11.27.12

Will Blyth Investors Suffer Powder Burn?

Blyth, a publicly held direct-sales company, relies for its growth on ViSalus, a rapidly growing division that peddles powder for weight-loss shakes. An investigation suggests the numbers may not add up.

Editor’s note: This is an excerpt from the first investigative piece from The Southern Investigative Reporting Foundation (SIRF), a nonprofit that has applied to the Internal Revenue Service for tax-exempt status. The organization’s goal is to use publicly available documents to uncover and extensively report on issues and developments that many investors, without access to expensive forensic and in-depth research services, often miss. SIRF was founded in the summer of 2012 by Roddy Boyd, a veteran reporter and author of Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide.

Boyd’s lengthy story on Blyth Inc., a publicly traded company that earns most of its revenues from weight-loss shake powder peddled by a massive sales force, is the product of nearly three months of reporting, editing, and legal vetting. The full article may be found at www.sirf-online.org, or by clicking on this link. The reporting was drawn from, among other sources, publicly available corporate, federal, and consumer-advisory documents, as well as several on-the-record interviews. More than a dozen attempts were made to secure a comment from Blyth’s executives and its lawyers—without success.

A company called ViSalus is the fastest-growing company of its size in the United States, largely because of its remarkably charismatic management team, as this video amply demonstrates. In the clip, an 18,000-seat arena in Miami is full of people on their feet, pumping fists, clapping, waving, even dancing. Incredibly, all this enthusiasm is for a company whose major product is powder for a weight-loss shake.

ViSalus is a multilevel marketing company, promising ordinary folks a shot at financial success based solely on their skill at building a sales group that essentially draws on personal social circles. A distributor must recruit customers (usually starting with friends, neighbors, relatives), who are asked to enroll still others as customers, who are then encouraged to bring in more new members to the sales group.

ViSalus’ corporate parent is Blyth, a New York Stock Exchange–traded marketing and catalog company based in Greenwich, Conn. Blyth owns most of ViSalus and has come to depend on the subsidiary’s rapid growth to sustain it. That’s a very big risk for Blyth’s investors. Blyth’s core business of retailing home accents like candles and potpourri through a network of sales consultants is rapidly declining. Without the revenue growth from ViSalus, there’s little reason to own Blyth’s shares. Should ViSalus’ fortunes fall to Earth, Blyth will undoubtedly suffer.

ViSalus is selling an opportunity to participate in a form of direct marketing in which the ability to prosper depends on the ability of individuals to recruit other sellers. Such plans often lead people to frantic efforts to build their own sales networks to move up the ladder and capture bigger commissions. Voluminous research has documented the astronomical failure and dropout rates of participants in dozens of multilevel marketing companies. SIRF’s analysis shows that the average ViSalus distributor is netting under $400 pre-tax for his or her likely considerable efforts. Many of the people hollering and clapping at ViSalus’ confab are going to wind up disappointed.

ViSalus promoters may not be the only ones who don’t reap high returns. Blyth, which owns most of ViSalus, is on the horns of a dilemma. It has committed to buy the nearly 28 percent of ViSalus it doesn’t own. But it can’t afford the price tag of more than $200 million. While it has until 2014 to conclude the deal, Blyth’s non-ViSalus businesses are bringing in less revenues and sucking up precious cash. Moody’s Investors Service, for one, is plenty concerned about where things are headed.

For Blyth, the most obvious solution to this problem was to spin off ViSalus to the public via an initial public offering. It filed papers this summer but its grand plans were cancelled just a few weeks later, after the proposed deal’s prospectus was filed.

Whatever ViSalus promises about opportunity at its glitzy sales meetings, it may well be ringing hollow to a massive number of people who try to peddle its powder.

Running away is understandable when investors saw what ViSalus disclosed in its prospectus. The Southern Investigative Reporting Foundation analyzed the company’s filings and concluded that in 2011, churn—or the amount of promoter turnover—was 194.2 percent. For the first half of 2012 it was 197.1 percent. Whatever ViSalus promises about opportunity at its glitzy sales meetings, it may well be ringing hollow to a massive number of people who try to peddle its powder.

With churn like that, ViSalus’ business model—and the reality of Blyth’s lifeline—is laid out clearly: as long as growing numbers of customers agree to try to sign up and distribute the pricey shake powder (PDF), revenues will grow. But as Blyth’s third-quarter report shows in excruciating detail, sales and promoter growth is slowing.

For the full report, please see the story at www.sirf-online.org.

SIRF has been funded, before tax-exempt status has been granted, by several individual investors concerned over the decline of financial investigative reporting. None of them have any economic exposure to Blyth nor prior knowledge of our investigation; no one interviewed or spoken to during the investigation is a donor to SIRF. Neither SIRF nor its employees has investments in any company, long or short, that it writes about.