in China.
The investigation by the Chinese government began in Jan 2014
following claims by a local newspaper People's Daily (on Jan 15)
that the company was operating an illegal pyramid scheme in the
The news of the investigation not only affected the share
price of Nu Skin but also that of several other companies like
USANA Health Sciences Inc.
). These companies have the same distribution model and therefore
investors feared that the investigation could extend to these
direct selling companies as well.
Multi-level marketers like Nu Skin and Herbalife have always
been under the scanner, as they employ sales representatives to
sell their products. Most recently, Herbalife has received a
Civil Investigative Demand from the U.S. Federal Trade Commission
to investigate its operations. Herbalife welcomed the inquiry and
insisted that its business model complied with anti-pyramid
Chinahas always been suspicious about direct selling
companies. These were earlier banned by the Communist Party in
1998. Since then, any kind of pyramid selling scheme is illegal
in the country. In 2005, the ban was lifted after
multilevel-marketing companies changed their agent payment
Nu Skin holds a Zacks Rank #4 (Sell). A better-ranked company
in the cosmetics and toiletries industry is
Helen of Troy Limited
), which holds a Zacks Rank #1 (Strong Buy).
HELEN OF TROY (HELE): Free Stock Analysis
HERBALIFE LTD (HLF): Free Stock Analysis
NU SKIN ENTERP (NUS): Free Stock Analysis
USANA HLTH SCI (USNA): Free Stock Analysis
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