Nature’s Sunshine Products, Inc.

views updated

Nature’s Sunshine Products, Inc.

75 East 1700 South
Provo, Utah 84605
U.S.A.
(801) 342-4407
Fax: (801) 798-2730

Public Company
Incorporated: 1972 as Hughes Development Corporation
Employees: 720
Sales: $160.9 million (1994)
Stock Exchanges: NASDAQ
SICs: 2833 Medicinals & Botanicals; 2834 Pharmaceutical Preparations; 3589 Service Industry Machinery Not Elsewhere Classified

A leading alternative health care company, Nature’s Sunshine Products, Inc. manufactures and sells tableted and encapsulated herbal products, natural vitamins, food supplements, and skin care products. During the mid-1990s Nature’s Sunshine relied on nearly 300,000 independent sales representatives to sell the company’s 450 products door-to-door and to small groups of potential customers. The company’s international presence was supported by marketing operations in Mexico, Canada, Columbia, the United Kingdom, Venezuela, Japan, Brazil, Costa Rica, and Malaysia.

The historical roots of the largest U.S. producer of encapsulated herbs stretch back to Provo, Utah, to the four-bedroom home of Eugene and Kristine Hughes and, specifically, to the couples’ kitchen table, which was the first manufacturing site of their fledgling business venture. It was a modest start, to be sure, particularly given what the company later would become. Over the course of roughly two decades, the Hugheses watched their enterprise develop into a $160-million-a-year business that eventually would employ, either on a part-time or full-time basis, more than a quarter million people. Nature’s Sunshine’s geographic presence expanded robustly as well between the 1970s and 1990s, extending throughout the United States and into nine foreign countries. In two decades, Nature’s Sunshine developed into a vast organization, recording growth on an exponential scale while enriching the Hugheses, their original investors, and those prescient enough to purchase stock in the company.

None of those fortunes would have been created without the misfortune suffered by Eugene Hughes and the helpful suggestion of a neighbor. In 1972 Eugene Hughes was suffering from a bleeding stomach ulcer. Neither Kristine, whose days were amply filled by raising seven children, nor Eugene, who was employed as a fourth-grade school teacher, were intent on launching an entrepreneurial career during the early 1970s. But when a neighbor suggested a remedy for Eugene’s ulcer, the seeds for Nature’s Sunshine were planted.

Eugene, who developed his ulcer in the mid-1960s, had tried the conventional cures for stomach ulcers yet enjoyed little relief. He finally heeded his neighbor’s advice and began swallowing spoonfuls of cayenne pepper; the Hugheses’ neighbor had informed the couple that capsicum, which existed in abundant amounts in cayenne pepper, helped suppress the digestive acids that caused ulcers. For Eugene, the intimidating prospect of swallowing spicy red pepper powder to relieve the pain of an ulcer was exacerbated by its disagreeable taste, but he dutifully swallowed cayenne pepper and noticed an improvement in his condition.

Kristine Hughes then made her own fateful suggestion, one that was nearly as integral to the formation of Nature’s Sunshine as her neighbor’s. To eliminate its unappealing taste, Kristine suggested the pepper powder be put in gelatin capsules. Those gelatin capsules were the Hugheses’ first products. Indeed, Eugene and Kristine Hughes spent their nights and weekends sitting at their kitchen table packing capsules full of red pepper. They convinced the owner of a tiny local health food store owner in Provo to sell the capsules. For capital to launch their start-up business, the Hugheses put their persuasive powers to work once again to convince five of Eugene’s six siblings to invest $150 each into Hughes Development Corporation (incorporated in 1972).

During the Hugheses’ first decade of business, the foundation was established for the massive organization that would hold a dominant place in the market for vitamins, minerals, and herbal supplements in the 1990s. Once the pursuit of health and fitness became a pervasive American trend, the Hugheses’ business would enjoy accelerated growth, propelled by widespread consumer demand for salubrious, natural products. But the Hugheses also made pivotal moves that enabled their company to ride the crest of market demand for medicinal herbs and vitamins. Other natural products were added, such as chaparral for digestive problems and golden seal, which acted as a natural antibiotic, thus broadening the scope of the Hugheses’ product line with each passing year.

In addition, salespeople, who sold the company’s products door-to-door, were aggressively recruited and indoctrinated into an almost evangelical corporate culture that placed a premium on achieving sales records. These full-time and part-time independent sales representatives represented the backbone of the Hugheses’ business. As their numbers grew, so did the geographic reach of the company. Enthusiasm for the company’s products and effective sales techniques were imparted to aspirant salespeople at large sales conventions, where the engine that drove the company was fine-tuned.

As the company’s success gained momentum, the Hugheses’ business underwent several name changes before settling on the corporate title and brand name that would become familiar to hundreds of thousands of domestic and international customers during the late 1980s and 1990s. In 1973, one year after the Hugheses founded their business, National Multi Corporation was organized as a holding company for Hughes Development Corporation. Two years later, Amtec Industries Incorporated was formed for the primary purpose of holding the stock of National Multi Corporation, and in 1982 the Nature’s Sunshine Products, Inc. moniker was adopted.

Meanwhile, the Hugheses had taken their company public in 1978, enabling others to share in the profits of their enterprise and generating an infusion of capital to sustain the company’s expansion. In addition to a host of herbal supplements and other naturally medicinal products, the Hugheses added water purifiers and personal care products to their ever-expanding roster of products, the aggregate demand for which pushed Nature’s Sunshine’s annual sales above $25 million by the end of the company’s first decade of operation. Ten years of existence had resulted in ten years of success for the Hugheses and their thriving business, with annual sales increasing each year and the ranks of faithful and determined salespeople swelling annually.

The first blemish on Nature’s Sunshine’s enviable record of growth occurred three years after the company celebrated its tenth anniversary, when a new marketing incentive plan was announced that quickly hobbled previously unbridled growth, awakening management to the vagaries of the business world and its dependence on the company’s all-important sales force. A substantial portion of Nature’s Sunshine’s distributors, who composed the core of the company’s direct sales network, disliked the new compensation program and demonstrated their disfavor by cutting their ties to Nature’s Sunshine and the nearly 200 products produced by the company. Once the exodus of distributors shuddered to a halt, Kristine Hughes, who served as the company’s chairwoman, and Eugene Hughes, the company’s senior vice-president, found themselves without 28 percent of their distributors. Annual sales, for the first time in the company’s history, declined in 1985, slipping from $33.3 million to $29.4 million, while earnings per share plummeted from 65 cents to 15 cents.

It was the first time Nature’s Sunshine had recorded a decline in its number of distributors, an occurrence the Hugheses and the rest of the company’s management did not want to repeat. In mid-1985, Nature’s Sunshine’s compensation program was replaced with a more acceptable plan that stopped the flow of distributors from the company’s ranks. Management then began recruiting for additional distributors in earnest, hoping to replenish the company’s sales force and invigorate sales. A bonus program for Nature’s Sunshine distributors was reestablished and medical benefits were added to the list of perquisites offered to salespeople, enabling the company to score considerable success in attracting new and old distributors.

Nature’s Sunshine’s sales corps swelled 50 percent in the wake of 1985’s losses, increasing to 25,000 distributors and roughly three times as many individual agents, while the number of products rose to more than 300 by the end of 1986. Buoyed by the increase in products and distributors, Nature’s Sunshine’s annual sales rebounded to $31 million in 1986 to $38 million in 1987. Once the recovery was complete, Nature’s Sunshine stood solidly positioned as the nation’s largest producer of encapsulated herbs, occupying a coveted place in a market that was experiencing strong growth as increasing numbers of Americans sought alternative, natural ways of improving their health and fitness.

As the company exited the mid-1980s, there was justifiable cause for celebration. Its firm grasp on the U.S. market augured well for the company’s future, but in international markets Nature’s Sunshine was registering perhaps its most encouraging success. By the end of 1986, in fact, the company’s foray into foreign markets had developed into a meaningful and burgeoning portion of its business, contributing 20 percent toward Nature’s Sunshine’s annual sales volume. Roughly half of the company’s foreign sales were derived from Canada, while the balance was plucked from the wallets of customers in Australia and New Zealand, with a small sales network in Japan contributing to annual sales as well. In the years ahead, Nature’s Sunshine would greatly increase its international presence, particularly in Latin America. Before such expansion occurred, though, the company needed to fix some problems at home, the resolution of which would invigorate the company’s growth.

The company’s annual sales continued to register successive gains after 1985’s decline, jumping to $44.5 million in 1988 and to $52.1 million in 1989, while net income rose 56 percent in 1988, soaring to $3.3 million. Though the increase in net income pointed to an undoubtedly flourishing company, the 16 percent sales growth achieved in 1988 only mirrored the pace of growth recorded by the industry, which induced the Hugheses to begin looking for a way to accelerate their company’s financial growth. The couple decided that Nature’s Sunshine had grown too large to be operated as a family business and, instead, needed the experience of a professional direct-marketing leader. In 1989 the Hugheses hired Alan Kennedy, the person who would invigorate Nature’s Sunshine’s growth.

In Kennedy the Hugheses gained a leader with a proven record of success. Kennedy had earned the reputation that would make him Nature’s Sunshine’s president in 1989 by helping Shaklee Corporation quadruple its sales during the late 1970s. Serving as Shaklee’s chief marketing officer, Kennedy pushed the company toward the top tier of direct marketing companies to rank among giants such as Mary Kay Cosmetics and Amway. To be counted among these pioneering leaders in door-to-door sales was what the Hugheses hoped Kennedy could achieve. Kennedy knew, as did the Hugheses, that the size of Nature’s Sunshine’s sales force directly dictated the magnitude of the company’s sales volume, so he focused his initial efforts on recruiting additional salespeople.

In his first four years at Nature’s Sunshine, Kennedy more than doubled the company’s largely part-time sales army by boosting commissions paid to high production salespeople and creating a more inspirational atmosphere at sales conventions. Attendance at the company’s sales meetings quadrupled as a consequence, and by the early 1990s more than 100,000 independent sales representatives were selling Nature’s Sunshine products. Annual sales, which had begun to record prosaic increases before Kennedy’s arrival, nearly tripled during his first four years of leadership, eclipsing $ 127 million in 1993, the bulk of which came from the company’s strong presence in western and southern states.

As these gains in annual sales were being recorded, Kennedy also turned his attention to bolstering the company’s involvement in foreign markets. A pivotal move in strengthening the company’s international business was the establishment of a Mexican subsidiary, Nature’s Sunshine de Mexico, in 1991. Once established in Mexico, the company moved into Central and South America, establishing operations in Costa Rica, Venezuela, Columbia, and Brazil, where the belief in medicinal herbs was considerably stronger than in the United States.

In late 1992, Nature’s Sunshine sold its Australian and New Zealand marketing subsidiaries (Nature’s Sunshine Products of Australia and Nature’s Sunshine Products Ltd.) to local management, creating two independently owned and operated companies. A similar arrangement was made with Sunshine Scandinavia, AS, an independently owned-and-operated company located in Norway, as Nature’s Sunshine built a small export network which also included China, the Philippines, and Hong Kong.

By 1993, annual sales had risen to $127 million, nearly 30 percent of which was derived from sales in foreign markets. Of the more than 350 products produced and sold by the company, 61 percent were herb-related products, while vitamins accounted for 23 percent. The balance of Nature’s Sunshine’s product mix comprised homeopathic medicine, skin care products, and diet-related products.

In 1994, Kennedy continued to carve a deeper presence for Nature’s Sunshine in foreign markets, forming a joint venture during the year with Tokyo Tanabe Company, a leading pharmaceutical company in Japan, to sell herbs and nutritional products. The market for vitamins, minerals, and herb supplements by this time had grown dramatically since the Hugheses first entered the fray in 1972. An estimated $4.6 billion was spent on vitamins, minerals, and herbal supplements in 1994, with the market for herbal supplements alone increasing 20 percent. With the bulk of its business dependent on herbal supplement sales, Nature’s Sunshine stood poised for robust growth as it entered the mid-1990s and charted its plans for the future.

By the end of 1995, Nature’s Sunshine was expected to announce sales of more than $200 million, as the 450 products sold by the company continued to meet widespread demand. The company was supported by its 291,000 independent sales representatives, who knocked on doors and held sway over small groups in all 50 states and in nine foreign countries. With business growing briskly, particularly in Mexico and Latin America, Kennedy appeared to favor further international expansion as he prepared to meet the challenges of the late 1990s and beyond.

Principal Subsidiaries

Nature’s Sunshine de Mexico; Nature’s Sunshine Products of Canada, Ltd.; Nature’s Sunshine de Columbia; Nature’s Sunshine K.K. (Japan); Nature’s Sunshine Produtos Naturais Ltda. (Brazil); Nature’s Sunshine Products de Venezuela; Nature’s Sunshine Products, Inc. (England); NSSP Malaysia Sdn. Bhd.; NSP de Centroamerica (Costa Rica)