[August 07, 2006]

Nu Skin wins key concession in China

(Salt Lake Tribune, The (KRT) Via Thomson Dialog NewsEdge) Aug. 5--Utah's Nu Skin Enterprises plans to begin selling its line of personal-care and nutritional products door-to-door in China by November after becoming one of only two U.S. companies allowed to engage in direct selling in that country.

For years, China has prohibited companies from selling products through direct-sales programs. To tap the vast Chinese market, direct-selling companies have had to open stores in the country instead of relying on a network of independent sales representatives. Provo-based Nu Skin, which entered the Chinese market in 2003, has 160 stores in mainland China.

But in February, China officially lifted the ban on direct sales by giving Avon approval to begin recruiting Chinese sales associates. Since then, the U.S. cosmetics maker said it has recruited more than 100,000 salespeople in China.

Nu Skin, which received its approval this week, said Friday it is wasting no time hiring a team of associates and is confident it can quickly erase Avon's five-month head start.

"Avon got off to a very strong start," said Nu Skin chief executive Truman Hunt. "But I think China is such an enormous marketplace that their head start won't be all that meaningful in the long run."

Analysts say the approval to commence direct selling in China is good news for Nu Skin, which has struggled with a lackluster financial performance.

"This is a significant achievement for the firm, which had been working for some time to secure approval in the face of regulatory confusion and delay," Morningstar stock analyst Lauren DeSanto said in a report this week.

Brett Heimburger, Asian director for the Governor's Office of Economic Development, said Nu Skin's approval caps years of effort and sets the stage for continued sales growth in the country.

"It's great that all their efforts have paid off," he said. "Nu Skin is a good example of how to get into this market they had respect for the Chinese system, as arduous and difficult as it can be, and they had the patience to play by the rules and do things right."

He said China, with its population of 1.3 billion and growing economy, provides tremendous opportunity for many different types of companies. But it can also be difficult, time consuming and expensive to develop a market in the country.

Nu Skin and other personal-care and nutritional-supplement companies have made substantial investments in the country because of the country's growing middle class and strong appetite for health and beauty products, he said.

DeSanto of Morningstar said Nu Skin still faces a substantial challenge rolling out its direct-sales program in China because it will not be allowed to operate under the same multilevel marketing format it operates under in the United States.

In this country and elsewhere, sales associates who join multilevel marketing companies such as Nu Skin have the opportunity to increase their incomes by recruiting additional salespeople in a "downline" and getting part of their sales commissions. Avon also allows representatives a chance to increase their incomes by recruiting other associates, but to a lesser degree than Nu Skin.

In China, independent sales representatives working for either company will be limited to generating commissions mainly on their own sales.

Nu Skin's Hunt said he obviously would have preferred to offer a compensation plan in China similar to what it offers in other markets. But he said the company still can be successful in China by operating within guidelines set by the government. He said the company, which has about 4,000 salaried employees in China, will maintain its network of 160 retail stores and add new stores as required by the Chinese government.

Nu Skin also plans to add 1,000 service centers where Chinese consumers can ask questions or return products, which is another condition of the Chinese government. And it also will open a couple of dozen training centers for sales representatives.

Hunt said all the effort and expense involved in expanding in China is well worth the vast opportunity in the country.

"We have great expectations for that market," Hunt said.

NU SKIN ENTERPRISES

FOUNDED: In Provo in 1984.

WHAT IT DOES: Manufacturer and marketer of personal-care and nutritional products, including items such as lotion, shampoo, toothpaste and vitamins.

WHERE IT DOES BUSINESS: 43 countries worldwide.

ANNUAL SALES: $1.2 billion.

EMPLOYEES: About 8,500 full- and part-time workers worldwide, about half of whom are in China. The company also has about 800,000 independent sales representatives who primarily work on a part-time basis and earn only commissions.

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