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Like all visionary business leaders, John Rochon saw a need then found an innovative way to meet it. The result is an interesting new approach that’s making a splash in the $153 billion global direct selling industry. It’s called CVSL Inc. [stock symbol: CVSL]
“Direct selling” means selling any products or services directly to consumers without going through stores. It’s sometimes called “relationship marketing.” John Rochon calls it “micro- enterprise.” Whatever you call it, it’s a massive business that stretches into every community in every part of the world. It’s estimated that 91 million people are involved in direct selling. (Source: World Federation of Direct Selling Associations).
Rochon is the former chairman and CEO of cosmetics giant Mary Kay. As that company’s leader, he helped revolutionize direct selling. For example, he tapped into the power of e-commerce at a time when some people wondered if the Internet would hurt direct selling. He expanded Mary Kay to 37 countries around the world. At one point he was also the largest shareholder in Avon.
As chairman of Richmont Holdings, Rochon has made more than 340 major investment transactions over the past 28 years, and he has generated average compounded annual returns of 92%, creating about $36 billion in wealth. Many of his investments have been in businesses outside direct selling. But he says he never lost his fascination with that unique form of commerce.
“Micro-enterprise is incredibly powerful,” said Rochon recently, as he talked to MicroCap Review about his new venture. “It’s a way for literally any person to have an independent business and help his or her family and have fun doing it. But over the past few years I realized that the industry hasn’t seen a really interesting new idea for a long time. That’s what led me to a breakthrough, and I came up with the strategy for CVSL.”
It’s a strategy that’s built on a few simple facts. There are about 200 companies in the U.S. Direct Selling Association, ranging in size from a few million dollars in sales to multi-billion dollar giants. Some are publicly traded but most are private.
In many cases, the person who founded the company is its charismatic leader who motivates and inspires the independent sales force. Many of the leaders want to find a way to monetize some of their stake in the company, but they can’t do that without selling and exiting the company.
Rochon’s idea was to solve that problem while at the same time strengthening the individual companies. By building a public company “umbrella,” he could bring multiple direct selling companies together under that umbrella. Each owner could have shares in the public entity – some of which they could convert into cash if they chose -- while still remaining active in the business.
As Rochon put it, “If you want to sell your company and exit, we’re not interested. If you want to grow your company, call us.”
In CVSL, each company remains independent, with its own separate product line, sales force, compensation plan and leadership team. Rochon calls this “brand respect.” He points to Louis Vuitton Moet Hennessy (LVMH) as the model for an umbrella, under which are multiple independent brands.
The public company vehicle to accomplish this was CVSL Inc. Rochon acquired the publicly reporting company in September of 2012 and made his first direct selling acquisition in March, 2013. First to become part of the CVSL “umbrella” was one of America’s best-known brands, a maker of hand-crafted baskets and other home items: The Longaberger Company. Based in Ohio, with revenues around $100 million, Longaberger celebrated its 40th year in business in 2013. Five generations of the Longaberger family have been in the business. The company recently made a splash in the news media when it announced it was bringing its entire line back to made-in-the-U.S.A.
One of the things that made Longaberger such a perfect fit with CVSL was the fact that it had a massive and under-used infrastructure, which was built to accommodate a much larger company. Prime office space, first class manufacturing, warehouse and distribution space – 500,000 unused square feet of it – and an excellent location near Columbus Ohio all had the potential for meeting the needs of multiple CVSL companies.
“Every direct selling company has the same basic needs in the ‘back of the house.’ They all need technology and accounting support. They all need warehouses and distribution. So if we can have shared infrastructure for at least some of these needs, we can have more profitable companies,” explains Rochon.
This is especially true for what Rochon calls “gazelles”: new or up-and-coming companies that have a great product or service and just need a launching pad to ignite sales and expand into multiple markets. “It’s a terrible waste when a good direct selling company can’t get traction because it doesn’t have a home base,” says Rochon. “To use an analogy, these are gazelles that just need to be nourished and they’ll run like the wind.”
One such up-and-coming company is Your Inspiration At Home, a two-year old maker of 250 hand-crafted spice blends made from natural ingredients from around the world. The company has won numerous awards since its launch in Australia. It is now ready to break into the North American and other markets, with CVSL providing the launch pad.
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As founder Colleen Walters put it when she became part of CVSL, “This is the next step toward our becoming a truly global market.” Spices for the North American market will be blended at a state-of-the-art CVSL facility in Texas.
ActiTech, a CVSL sister company just north of Dallas, is CVSL’s in-house manufacturing arm. It is a 600,000 square foot, state of the art R&D, manufacturing, filling and warehouse facility for health and beauty, nutritional and consumable products.
The manufacturing facility is ISO 9001 compliant and is USDA certified organic. It performs new product development, manages regulatory review and compliance, and handles testing and monitoring. Air and water environmental monitoring in the facility are performed daily and it operates a USP purified water system. The facility has full capabilities for large volumes for blending, filling and bottle labeling, including several filling lines, each capable of handling up to 120,000 units per day.
Product lines being processed at the facility include skin care, OTC medical devices, hair care, beverages, energy drinks, powders and spices. The facility has done contract work for major corporate clients in the food, drug and cosmetic sectors.
Along with the infrastructure of offices, manufacturing and distribution facilities in Ohio and manufacturing for health and beauty and consumables in Texas, CVSL offers another form of “intangible infrastructure” through Richmont Holdings offices in Dallas: namely, the combined experience of the CVSL brain trust and the Richmont Holdings team.
This includes a CVSL board of directors who have decades of experience in direct selling and other fields. For example, one director developed and ran Mary Kay’s operations in Russia and Europe. Another has worked for or consulted with major direct sellers for many years. ActiTech’s founder serves on the board.
The brain trust also includes experts in finance, marketing, mergers and acquisitions and operations.
The company’s web site, www.cvsl.us.com, includes a discussion of its strategy, plus public filings and news. CVSL’s first shareholder conference call was a comprehensive discussion of the company’s plans. The call transcript is on the site.
As CVSL looks to the future, Rochon says it will take a broad and flexible view of which companies are right for coming under the CVSL umbrella. “This is not a short-term thing,” he says. “We’re building value for shareholders over the long term. The average duration of my investments is 14 years,” says Rochon. “So we’re looking for companies to bring into CVSL that can grow and build value.”
Those companies could range from small, in the $2-5 million range with good upside potential, to mid-size in the $100-200 million range, and up to even the largest companies. In general, CVSL is looking at market sectors such as nutritionals, healthy lifestyle, cosmetics and beauty and home décor, although it is open to additional categories as well.
Rochon says that CVSL is looking for several things as it analyzes candidate companies. “We’re looking to build out new categories. We want to fill in the world map. We’re looking for good value. And we’re looking to add good connections in the consumer cloud.”
After Longaberger and Your Inspiration At Home joined CVSL, a third company signed a letter of intent to join. Tomboy Tools, a 13-year old company that offers a unique line of pink tools designed for women, along with 24/7 home security monitoring services, brings CVSL into the massive home improvement tools ($11 billion) and home security ($13 billion) sectors.
Then, in mid-August, Agel Enterprises, which sells a line of nutritional gel supplement products in 40 countries, as well as a line of skin care products under the brand name Ageless, signed a letter of intent to become part of CVSL. Agel brings not only entry to two huge new categories – the $32 billion nutritional supplement market and the $90 billion skin care market – but a global presence that can be a jumping-off point for CVSL’s growth in markets around the world. The company says it plans to leverage Agel’s infrastructure globally across its full portfolio of companies.
Being a public company, CVSL is in a position to offer stock options as incentives to its top sellers and recruiters, not only for one company but across the range of multiple product lines within all the various CVSL companies – quite an attractive incentive for direct selling leaders to build their sales units underneath the CVSL umbrella.
Rochon says that, as word of his CVSL strategy has spread in the direct selling world, a large number of companies of varying sizes have approached him about potentially being part of the venture. CVSL has a team of financial analysts continually looking at such potential transactions.
“We want to make sure that any companies entering CVSL are a good fit for us, and believe we’re right for them,” says Rochon. “The response has been really amazing. This is obviously an idea whose time has come and we’re seeing that in the reaction to us around the industry.”
“I’ve known the direct selling channel for three decades,” says Rochon. “I know firsthand how powerful it is. I know that my vision for CVSL is the best new idea this sector has seen in a long time. I’m absolutely convinced we’re going to give direct selling a whole new dimension as we acquire companies and give them a chance to reach their full potential.
“This is a model that makes so much sense, not only for owners of direct selling companies but for everyone who appreciates this amazing industry,” said Mr. Rochon. It’s going to be really rewarding to guide CVSL and grow it over the years to come,” he added.
For more information about CVSL, Inc., please visit their website: www.CVSL.US.com
The company paid consideration to SNN or its affiliates for this article.
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