Nu Skin 2010 Annual Report - Direct Selling News

PART I
ITEM 1.
BUSINESS
OVERVIEW
We are a leading, global direct selling company with operations in 51
markets worldwide. We develop and distribute innovative, premiumquality
anti-aging personal care products and nutritional supplements
under our Nu Skin and Pharmanex brands, respectively. We
strive to secure competitive advantages in four key areas: our people,
our products, the culture we promote, and the business opportunities
we offer. In 2010, our 26th year of operations, we posted record revenue
of $1.5 billion.
As of December 31, 2010, we had a global network of approximately
800,000 active distributors. Approximately 36,000 of our
distributors were qualified sales leaders we refer to as “executive distributors.”
Our executive distributors play a critical leadership role in
the growth and development of our business.
Approximately 86% of our 2010 revenue came from our markets
outside of the United States. While we have become more geographically
diverse over the past decade, Japan, our largest revenue
market, accounted for approximately 31% of our 2010 total revenue.
Due to the size of our foreign operations, our results are often impacted
by foreign currency fluctuations, particularly fluctuations in
the Japanese yen. In addition, our results are impacted by global economic,
political, demographic and business trends and conditions.
Our business is subject to various laws and regulations globally,
particularly with respect to our product categories as well as our direct
selling distribution channel, sometimes referred to as “network marketing”
or “multi-level marketing.” Accordingly, we face certain risks,
including risks associated with potential improper activities of our distributors
or any inability to obtain necessary product registrations.
OUR DIFFERENCE DEMONSTRATED
We strive to maintain a competitive advantage in four key areas: our
people, our products, our culture, and our opportunity.
Our people—A global network of approximately 800,000 active
distributors in 51 countries. We distribute all of our products exclusively
through our distributors as opposed to traditional distribution
channels such as retail stores or mail order catalogs. Consequently, our
most significant asset is our extensive global network of distributors
who enable us to introduce products and penetrate new markets with
little upfront promotional expense. We believe our competitive sales
compensation plan for our distributors has helped us to attract and
develop a strong group of distributor leaders who play a critical role in
building, motivating and training our extensive distributor network.
Our products—Science-based, proprietary anti-aging skin care
and nutritional products. We believe our innovative approach to
product development provides us with a competitive advantage in
the anti-aging and direct selling markets. Over the last two years, we
have successfully introduced a suite of innovative ageLOC anti-aging
products including the ageLOC Transformation daily skin care system,
ageLOC Edition Galvanic Spa System II and ageLOC Vitality nutritional
supplement, and we are currently developing additional
ageLOC anti-aging products for the future. These products are
designed to positively influence the expression of genes that we believe
play a critical role in the aging process. We believe that our
in-house research expertise and our research collaborations uniquely
position and enable us to continue to introduce innovative and proprietary
anti-aging products in skin care and nutrition.
Our culture—Improving lives. Our mission statement encourages
our people to be a “force for good” by improving lives through
the use of both our products and business opportunities and promotes
a humanitarian culture. We encourage our distributors, customers
and employees to become involved in humanitarian efforts,
the most signifi cant of which are our Nourish the Children
initiative, which provides our distributors the ability to donate
meals to starving children, and our Force for Good Foundation,
which supports charitable causes that benefi t children. We believe
that people are attracted to organizations that focus on more than
just fi nancial incentives.
Our opportunity—Global business opportunity. We believe our
distributor compensation plan provides our distributors with the
incentive to establish a sales organization and customer base in
any country where we conduct business. We believe that we were
the fi rst major direct selling company to enable sales leaders to
develop an international business and receive commissions on
global sales volume in their home market. We believe our compensation
plan, which pays approximately 42% of our product sales
in commissions, is among the most generous compensation plans
in the direct selling industry. We believe the high payout of our
compensation plan enables sales leaders the opportunity to reach
signifi cant income levels and provides us with a competitive advantage
in attracting and developing highly capable, motivated
sales leaders.
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