Nu Skin Enterprises, Inc. History

Address:

75 West Center Street
Provo, Utah 84601
U.S.A.

Telephone: (801) 345-6100
Fax: (801) 345-3099

Website: www.nuskin.net

Public Company
Incorporated: 1984 as Nu Skin International Inc.
Employees: 2,000
Sales: $890.5 million (1997)
Stock Exchanges: New York
Ticker Symbol: NUS
SICs:: 2833 Medicinals & Botanicals

Company Perspectives:

Nu Skin's mission is to act as a force for good throughout the world. We do this by selling exceptional products, providing rewarding direct selling business opportunities and supporting distributors, stockholders, consumers and employees in ways that improve their quality of life.

Company History:

Nu Skin Enterprises, Inc. is one of the world's largest network marketing or multilevel marketing (MLM) firms. In 27 nations, individuals buy Nu Skin products for their own use, sell them at retail prices, and recruit others to also become distributors. The company offers over 150 skin, hair, cosmetic, oral care, general nutritional, sports nutritional, weight management, and botanical products. Partly because of the firm's rapid growth since its origins in 1984, several government agencies in the United States and overseas investigated Nu Skin, which has survived those challenges and continues to expand by promoting its message of better health and financial opportunities.

Origins and Early Expansion

The year was 1984, Ronald Reagan was in the White House, and Blake Roney graduated from Brigham Young University (BYU) with a business finance degree and great hopes for the future. He and his sister Nedra Roney and their friend Sandie Tillotson decided to start their own business. Blake Roney invested $5,000 of his own money in a business idea&mdashø make personal care products that contained "All of the Good, None of the Bad," the core principle when Nu Skin International (NSI) was founded in June 1984. On October 15, 1984, the company was incorporated.

Since the new firm had limited funds for advertising, it decided to rely on the growing method of network or multilevel marketing (MLM), where independent self-employed Nu Skin distributors would sell products one-on-one and recruit others to do the same.

Initially the company met in the apartment of Nedra Roney. After several rejections, it finally found an Arizona company to make its first skin and hair products, which were sent to Nedra's place. Then the founders spooned their products from ten-gallon containers into jars or whatever receptacles their customers brought. By word of mouth the new business spread to family and friends and was off and running out of its home in Provo, Utah.

By 1989 sales were exploding at double-digit rates every month. That year Nu Skin hired Brent Ririe as director of management information systems, the firm's first technical employee. He helped the company choose new computer systems so that commission checks could be mailed on time and other company functions could operate efficiently. However, other serious problems waited around the corner.

Legal Challenges

In March 1991 the Michigan attorney general told Nu Skin to prove it was not an illegal pyramid scheme or face a lawsuit. At least four other states (Ohio, Pennsylvania, Illinois, and Florida) also investigated the rapidly growing firm that by 1991 claimed over 100,000 distributors in the United States, Hong Kong, Canada, and Taiwan.

Nu Skin in late December 1991 issued a press release indicating that it had negotiated an agreement with Michigan in which it would strengthen its buy-back policy by offering its distributors a 90 percent refund on any unused products and sales aids, without any limit since the time of purchase. The Direct Selling Association, which Nu Skin joined, recommended a 90 percent buy-back policy to prevent building up too much inventory. Georgia, Maryland, Louisiana, Wyoming, and Massachusetts required that 90 percent refund policy.

Without admitting any illegal activity in its Michigan settlement, Nu Skin also agreed to reemphasize its retail sales and pay Michigan $25,000 for its investigative expenses. Nu Skin spokesman Jason Chaffetz said in the December 28, 1991 Provo Daily Herald that his company was encouraged by the settlement after what he said was "the longest, hardest look at us."

Meanwhile, the Food and Drug Administration (FDA) investigated Nu Skin to make sure its products were safe and clearly labeled without making any illegal healing claims. It should be noted that no federal laws had been passed covering multilevel marketing. Rules and regulations of the FDA and Federal Trade Commission (FTC) applied, but most government oversight came from state laws. The FTC's senior attorney said in the November 1991 issue of Kiplinger's that most states considered MLM as an illegal pyramid "when the money is coming in from the recruitment of people, not the sale of products."

Such governmental checks, national media exposure, and its expanding operations brought Nu Skin more attention in 1991. In May 1991, for example, it opened its new $8 million warehouse/distribution center in Provo's East Bay. Without going into debt, Nu Skin built a 200,000-square-foot center to consolidate its nine previous Utah County warehouses. The company also built a recreation facility, basketball and volleyball courts, and picnic areas for its Provo employees.

In 1992 Nu Skin completed its new corporate headquarters. After using four other Provo offices, the firm finally had its permanent home in the ten-story Nu Skin Tower, Provo's tallest downtown building. It included fiber optics and computers to administer a growing international network of distributors and a visitors' center and theater.

In the early 1990s Nu Skin faced allegations of sex discrimination from 28 former and current female employees. In one lawsuit filed December 29, 1992, in U.S. District Court in Salt Lake City, six former employees charged that Nu Skin denied them advancement opportunities and equal benefits and paid men more for comparable work. Judge David Winder on August 6, 1993 denied the women's effort to make this a class action and dismissed the case with prejudice, so that it could not be refiled. This lawsuit was settled out of court under undisclosed terms, but both sides said they were pleased with the results. Since about half of Nu Skin's workforce were women, this was a very significant case.

The FTC in January 1994 confirmed that it had reached a settlement with Nu Skin, which agreed to pay $1.2 million without admitting any wrongdoing. The FTC had alleged that the Provo firm had made false statements about three of its products and also had exaggerated earnings claims without telling prospective distributors that very few actually made large incomes.

Meanwhile, Nu Skin in 1992 introduced a new line of products called Interior Design Nutritionals or just IDN. Eventually the firm offered over 50 IDN products of four types: general nutrition, sports nutrition, botanicals, and weight management.

Success and Frustrations in Asia

Nu Skin commenced its Asian operations in Hong Kong in September 1991. Operating from this base through the subsidiary Nu Skin Hong Kong, several leading distributors through their downlines eventually entered other Asian markets. In February 1995 Nu Skin Hong Kong began operating in Macau.

January 1992 marked Nu Skin Taiwan's opening date. About two million individuals or ten percent of the total population of Taiwan were estimated to be involved in some form of direct marketing, mostly of nutritional products. Because of so much participation, the government strictly regulated this new form of business. Nu Skin Taiwan believed that in 1997 it was the largest direct marketing firm in that nation. Revenue growth there increased an average of 41 percent annually through 1997.

Nu Skin Japan commenced operations in April 1993 and quickly became the major success story for Nu Skin in Asia. In 1992 some $30 billion worth of goods and services were sold by direct sales in Japan, making it the world's largest direct sales market with about twice the amount sold in the United States.

Not surprisingly, in the early 1990s several other MLM firms also entered the Japanese market. For example, over one million Amway distributors in Japan recorded $1 billion sales in 1992, and the local company Pola Cosmetics sold twice that amount in 1992. Avon and Mary Kay Cosmetics also operated in Japan.

Because of the success of other MLM companies in Japan, Business Week on May 31, 1993 wisely included an article on Nu Skin's entry into that market. "Japan will be Nu Skin's biggest market," predicted retired baseball player Leron Lee, a major Nu Skin distributor in Tokyo. Statistics from the Nu Skin 1997 annual report (i.e., 297,000 active distributors generating revenue of nearly $600 million) proved Lee right.

What accounted for the success of MLM in Japan? Part of the answer involved close social networks already in place. "Organizations from college clubs to tea ceremony schools provide ready-made distribution frameworks," said the author of the Business Week article. Another likely reason was that many Japanese consumers preferred high-priced, high-quality products, unlike many Americans who always seemed to be shopping for a bargain.

Products

Nu Skin in 1998 offered a wide diversity of products for consumer use. Its facial care items included cleansing bars and various lotions, muds, moisturizers, face lift formulas, and IdealEyes creme to reduce dark circles and wrinkles around the eyes. For body care, Nu Skin sold bar and liquid soaps, deodorants, moisturizers and lotions, and Sunright sunscreens, lip balm, and sunless skin tanning lotion. The HairFitness line covered shampoos, styling gel, mousse, and hair conditioners. The company's AP-24 oral care products featured floss, breath spray, mouthwash, a toothbrush, and two kinds of toothpaste. Nu Skin also sold Nutriol products, described in a product brochure as "Advanced Care from Europe": nail liquid, mascara, eyelash formula, shampoo, and hair conditioner. The firm's Nu Colour Cosmetics included mascaras, blushes, lipsticks, eye liners, and finishing powder. For the exercise crowd, Nu Skin offered five trademarked ProSync products: hair and body shampoo, antibacterial deodorant bar, antiperspirant and antideodorant, muscle rub, and a face and body lotion. Nu Skin also sold the Believe line of fragrances inspired by model Christie Brinkley, the company's spokesperson. For children, it distributed specially designed gentle skin and hair products, sunscreen, toothpaste, and floss under the Jungamals brand name.

Nu Skin developed its trademarked Epoch line with plant ingredients acquired from native cultures. From the Polynesians, Nu Skin gained an extract of the ava puhi plant used for its Epoch shampoo/hair conditioner. Generations of Polynesians also used two other indigenous plants (Cordyline terminalis and Orbignya phalenata) for moisturizing and soothing skin; Nu Skin incorporated them in its Firewalker Moisturizing Foot Cream. Other Epoch products featured botanical ingredients originally from several American Indian and Mayan cultures.

From native Haiti plant experts, Nu Skin acquired knowledge of the botanical Citrus aurantium that it included as a key ingredient in its Epoch deodorant. As part of its Force for Good Campaign, Nu Skin donated 25 cents from the purchase of every Epoch product to help indigenous peoples protect their habitats and traditional cultures.

Developments in the Late 1990s

Nu Skin Asia Pacific, Inc. (NSAP) was incorporated under Delaware laws on September 4, 1996 as the exclusive distribution unit for Nu Skin International products sold in Asia. On November 20, 1996 a corporate reorganization resulted in Nu Skin Japan, Nu Skin Taiwan, Nu Skin Hong Kong, Nu Skin Korea, and Nu Skin Personal Care (Thailand) becoming wholly owned subsidiaries of Nu Skin Asia Pacific. NSAP's initial public offering (IPO) of 4.75 million shares of Class A common stock was completed on November 27, 1996, resulting in net proceeds of $98.8 million. Nu Skin Asia Pacific, renamed Nu Skin Enterprises, Inc., on March 27, 1998 completed its acquisition of Nu Skin International and its affiliated companies in Europe, South America, New Zealand, and Australia.

In the late 1990s, Nu Skin began operations in the Philippines and started a new compensation plan and the new Scion product line, both designed for use in low per capita income nations. In 1998 the firm also started in Poland and Brazil.

In October 1998 Nu Skin Enterprises completed its acquisition of Generation Health Holdings, Inc., the private parent company of Pharmanex, Inc. Founded in 1994, Pharmanex researched and produced a line of 38 natural health supplements, including five proprietary formulas. From its base in Simi Valley, California, Pharmanex ran several research and production facilities, primarily in the People's Republic of China but also in Chile. The company employed about 40 scientists and collaborated with UCLA, Scripps Institute, Columbia University, and Beijing University on various projects.

Just one month after the Nu Skin acquisition, Pharmanex announced on November 18, 1998 it was removing all its products from some 30,000 mass retail stores so that it could rely completely on Nu Skin's network marketing methods. "Pharmanex's move is calculated to take advantage of the growth in direct sales in the United States," said Pharmanex President Bill McGlashan in a press release. "We have confidence in Nu Skin's distributor force .... As successful as we have been in securing coveted retail shelf space, direct selling represents a more attractive way to differentiate the benefits and unique attributes of Pharmanex products--an education that cannot be communicated adequately in the mass retail setting." Pharmanex products continued to be available from the firm's catalog, a toll-free telephone line, its Internet store, health food stores, and independent pharmacies across the nation.

Nu Skin in 1999 continued under the leadership of Blake Roney and at least two others who helped start the company in 1984. Roney was president and CEO of Nu Skin International (NSI) until May 1998 and board chairman of Nu Skin Asia Pacific from November 1996 to May 1998, when he became Nu Skin Enterprises' board chairman.

Steven J. Lund, a graduate of BYU Law School, practiced law before helping Roney found Nu Skin. He served as NSI vice-president from 1984 to 1996, when he became president/CEO of Nu Skin Asia Pacific. In May 1998 he was chosen as the president/CEO of Nu Skin Enterprises.

Sandie N. Tillotson, a third founder, also graduated from BYU, as did almost all Nu Skin officers and directors. She helped develop the original products and create the multilevel marketing system. In 1993 Working Woman magazine named Tillotson one of the nation's top ten female business owners. She served as NSI vice-president from 1984 to May 1998, when she became a senior vice-president of Nu Skin Enterprises.

Nu Skin's finances continued to improve in the late 1990s. Its revenues grew from $358.6 million in 1995 to $678.6 million in 1996 and $890.5 million in 1997. Net income also rose steadily, from $40.2 million in 1995 to $81.7 million in 1996 and $93.6 million in 1997.

Nu Skin's expansion illustrated the growing popularity of direct sales among more and more consumers. In 1997 direct sales, which were largely one-on-one transactions, totaled $22 billion in the United States and over $80 billion worldwide, a doubling of sales in a decade.

It was also part of a major trend of more individuals working from their home. A 1997 Telecommute America survey estimated that about 11 million Americans used their computers and telecommunications devices to telecommute to work, instead of driving to work. In addition, the 1990 U.S. Census found that 54 percent of home workers were self-employed, compared to just 5.5 percent of workers outside the home who were self-employed. Network marketers like those in Nu Skin thus played a significant part in this dramatic economic shift from the factory and office to the home.

Nu Skin also demonstrated the important role that the state of Utah has played in the expanding network marketing field and the natural products industry. Several other herbal or natural products companies that used MLM started in or moved to Utah, including Nature's Sunshine Products, USANA, and the Sunrider Corporation. Many of these firms supported the Utah Natural Products Alliance, a Salt Lake City-based trade industry association.

Nu Skin's future looked bright in 1999. With an increasing number of high-quality products and good leadership, it continued to attract more distributors, many with high levels of education and successful careers in other fields. However, it faced plenty of tough competitors, including Amway and several other corporations involved in multilevel marketing of personal care and nutritional products.

Principal Subsidiaries: Nu Skin International; Nu Skin International Management Group; Nu Skin Canada; Nu Skin Puerto Rico; Nu Skin Guatemala; Nu Skin Mexico; Nu Skin USA; Nu Skin Hong Kong; Nu Skin Japan; Nu Skin Taiwan; Nu Skin Korea; Nu Skin Thailand; Nu Skin Philippines; Nu Skin Personal Care Australia; Nu Skin New Zealand; Nu Skin Europe; Cedar Meadows; Nu Skin U.K.; Nu Skin Belgium; Nu Skin Germany; Nu Skin France; Nu Skin Italy; Nu Skin Netherlands; Nu Skin Spain; Nu Skin Brazil; Nu Skin Argentina; Nu Skin Chile; Nu Skin Poland.

Nu Skin Enterprises, Inc. History

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