| Comment Number: | 522418-13110 |
| Received: | 8/7/2006 2:12:52 PM |
| Organization: | |
| Commenter: | Steven Johnson |
| State: | OH |
| Subject: | Business Opportunity Rule |
| Title: | Notice of Proposed Rulemaking |
| CFR Citation: | 16 CFR Part 437 |
| Attachment: | 522418-13110.pdf Download Adobe Reader |
Comments:
This is a rebuttal to comment 522418-00655 on the proposed business opportunity rule made by Bill and Hedy Vann Wellness Cunsulting [sic]. Multilevel marketing companies (MLMs) such as Shaklee mislead recruits with promises of unrealistic income. The attached Shaklee recruiting brochure is from comment 522418-00655. The Shaklee distributor incomes featured in that brochure are $84,240/year and $276,480/year. Shaklee is a company that reports about $500,000,000 in annual sales, but also has 700,000 distributors (http://en.wikipedia.org/wiki/Shaklee_Corporation). Therefore, Shaklee grosses only $714 per year per distributor. It is mathematically impossible for more than a fraction of one percent of distributors to be making the example five and six figure incomes from the brochure. In fact, if Shaklee's commissions were one-third of gross sales, then the average Shaklee distributor would be making less than $20/month before expenses. Shaklee's products and pyramid-sales business model are very similar to Amway/Quixtar's. Forbes Magazine has reported that the average Amway distributor netted only $780/year, but consumed $1,068/year in goods (http://mlmlaw.blogspot.com/2005/01/what-do-forbes-and-fortune-have-to-say.html). Therefore, the average Amway/Quixtar distributor lost money. Because of similarities between Shaklee and Amway/Quixtar, it's likely that Shaklee distributors are also averaging losses. But Shaklee does not report the gross or net average incomes of its distributors in any of its business opportunity advertisements. Shaklee only reports exceptional incomes of salespeople in the 99-th percentile of all distributors. Those exceptional incomes are displayed in such a way as to make them appear typical, which is misleading and unethical. Shaklee recruits should also be told how difficult it is to sell products to customers because of their high prices. For example, Shaklee charges about $50.00 for a one gallon bottle of liquid laundry soap (http://www.shaklee.com/product/81295). Shaklee's three pound box of dishwasher detergent retails for $14.95 (http://www.shaklee.com/product/00288). Similar cleaning products are available for around one-fifth of the Shaklee price in grocery and retail stores throughout the country. But when Shaklee recruits distributors it never mentions that they will face an uphill battle justifying the high prices of Shaklee products to customers. Multilevel marketing companies attract recruits with unrealistic promises of income and don't warn potential distributors about the high prices of the products they will be selling. MLMs know that most of the distributors they recruit will lose money, but never tell them that fact. When advertising a business opportunity, all multilevel marketing companies including Shaklee should be required to tell recruits their product prices and the average net (after expenses) income of all distributors. If these requirements are added to the FTC's business opportunity rule, then MLMs will have to stop their common, but misleading and unethical practice of reporting only the average gross incomes of distributors at high levels in their pyramids.