The Direct Selling Association Responds to Questions about the Purchase of Products by Direct Salespeople

  The Direct Selling Association Responds to Questions about the Purchase of
  Products by Direct Salespeople

Business Wire

WASHINGTON -- May 09, 2012

As the association representing more than 200 leading firms that manufacture
and distribute goods and services sold directly to consumers, the Direct
Selling Association (DSA) would like to set the record straight in response to
questions raised about the direct selling business.

Unfortunately, even though these questions have been asked and answered many
times by the direct selling industry over the years, stock prices of Herbalife
and other publicly traded direct selling companies fell as a result of
inquiries by hedge fund manager David Einhorn.

First and foremost, the direct selling business model is solid and strong.
After falling slightly in the wake of the Great Recession, total industry
sales grew nearly one percent in 2010 and are expected to show even stronger
gains when 2011 numbers are announced in early June. Most publicly traded
companies reported strong earnings and income in 2011.

Nearly 16 million Americans engaged in direct selling in 2011, some as
full-time entrepreneurs seeking to build a business and some as part-time
representatives hoping to earn a little extra money. Others sign up as
representatives simply to purchase products or services for their own use at a
discount and never sell to anyone else. Regardless of their income
expectations, almost all direct sellers use the products themselves. This is
what is known as “internal consumption.”

As the Federal Trade Commission (FTC) stated in a January 2004 Staff Advisory
Opinion, internal consumption is not considered to indicate impropriety.
Instead, “the critical question for the FTC is whether the revenues that
primarily support the commissions paid to all participants are generated from
purchases of goods and services that are not simply incidental to the purchase
of the right to participate in a money-making venture.”

In short, what the FTC watches for – and what the DSA Code of Ethics is
designed to protect against – are compensation systems that are funded
primarily or exclusively by payments made for the right to recruit other
participants. Compensation must primarily be based on the sale of products and
services to the ultimate consumer – whether or not that consumer is also a
seller of the products.

Unfortunately, direct sellers have been targeted in the past by short sellers
who have deliberately injected inaccurate information or rumors into the
marketplace with the goal of driving down stock prices for financial gain. In
the end, it is the millions of hardworking American direct sellers who suffer
the results of these attacks while the perpetrators walk away with millions in
profit.

DSA exists to protect and promote the direct selling industry by educating
policymakers, the business community and the general public about the nature
of the industry and how it works; and ensuring DSA member companies behave
ethically in all aspects of their businesses through enforcement of the DSA
Code of Ethics.

The direct selling business model has been thriving for more than 100 years.
We encourage anyone who wants to learn more about this quintessential American
industry to visit our websites at www.dsa.org or www.directselling411.com, or
contact us by phone at (202) 452-8866.

Contact:

Direct Selling Association
Amy Robinson, 202-452-8866
arobinson@dsa.org