Nu Skin Enterprises, Inc. Business Information, Profile, and History

Company Perspectives:

Nu Skin Enterprises' mission is to act as a force for good throughout the world by empowering people to improve lives with rewarding busin ess opportunities, innovative products, and an enriching, uplifting c ulture.

History of Nu Skin Enterprises, Inc.

Nu Skin Enterprises, Inc., is one of the world's largest direct selli ng or multilevel marketing (MLM) firms. In 41 nations, more than 820, 000 independent distributors buy Nu Skin products for their own use, sell them at retail prices, and recruit others to become distributors as well. The company offers more than 200 skin, hair, cosmetic, oral care, general nutritional, sports nutritional, weight management, an d botanical products. It also offers Internet services and various co mmunication products through its Big Planet division. Nu Skin opened retail locations in China in 2003.

Origins and Early Expansion

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

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

Initially the company met in the apartment of Nedra Roney. After seve ral rejections, it finally found an Arizona company to make its first skin and hair products, which were sent to Nedra's place. Then the f ounders spooned their products from ten-gallon containers into jars o r 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 c hoose new computer systems so that commission checks could be mailed on time and other company functions could operate efficiently. Other serious problems, however, waited around the corner.

Legal Challenges Beginning in 1991

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 ot her states (Ohio, Pennsylvania, Illinois, and Florida) also investiga ted the rapidly growing firm that by 1991 claimed more than 100,000 d istributors 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 streng then its buy-back policy by offering its distributors a 90 percent re fund on any unused products and sales aids, without any limit since t he time of purchase. The Direct Selling Association, which Nu Skin jo ined, recommended a 90 percent buy-back policy to prevent building up too much inventory. Georgia, Maryland, Louisiana, Wyoming, and Massa chusetts 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 36;25,000 for its investigative expenses. Nu Skin spokesman Jason Cha ffetz said in the December 28, 1991, Provo Daily Herald that h is company was encouraged by the settlement after what he said was "t he longest, hardest look at us."

Meanwhile, the Food and Drug Administration (FDA) investigated Nu Ski n to make sure its products were safe and clearly labeled without mak ing any illegal healing claims. It should be noted that no federal la ws had been passed covering multilevel marketing. Rules and regulatio ns of the FDA and Federal Trade Commission (FTC) applied, but most go vernment oversight came from state laws. The FTC's senior attorney sa id in the November 1991 issue of Kiplinger's that most states considered MLM as an illegal pyramid "when the money is coming in fro m 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 e xample, it opened its new $8 million warehouse/distribution cente r in Provo's East Bay. Without going into debt, Nu Skin built a 200,0 00-square-foot center to consolidate its nine previous Utah County wa rehouses. The company also built a recreation facility, basketball an d 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 i ncluded fiber optics and computers to administer a growing internatio nal network of distributors and a visitors' center and theater.

In the early 1990s Nu Skin faced allegations of sex discrimination fr om 28 former and current female employees. In one lawsuit filed Decem ber 29, 1992, in U.S. District Court in Salt Lake City, six former em ployees charged that Nu Skin denied them advancement opportunities an d equal benefits and paid men more for comparable work. Judge David W inder on August 6, 1993, denied the women's effort to make this a cla ss 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 work force was women, this was a very signifi cant case.

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

Meanwhile, Nu Skin in 1992 introduced a new line of products called I nterior Design Nutritionals, or IDN. Eventually the firm offered more than 50 IDN products of four types: general nutrition, sports nutrit ion, botanicals, and weight management.

Success and Frustrations in Asia in the Early to Middle 1990s

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 enter ed other Asian markets. In February 1995 Nu Skin Hong Kong began oper ating in Macau.

January 1992 marked Nu Skin Taiwan's opening date. About two million individuals or 10 percent of the total population of Taiwan were esti mated to be involved in some form of direct marketing, mostly of nutr itional products. Because of so much participation, the government st rictly regulated this new form of business. Nu Skin Taiwan believed t hat in 1997 it was the largest direct marketing firm in that nation. Revenue growth there increased an average of 41 percent annually thro ugh 1997.

Nu Skin Japan commenced operations in April 1993 and quickly became t he major success story for Nu Skin in Asia. In 1992 some $30 bill ion worth of goods and services were sold by direct sales in Japan, m aking it the world's largest direct sales market, with about twice th e amount sold in the United States.

Not surprisingly, in the early 1990s several other MLM firms also ent ered the Japanese market. For example, more than one million Amway di stributors in Japan recorded $1 billion sales in 1992, and the lo cal company Pola Cosmetics sold twice that amount in 1992. Avon and M ary Kay Cosmetics also operated in Japan.

Because of the success of other MLM companies in Japan, Business W eek on May 31, 1993, wisely included an article on Nu Skin's entr y into that market. "Japan will be Nu Skin's biggest market," predict ed 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) pr oved Lee right.

What accounted for the success of MLM in Japan? Part of the answer in volved close social networks already in place. "Organizations from co llege clubs to tea ceremony schools provide ready-made distribution f rameworks," said the author of the Business Week article. Anot her likely reason was that many Japanese consumers preferred high-pri ced, high-quality products, unlike many Americans who always seemed t o be shopping for a bargain.

Products in the Late 1990s

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 so ld bar and liquid soaps, deodorants, moisturizers and lotions, and Su nright sunscreens, lip balm, and sunless skin tanning lotion. The Hai rFitness line covered shampoos, styling gel, mousse, and hair conditi oners. 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 "Advan ced Care from Europe," including nail liquid, mascara, eyelash formul a, shampoo, and hair conditioner. The firm's Nu Colour Cosmetics incl uded mascaras, blushes, lipsticks, eye liners, and finishing powder. For the exercise crowd, Nu Skin offered five trademarked ProSync prod ucts: hair and body shampoo, antibacterial deodorant bar, antiperspir ant and antideodorant, muscle rub, and a face and body lotion. Nu Ski n also sold the Believe line of fragrances inspired by model Christie Brinkley, the company's spokesperson. For children, it distributed s pecially designed gentle skin and hair products, sunscreen, toothpast e, and floss under the Jungamals brand name.

Nu Skin developed its trademarked Epoch line with plant ingredients a cquired from native cultures. From the Polynesians, Nu Skin gained an extract of the ava puhi plant used for its Epoch shampoo/hair condit ioner. Generations of Polynesians also used two other indigenous plan ts (Cordyline terminalis and Orbignya phalenata) for moisturizing and soothing skin; Nu Skin incorporated them in its Firewalker Moisturiz ing Foot Cream. Other Epoch products featured botanical ingredients o riginally from several American Indian and Mayan cultures.

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

Further Developments in the Late 1990s

Nu Skin Asia Pacific, Inc. (NSAP) was incorporated under Delaware law s on September 4, 1996, as the exclusive distribution unit for Nu Ski n International products sold in Asia. On November 20, 1996 a corpora te reorganization resulted in Nu Skin Japan, Nu Skin Taiwan, Nu Skin Hong Kong, Nu Skin Korea, and Nu Skin Personal Care (Thailand) becomi ng 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 Internatio nal and its affiliated companies in Europe, South America, New Zealan d, and Australia. Nu Skin USA was acquired in 1999.

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

In October 1998 Nu Skin Enterprises completed its acquisition of Gene ration Health Holdings, Inc., the private parent company of Pharmanex , Inc. Founded in 1994, Pharmanex researched and produced a line of 3 8 natural health supplements, including five proprietary formulas. Fr om its base in Simi Valley, California, Pharmanex ran several researc h and production facilities, primarily in the People's Republic of Ch ina but also in Chile. The company employed about 40 scientists and c ollaborated with UCLA, Scripps Institute, Columbia University, and Be ijing University on various projects.

Just one month after the Nu Skin acquisition, Pharmanex announced on November 18, 1998, that 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 a dvantage of the growth in direct sales in the United States," said Ph armanex President Bill McGlashan in a press release. "We have confide nce 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 attribut es of Pharmanex products--an education that cannot be communicated ad equately in the mass retail setting." Pharmanex products continued to be available from the firm's catalog, a toll-free telephone line, it s Internet store, health food stores, and independent pharmacies acro ss 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 pres ident and CEO of Nu Skin International (NSI) until May 1998 and board chairman of Nu Skin Asia Pacific from November 1996 to May 1998, whe n he became Nu Skin Enterprises' board chairman.

Steven J. Lund, a graduate of BYU Law School, practiced law before he lping 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 or iginal 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 198 4 to May 1998, when she became a senior vice-president of Nu Skin Ent erprises.

Nu Skin's finances continued to improve in the late 1990s. Its revenu es 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 sale s among more and more consumers. In 1997 direct sales, which were mos tly one-on-one transactions, totaled $22 billion in the United St ates and more than $80 billion worldwide, a doubling of sales in a decade.

It was also part of a major trend of more individuals working from th eir home. A 1997 Telecommute America survey estimated that about 11 m illion 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-empl oyed, compared with just 5.5 percent of workers outside the home who were self-employed. Network marketers like those in Nu Skin thus play ed a significant part in this dramatic economic shift from the factor y and office to the home.

Nu Skin also demonstrated the important role that the state of Utah p layed in the expanding network marketing field and the natural produc ts industry. Several other herbal or natural products companies that used MLM started in or moved to Utah, including Nature's Sunshine Pro ducts, Inc., USANA Inc., 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 mo re distributors, many with high levels of education and successful ca reers in other fields. It faced plenty of tough competitors, however, including Amway and several other corporations involved in multileve l marketing of personal care and nutritional products.

In order to remain a step ahead of the competition, Nu Skin expanded its holdings in August 1999 with the $37 million purchase of Big Planet Inc., an Internet services company. The Republican National Co mmittee selected Big Planet as its Internet Service Provider for its GOPNET.com web site in 1999.

Nu Skin in the New Millennium

Nu Skin remained focused on growth as it entered the new millennium. While its international business was booming, its U.S. operations wer e stagnating. The company attempted to bolster this region's sales by developing new nutrition products and by launching new distributor c ompensation initiatives. Nu Skin purchased First Harvest Internationa l and its Nourish the World network marketing program in 2002. The de al gave the company rights to sell the dehydrated food product Vitame als and also afforded Nu Skin the opportunity to distribute the produ ct to malnourished children across the globe.

The company made significant expansion efforts in China during 2003 b y opening more than 100 retail outlets in January alone. Chinese laws prevented Nu Skin from implementing its direct selling model but man agement eyed the retail stores as lucrative inroads to the Chinese ma rket, which was expected to be one of the top direct selling markets in the world within the next five years. In order to reach its goal o f $500 million in Chinese revenues by 2008, Nu Skin planned to de velop its distributor leadership even further, introduce its Pharmane x products to the market, and continue expansion throughout China.

Nu Skin celebrated its 20th anniversary in 2004. The company had come a long way from its humble beginnings in Nedra Roney's apartment. In fact, sales surpassed $1 billion that year. Nu Skin attributed m uch of its success to its new product, the Pharmanex BioPhotonic Scan ner. In a published press release the company described the scanner a s, "the first to use innovative laser technology to non-invasively me asure the concentration of carotenoid antioxidants in the body's tiss ue; antioxidants protect the body at the cellular level against the e ffects of aging and the environment." The scanner could provide a sco re that measured a person's diet and nutritional health. By June 2005 , there were more than 4,000 scanners in operation across the globe a nd more than two million people had been scanned.

During 2004, the company focused on strengthening its operations in L atin America and Eastern Europe. The firm planned on future expansion into Russia and Indonesia. With sales and net income on the rise, Nu Skin Enterprises appeared to be well positioned for growth in the ye ars to come. Indeed, management was confident that the next 20 years would bring even more success its way.

Principal Subsidiaries: Nu Skin International, Inc.; Nu Family Benefits Insurance Brokerage, Inc.; Nu Skin Asia Investment, Inc.; N u Skin Enterprises Australia, Inc.; Nu Skin Belgium, N.V. (Belgium); Big Planet, Inc.; Nu Skin Brazil, Ltda. (Brazil); Nu Skin Canada, Inc .; Nu Skin Enterprises Singapore Pte. Ltd. (Singapore); Nu Skin Europ e, Inc.; First Harvest International L.L.C.; Nu Skin France, S.A.R.L. (France); Nu Skin Germany, GmbH (Germany); Nu Skin Guatemala, S.A. ( Guatemala); Nu Skin Enterprises Hong Kong, Inc.; Nu Skin Internationa l Management Group, Inc.; Nu Skin Italy, S.r.l. (Itlay); Nu Skin Japa n Company Limited (Japan); Nu Skin Japan, Ltd. (Japan); NSE Korea, Lt d.; NSE Korea, Ltd. (Korea); Nu Skin Malaysia Holdings Sdn. Bhd. (Mal aysia); Nu Skin Mexico, S.A. de C.V. (Mexico); Nu Skin Netherlands, B .V. (Netherlands); Nu Skin Enterprises New Zealand, Inc.; Niksun Acqu isition Corporation; Pharmanex, L.L.C.; Nutriscan, Inc.; Pharmanex (H uzhou) Health Products, Co., Ltd. (China); Nu Skin Enterprises Philip pines, Inc.; Nu Skin Enterprises Poland Sp. z.o.o. (Poland); Nu Skin Poland Sp. z.o.o. (Poland); Nu Skin Scandinavia A.S. (Denmark); Nu Sk in (China) Daily-Use and Health Products Co., Ltd. (China); Nu Skin S pain, S.L. (Spain); Nu Skin Taiwan, Inc.; Nu Skin Enterprises (Thaila nd), Ltd.; Nu Skin Personal Care (Thailand), Ltd. (Thailand); Nu Skin U.K., Ltd. (United Kingdom); Nu Skin Enterprises United States, Inc. ; Zhejiang Cinogen Pharmaceutical Co., Ltd. (China); Nu Skin Israel, Inc.; Nu Skin Pharmanex (B) Sdn. Bhd. (Brunei); Pharmanex Electronic- Optical Technology (Shanghai) Co., Ltd. (China); Nu Skin Enterprises, RS, Ltd. (Russia); PT Nu Skin Distribution Indonesia (Indonesia).

Principal Divisions: Nu Skin; Pharmanex; Big Planet.

Principal Competitors: AMS Health Sciences Inc.; Amway Corpora tion; Herbalife International Inc.

Chronology

• Key Dates:
• 1984: Nu Skin International is established.
• 1991: Several states launch an investigation into the company; Asian operations begin.
• 1992: Construction is completed on the ten-story Nu Skin Tower in Provo, Utah.
• 1993: Nu Skin Japan is launched.
• 1996: Nu Skin Asia Pacific, Inc. (NSAP) is incorporated under Delaware laws and launches an initial public offering.
• 1998: NSAP is renamed Nu Skin Enterprises Inc.; Generation Hea lth Holdings, Inc. is acquired.
• 1999: Big Planet Inc. is purchased.
• 2003: The company expands into China.