By Stacey Schultz
You might hear the story of how Nicole Lopez lost $10,000 and think, “How could she be so stupid?” But when you talk to her on the phone, you don’t get that feeling at all. Her voice is calm and kind. She knows she screwed up. It makes you feel really sad.
Lopez, twenty-nine, lives in Springville, Utah, with her husband and two children. She’s got a college education and a full-time job as a manager at a flexible-packaging manufacturing company. In 2004, when she was a sales assistant for her company, she started to really hate the grind. She missed her kids, who were home with her mother-in-law all day, and she almost never saw her husband, who was still in school and working nights. So she did that thing we’ve all done when we don’t know where else to turn for help: She went online.
She found a site that asked all the right questions and offered all the right answers. Tired of working that dead end job, need extra income or want the financial freedom to stay home with your kids or take a vacation? reads one site that Lopez pointed out is similar to the one she saw four years ago. There are a million work at home opportunities … and you need no prior experience to be successful.
All it took was a click of an icon, and a packet of information was heading her way. It was a baby step, but one that led her into a sophisticated web of lies and deception. “I wanted it so bad,” she says. “I wanted to be able to help support my family and to be able to raise my kids myself and not have someone else do it.”
When the package arrived, it contained a video that spoke to her frustrations over lack of time with her family. But she still didn’t know what kind of work she might be doing or even the name of the company. Then she got a phone call. There were three or four other people on the line.
The business was Herbalife, the callers told her, a “health and wellness” company. The people on the phone said that selling the products was easy. They said they each earned $20,000 a month. Why would they lie? And anyway, she only wanted to make $1,500 a month. She didn’t need all that much. The products were healthy, they said, good for people. Why wouldn’t she want to do it?
Yes, why not? Lopez thought.
Then they told her that if she really wanted a profitable business, she would need to do more than just sell products. She’d also have to recruit others to sell, too; this would create what is known as a “downline.” The real money, they told her, is in the commissions brought in by her downline, the people she’d have below her.
Oh, and there was just one more thing. To get started, she would have to make a big inventory purchase up front. But not to worry, they said—the products practically sell themselves. She’d easily sell her inventory in the first month for twice what she paid for it. Then she’d get promoted to supervisor and could begin recruiting others.
Lopez thought she could make it work, but she wanted to talk it over with her husband, Oscar. Off the phone, she gave him the pitch. Think about it, she said, I can be home for you and the kids and I can make more money than I am now. It could be perfect! Oscar was skeptical. But the more Lopez talked, the more she became convinced she could do it. So they picked a credit card for her to use, and she plunked down more than $4,000 for her first month’s inventory. She spent an additional thousand dollars on marketing materials from the company: ten online marketing leads (essentially, people who had done as she had and clicked on the “send me more information” icon) and fifty “call me” leads (people who didn’t order the packet but agreed to have someone call them). She also paid for a company-sponsored website where the leads would be sent.
“They told me all it takes is time and effort and a willingness to learn,” she says. “They said if I had that, I’d be fine.”
Welcome to the world of multi-level marketing. Boosters of MLMs claim that their business model provides advantages that few others do. Among them: the ability to “be your own boss,” to “determine your own future,” “set your own hours,” and “work from the comfort of your own home.”
For many women with young children, the claims made by organizations like Herbalife are nearly irresistible. It’s one of the abiding truths of our time that mothers are deeply torn over their work/life balance. No wonder MLMs come across as the Holy Grail of modern mothering: a way to make money and be home for the kids.
Today’s MLM companies are well aware of their appeal to mothers, and they’re taking full advantage of it. According to the Direct Selling Association, a lobbying group for the MLM industry, more than eighty-five percent of participants in MLM companies are women. Websites like themomteam.com, for example, feature photographs of women hugging and playing with small kids surrounded by text that promises to solve financial problems—saving for college tuition or getting out of debt, for instance. But they make little mention of the actual work required.
Billion-dollar companies like Herbalife, Mary Kay Cosmetics, and Arbonne International, to name just a few, are structured on the MLM model. Most operate roughly the same way. New recruits are required, or at least strongly urged, to buy inventory up front which they sell to their friends, relatives, and acquaintances, usually via parties held in their homes, or in the homes of friends. Selling the actual products is one revenue stream, but as Lopez’s Herbalife team told her, the real money is made when you convince others to sell, too. If you’re lucky enough to find two or three people to sell through you, and if they have the skills to find others to sell for them, you could be sitting at the peak of a nice mountain of revenue. With Herbalife, for instance, Lopez says, “Every time one of your recruits sells something you receive two percent. You’re receiving money from three people below you: the person you recruit, the person they recruit, and the person that person recruits.”
A sweet setup, in theory. In reality? Not so much.
“This is a deadly business model in which you are doomed to fail,” says Robert Fitzpatrick, president of Pyramid Scheme Alert, an Internet-based watchdog group located in Charlotte, North Carolina. “There’s a ninety-nine percent loss rate”—meaning the vast majority of people who start MLM businesses end up losing money. You’d have a better chance betting your life savings on a game of blackjack in Vegas, he says, than you would putting it all into a multi-level marketing home business.
The victims of multi-level marketing often have no idea what they’re getting into. The products seem legitimate, the names are cozy, the come-ons sound pitch perfect, and the deceptions are hard to unmask. What’s more, the companies generally enjoy a good reputation in the public eye. Herbalife, for instance, sponsors multiple sports events in California to enhance its brand image and provide a forum for distributors to talk face to face with consumers.
And take Mary Kay. I used to think Mary Kay was like Jenny Craig, a nice, woman-friendly company. Then I started reading anti-MLM websites, like PinkTruth.com, run by Tracy Coenen, an ex-Mary Kay consultant who is now a certified public accountant and anti-fraud advocate. “Women lose thousands of dollars [by selling Mary Kay],” she says.
Evidence for this can be found in the astounding “churn rate,” or turnover, of Mary Kay consultants, which Coenen calculates at half a million women per year. “Are women quitting Mary Kay because it was everything they wanted and more, and because they were making money doing it?” Coenen asks in a recent blog entry about Mary Kay. “Or do they quit because they are dissatisfied and are not making money? I submit to you that the reason women quit being independent beauty consultants for Mary Kay Cosmetics is by and large because of failure in the business.”
In general, most people who join MLM companies don’t last long. Eighty percent of people who participate as consultants quit within a year, according to the companies’ tax filings, says Pyramid Scheme Alert’s Fitzpatrick, who is also the author of False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes (1997). Another twenty percent stay in longer, often with devastating consequences. “They went to the conferences, they drank the Kool-Aid, they did everything they were told to do and they never earned a thing,” he says. Instead, they lose money and lots of it.
But that’s not all. Victims of MLMs too often also lose their self-esteem, their friends, and sometimes even their marriages. “There’s this enormous wake of failure and a sense of loss,” Fitzpatrick says. “They tell you it’s a wonderful program. Anybody can do it. If you don’t succeed, it’s your own fault. All of this is to cover over the deceptions.”
They make it sound so warm and fuzzy. In Mary Kay, friends and family are actually known as the “warm market.” That’s because they are the ones who are most likely to buy products—not because the products appeal to them, necessarily, but because they want to support their friend or relative in her new business. In reality, it’s cashing in on love. It can quickly distort relationships. “It was awkward selling to friends,” says Peck. “It was hard to justify charging them more than you pay for the products.”
Pretty quickly the warm market gets a little less warm, and then it’s time to go and face the cold market. In Mary Kay, consultants are schooled in “warm chatting,” says Tracy Coenen. “You approach someone in a coffee shop and say something like, ‘That’s a lovely outfit you’re wearing! Would you be offended if I offered you my business card?’ ” The problem is, warm chatting has very low return rate, she notes. “One in ten might accept your card and say it’s okay to call. Half of them will dodge your phone call. Half of those who take your call will agree to have a party, but then half will cancel. It’s really discouraging.”
And what it does to friendships is despicable. “I knew two friends who tried to do [Arbonne sales] together,” Peck recalls. “They ended up not speaking to each other. One always had the parties at her house. She prepared all the food. One didn’t bring as many people. They did a party at the YMCA once, and only one client came. Whose client would she be?”
Deception is rampant in the MLM world, its accusers say. Nicole Lopez says she was instructed by people above her in the Herbalife chain to tell new recruits that she had made $500 in her first month. It was true, she had quickly earned a commission check from a new recruit, “but the truth was also that I was already $5,000 in debt,” she says. “I felt like I was lying.” Peck says she was also encouraged to deceive. “I was told you always have to put a positive face on it no matter how it’s going,” she says. “You say, ‘It’s outstanding,’ even if what you mean is it’s outstandingly bad. It’s a strain.”
At least as disturbing as the ruined friendships that MLMs leave in their wake is the toll they can take on marriages. Angela Garrett [real name Katy Li] says that recruiters will often actively encourage friction between husbands and wives. Women are told, “You don’t need a man because you’ve got Mary Kay,” says Garrett. “It’s sort of like women’s lib, only really twisted.” They want to make it so the women are less inclined to listen to their husbands, she explains. “They don’t want the husbands to tell the wives to stop,” says Garrett.
Tracy Coenen agrees. “Husbands are set up to be the villain,” she says. If they express doubts, they are said to be unsupportive. “The companies encourage women to make purchases behind their husbands’ back,” she says. “They tell women, ‘It’s easier to say you’re sorry than to ask for permission.’ ”
Ryan saw this firsthand. “There are a lot of Mary Kay divorces,” she says. “Some husbands like Mary Kay because their wives are wearing makeup and they look better. But most husbands see that the woman’s gone all the time and she starts turning on him.” Not to mention the fact that his salary is likely to be footing the bill for all the debt his wife’s been piling up. Even when marriages survive, they’re not the same. “It created a hard feeling in our marriage,” says Nicole Lopez. “We had just gotten out of debt, and I did this.” Garrett says her own marriage suffered, too. “My husband [Ya Li] wasn’t thrilled after I lost the $1,500,” she says. “And he didn’t really trust my judgment after that.”
After eight months of hard work, Nicole Lopez found herself with a $10,000 credit card bill and no hope for her Herbalife home business. “At the end, when I realized what was happening, I knew I’d been scammed,” she told me. “I felt horrible.”
Now the dream of quitting her full-time job and staying home with her kids is over. “There’s no way I cannot work full time until I pay off the credit card,” she says. She works the nightshift at the packaging company to earn overtime pay and doesn’t get to bed before four a.m. Then she’s up at seven-thirty to get the kids ready for school. “I still refuse e-mails from the gentleman who got me into Herbalife,” she says. “When I quit, he said the only reason people don’t succeed is that they don’t try hard enough. That wasn’t true, I worked really hard.”
Out of the whole sad experience, Lopez is grateful for one thing. She never tried to sell products to people she knew. “Luckily,” she says, “I still have friends left.”