Supplement Maker’s Sales Appear Up to ‘Challenges’

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When hundreds, cued by tweets and Facebook, converged on Universal CityWalk last month to do the Carlton Dance with the “Fresh Prince of Bel-Air” actor who trademarked the move, it was more than a whimsical shot at a flash mob world record.

The event, held in cities across the country, put on display the growing network of devotees to ViSalus, a Miracle Mile nutritional supplements company that promoted the event.

Never heard of Visalus? You might hear more of it.

The multilevel marketing company is growing at a feverish pace and scoring huge sales for its Vi-Shape shake mix and other supplements. More than one-third of the company’s 1 million customers are new this year.

It’s grown by putting a twist on a strategy proved successful by L.A. weight loss and nutritional supplement sales company Herbalife Ltd., which has profited from its network of independent customer distributors.

ViSalus differentiates itself with “challenge parties,” where customer distributors invite friends or family to their homes to share their 90-day personal health goals, called challenges, and to introduce them to ViSalus products. It also has made full use of new mobile computing and social media tools.

“It’s a lifestyle that has caught on,” said Blake Mallen, the company’s chief marketing officer. “The challenge marketing has really resonated.”

ViSalus was co-founded six years ago by Mallen and two other 20-somethings, including Chief Executive Ryan Blair, with interest in health and wellness but no experience running such companies.

They started by selling anti-aging supplements, but the company almost went bankrupt during the recession. Then, the company rolled out its “challenge kits” concept in 2009 and sales exploded. The kits contain a cornerstone meal replacement shake, with add-ons including vitamins; protein cookies; and other products for weight management, energy and nutrition. They are tailored to the preferences of buyers and cost from $49 to $299 a month.

ViSalus, which sells to distributors in the United States and Canada, is still a fraction of the size of Herbalife, which sells products in 81 countries. But ViSalus has reported huge growth. The company generated $96.7 million of revenue in the fourth quarter, compared with $13.3 million in the same quarter of 2010, according to the earnings report of Greenwich, Conn., parent Blyth Inc. Profits were not broken out.

The company has even hired some former Herbalife executives as it expands. An Herbalife spokesman said the company would not comment on competition.

Analyst John San Marco, who follows Herbalife for Janney Montgomery Scott in New York, said the health shake industry is expanding fast enough to make room for many competitors.

“I don’t think it’s exclusive,” San Marco said. “If the companies execute well, they will grow and there are an infinite number of outcomes where there are more than one winner.”

Typically in multilevel marketing, a distributor will purchase product at a discount and then sell it to customers or subdistributors. As distributors build their networks, they can make handsome income from sales made by others downstream. Herbalife distributors purchase products at a 25 percent to 50 percent discount from suggested retail prices.

ViSalus does not sell its product at wholesale prices to distributors. Rather, a distributor buys a kit of products to get started, which can range in price from $49 to $999, and includes samples and information to sign up for sales incentives, such as a cruise. Retail transactions are made online, either on a website or through a Facebook application. A distributor’s ID number lets ViSalus know who is responsible for the sale. The company then ships the product to the customer and sends a cut back to the distributor.

The company estimated 59,000 independent promoters were selling products as of the fourth quarter, compared with 8,000 the year before.

Danny and Miranda Linares of Wildomar are two distributors who say they have been very successful with ViSalus. They recently quit their jobs as hairdressers to sell full time. In addition to challenge parties, the couple adds customers through everyday encounters at the bank or grocery store, starting conversations and wearing T-shirts that ask, “Are you up for a challenge?”

“It’s just a matter of time until everybody’s on the challenge,” Danny Linares said.

He started drinking the shakes to lose 20 or so pounds each for their wedding and more recently has taken on subsequent challenges. His latest goal was to lose more weight and compete in a men’s physique show.

They declined to discuss their income, but estimated that they receive revenue from a chain of more than 1,000 people who use ViSalus products.

Distributors like the Linares’ have helped ViSalus’ parent dig itself out of a big hole. Blyth’s core business was direct selling of home décor, which was also hard hit by the recession.

In 2005, Blyth Chief Executive Robert Georgen first invested in ViSalus through his private-equity firm. Since 2008, he’s incrementally been buying up outstanding equity. Blyth now owns about 72.5 percent of ViSalus and has paid about $59 million in cash and stock for the stake.

But ViSalus’ success was far from a foregone conclusion. In 2009, with ViSalus near bankruptcy, Blyth’s stock was trading under $4 a share. Since then, share prices have risen fivefold and, after a reverse stock split, closed at $86.25 on April 25.

Just last month, Blyth raised its 2012 outlook, stating that ViSalus sales will boost its earnings per share by 39 percent. Due to the company’s positive outlook, Blyth estimated that buying the remaining 27.5 percent of ViSalus could cost as much as $214 million next year.

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