Unbridled Growth

For five years, Herbalife International's health and diet pitch has made it one of the fastest-growing companies in American history. Now a series of investigations has challenged everything from the products it sells to the way it sells them.

Tweet

Mark Hughes gives no impression of a prophet under siege -- not, at least, until the very end of the Atlanta rally. Herbalife International, the company he founded in 1979, was named defendant in a legal action brought by the state of California in March. Hughes himself was denounced as a "snake oil" salesman by a United States senator in May. But the 29-year-old entrepreneur is beaming with confidence as he steps into the spotlight at the back of the auditorium to begin the show this past spring.

The evening has been choreographed with care. Displays of the full Herbalife product line stand on stage, towering up toward the lights: soups and shampoos, powders and pills, herbal nostrums to beat cellulite bulge or scrub the intestinal tract, to relieve arthritis or help with irregular menstrual cycles. The auditorium is filled with the Herbalife elite, men in tuxedos or Sunday-best suits, women in billowing chiffon and polyester. Most wear buttons on their chests. "Lose weight now," the buttons read. "Ask me how."

Hughes stands still for a moment, stretching his entrance, a tanned and blow-dried California swashbuckler resplendent in black tie and diamonds, brown eyes flashing over a perfect, polished smile. Then he begins working his way through the throng, cheers from the assembled crowd washing over him. People on the aisle reach out to hug him, to shake his hand or touch the hem of his pin-striped, midnight-black tuxedo.

The rally is Herbalife's core, a sales tool and reward alike. Edited down to an hour, it will be broadcast coast-to-coast over USA Cable Network and by scores of stations all over the country. Tonight, it brings the distributors together to clap their hands and stamp their feet, to whistle and cheer at the testimony of the ordinary men and women who have found health and wealth by following the Herbalife path. One by one, the most successful are paraded on to center stage. A Georgia man who lost 68 pounds is followed by his wife, claiming 70 pounds "and half my body fat" gone. A Florida golden-ager wows the crowd -- 101 pounds in just eight months! -- only to be topped by a 270-pound urban cowboy, sobbing in his dark blue Western-style suit and boasting a loss of 228 pounds in only seven months.

But the best of the faithful not only use the product, they sell it as well, and the crowd cheers loudest for the couples whose stories combine pounds lost with fortunes found.

"I lost 50 pounds and Jim lost 32," one wife reports, smiling up at her husband. "I'll net Jim tell you the money part of it, because he's got it down to the penny."

"It's easy to figure out," Jim says, "because the most success I ever had was selling mattresses in retail stores . . . and the most I ever made was take-home $1,000 a month." Then he discovered Herbalife, and now he and his wife work together in their own distributorship. "In the first quarter of this year, we've already made over half a million dollars! This year!"

That is the kind of testimonial that brings the crowd to its feet. Writ large, it is the kind of experience that has turned Herbalife into the fastest-growing private company in America, #1 on the 1985 INC. 500. Hughes started in 1979, with space in a Beverly Hills, Calif., warehouse; he sold his diet powders from the trunk of his car. Within five years he had moved to the top of a 14-story corporate headquarters, the Los Angeles nerve center for a direct-marketing empire of nearly 700,000 independent distributors in four countries. Sales have climbed, in five years, from $386,000 to $423 million, an increase of more than 100,000%, by far the highest growth rate in the history of the INC. 500 listings.

Of late, however, Hughes and the Herbalife faithful have had very little to cheer about. They are no strangers to controversy: The company has been embroiled in widely publicized disputes with the Food & Drug Administration since 1982. But in 1985 the issue became corporate survival. In March a complaint filed by the California attorney general and the state Department of Health Services charged Herbalife and Hughes with making "untrue or misleading" product claims and with operating an "endless chain marketing scheme." Inspired by "90 complaints of alleged illnesses . . . 32 reports alleging fraud . . . and four reported deaths of persons using Herbalife," the Permanent Subcommittee on Investigations of the U.S. Senate's Committee on Governmental Affairs called hearings in May. Since then, week after week, Herbalife has been slammed in the press: in The New York Times, People magazine, and local newspapers across the country. Sales are down. So are applications for distributorships.

Hughes will get to the allegations -- the "stories," he calls them -- at tonight's rally. But that's not where he wants to begin. Instead he wants to tell the crowd how he started Herbalife. It was "certainly much more than just a business or an opportunity for making money," he explains. It began -- as most of the crowd knows well by now -- with the death of his mother.

 1 | 2 | 3 | 4 | 5  NEXT