Arbonne International LLC is living up to its name.
The Irvine-based company arrived in New Zealand this month and plans to launch its skincare and nutrition products in Taiwan by the fourth quarter.
The expansion follows the direct sales firm’s successful entry into Poland two years ago, and according to Chief Executive Kay Zanotti, Germany may be its next foray.
“What we’ve been up to for the past five years is not just strengthening the brand and the products, which were already strong, but really getting Arbonne ready to become a global company,” said Zanotti, who recently married and changed her name from Napier.
Petter Mørck founded Arbonne in 1975 in Switzerland. He moved the company’s headquarters to the U.S. in 1980.
Zanotti, a former senior vice president of marketing for McDonald’s Corp. in Oak Brook, Ill., took the lead at Arbonne’s parent, Natural Products Group LLC, in 2009 and steered it through a swift, 37-day bankruptcy reorganization the following year.
Arbonne and its sister company, Levlad LLC in Chatsworth, traded $600 million worth of debt for an 85% equity stake. Several private equity firms assumed the debt, including current investors TCW/Crescent Mezzanine in Los Angeles and Eos Partners in New York. Arbonne at the time reported $378 million in revenue and had about 750,000 independent sales consultants. It reduced its companywide work force by about 150 to 592.
Fast-forward six years—Arbonne ended last year with $508 million in revenue, up 2.2% over 2014, and is “back in double-digit growth this year,” Zanotti said. It now employs 765, with 291 of those in Orange County.
Arbonne is No. 38 on the Business Journal’s list of the largest private companies in Orange County (see coverage starting on page 1; list on page 14).
New Definition
The company also changed how it defines and recruits consultants, bringing down their number to about 180,000. Consultants receive 35% commission from the resale of Arbonne products they purchase from the company at a 35% discount off the suggested retail price. It used to offer a similar deal and designation to its “preferred” clients—those who purchase sizable quantities of its products for personal use.
“People who really weren’t selling the product became preferred clients,” she said. “We just thought that it didn’t make sense that if someone was just going to buy the product to be treating them as a consultant, because you’re then sending them information about selling, and you’re confusing them, when you really want to send them more information about the product. You want to treat them like a true consumer and not like a wholesale buyer.”
Now preferred clients get 20% off retail prices, along with other perks, including free shipping on qualifying purchases. Fifteen percent of their purchases count toward consultants’ commissions. Last year Arbonne paid $231 million to independent consultants from preferred-client sales, $150 million of that to those based in the U.S. The payout also included bonuses earned by higher ranking consultants when those they recruited reached monthly sales volume goals.
Data on consultants’ income from other retail sales is excluded from the totals because they can set their own product prices, and many also purchase merchandise for personal use.
Reboot
Arbonne’s consultant promotion and compensation plan is just one area the company focused on as it prepared for the global expansion.
Its IT system got a much-needed boost last spring. The company’s consultants now have web pages that link to the corporate site, while the back-end side of the system that handles order processing and compensation tracking now also handles Chinese characters for future Taiwanese customers and can absorb the “sheer capacity of the growing business,” Zanotti said, adding, “We’ve also been hard at work bolstering our supply chain to be able to supply product all over the world.”
Arbonne’s skincare products, such as creams and serums, are manufactured in-house by Levlad in Chatsworth, where the company has upgraded its facilities and equipment and brought in a new head of manufacturing. It also implemented what it calls Six Sigma and Lean practices that eliminate unnecessary steps in the development and manufacturing process to focus on those that directly add value to the product.
Arbonne uses third-party companies to manufacturer its cosmetics and nutrition offerings. The most recent addition to the lineup is a vegan sports line called PhytoSport, which according to Zanotti has “been a huge success” since its April 2015 launch.
The company also is working on eliminating skincare product ingredients “that are no longer needed or for which there are now good plant-based substitutes.”
“The world’s consumer is becoming much more discerning,” she said. “[They] are quite active in finding out what’s in the product and as a consequence, you see a slowdown in growth in prestige cosmetics at department stores and continued growth in what I would term the green market or products that really tell our message, which is ‘free of harmful ingredients and beneficial to the skin.’”
Arbonne prepared for the upcoming Taiwan launch by fine-tuning its skincare formula to account for the region’s high levels of humidity. It also hired an independent lab to perform clinical trials on products designated for the local marketplace.
“In Taiwan there’s a concern about pollution, what’s really in the products, and there’s sensitivity about ethics and what companies say and what they do,” Zanotti said. “There is also a huge interest in the type of product that we provide, so we are hoping to be very successful there, as well.”
Recruitment of independent consultants for the region is under way, and Arbonne is about to sign a lease on an office building in Taipei to feature a product showroom and a retail space.
The move to South Asia was prompted by the “persistence of our independent consultants,” a scenario that played out well when Arbonne launched in Poland in 2014.
“Initially, it was totally an opportunistic play,” she said. “We had so many independent consultants of Polish descent in the U.S., as well as other countries, and if you know Polish people, they are very persistent, they are very hardworking, women are beautiful and very well-groomed. These women really pestered me for five years, ‘Why aren’t you going to Poland, you don’t have to do anything, just give us the products and we’ll sell them.’
“They delivered on their promise, and we are quite successful now in Poland. That’s now gone from an opportunistic play in my mind to a strategic one, because if we are successful in Poland—which post-communism, still has a lower GDP than the U.K.—that tells me … we ought to be successful in other areas of Europe, like Germany.”
Canada
Arbonne expanded to Canada in 2006, and that country now represents $100 million in business. It stretched to Australia and the U.K. in 2007, and the latter is a country where Arbonne is “one of only two direct-sales companies that are growing,” Zanotti said.
Trade publication Direct Selling News in Plano, Texas, ranked Arbonne 40th on its list of similarly structured companies around the world. Grand Rapids, Mich.-based Amway topped the list with $9.5 billion in 2015 revenue, followed by Avon Products Inc. in New York, which brought in $6.16 billion. Los Angeles-based Herbalife Ltd. placed No. 3 with $4.4 billion, and Mary Kay in Dallas was No. 6 with $3.7 billion. Tupperware Brands Corp. placed No. 9 with $2.28 billion.
Arbonne’s products can be purchased online, with the added benefit of independent consultants following up with the consumer after purchases—the algorithm in the company’s IT system sources someone in the same area as the buyer who’s also “a good performer.”
“We want to make sure that whoever contacts that consumer is going to deliver a good experience for that consumer,” Zanotti said. “They provide added benefit to the purchase, something you’ll never get from Amazon.”
