Shaklee Corporation - Company Profile, Information, Business Description, History, Background Information on Shaklee Corporation

4747 Willow Road
Pleasanton, California 94588

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`Follow the laws of Nature and you'll never go wrong. ...' It was a favorite saying of our founder, Forrest C. Shaklee. His philosophy of `Living in Harmony with Nature' was ahead of its time when he conceived it, and, since Shaklee Corporation was founded in 1956, his extraordinary foresight has been proven again and again. Living in Harmony with Nature means bringing all aspects of life into balance; a balance that is deeply satisfying and promotes a healthy experience of being fully human and fully engaged with life. It is the cornerstone of our philosophy. To that end, Shaklee has developed innovative programs and forged lasting partnerships that have made the company an industry leader for over forty years.

History of Shaklee Corporation

Shaklee Corporation, a subsidiary of Yamanouchi Consumer Inc., is a major producer and distributor of nutritional supplements, personal care products, and household products. Shaklee products are largely developed in-house and are sold through a multilevel marketing system in the United States and worldwide by a team of fiercely loyal independent contractors. In recent years, Shaklee distributors are establishing web sites, allowing consumers to purchase Shaklee products over the Internet. In addition to its consumer products activities, Shaklee owns a subsidiary, Bear Creek Corporation, that in turn owns some of the more popular names in catalog sales, including gourmet foods seller Harry and David and flower purveyor Jackson & Perkins.

1915-55: The Early Work Life of Dr. Forrest Shaklee

Shaklee bears the name of its founder, chiropractor Dr. Forrest Shaklee. Shaklee was born in Iowa in 1894. After a vigorous youth, part of which he spent as a traveling carnival performer, he studied chiropractic and established a practice of his own in Rockwell City, Iowa, in 1915. Nine years later, he moved to Mason City and opened a health care facility which he named the Shaklee Clinic. During this time, he came to believe that conventional chiropractic wisdom was too narrow, and that diet and nutrition were crucial to overall good health. 'Too many of the people who came in for treatment appeared to me to be overfed and undernourished,' he would later say. He began studying current scientific research on nutrition and experimented with developing his own nutritional supplements.

In 1929, however, a fire destroyed the Shaklee Clinic. Instead of rebuilding, Shaklee moved to the West Coast with his wife, Ruth, and their two sons. They eventually settled in Oakland, California, where Shaklee opened a new practice. In 1941, Ruth Shaklee died after being struck by an automobile, and shortly thereafter Shaklee's sons both enlisted in the armed forces. Left alone, Shaklee closed his practice and retired to a ranch in an isolated part of northern California.

Shaklee emerged from this self-imposed exile in 1945, selling his ranch and returning to Oakland. He resumed part-time practice as a chiropractor and nutritionist, but also began a second career as a motivational speaker. In personal appearances, local radio broadcasts, and four books published in 1951, he expounded a philosophy based on the power of positive thinking, which he called 'thoughtsmanship.'

1950s-60s: Sales through Independent Distributorships

In 1955, Shaklee resolved to combine his motivational philosophy with his years of experience as a nutritionist. Together with his two sons, Forrest Jr. and Raleigh, he founded Shaklee Products, which was officially launched in 1956. Drawing on talents they had developed in their previous careers, Forrest Jr. handled the accounting and managed the day-to-day operations of the company, while Raleigh, a former insurance salesman, took charge of marketing operations. Their father directed research and development. The company's first product was a protein-lecithin supplement of Dr. Shaklee's own invention, which they sold under the name Pro-Lecin Nibblers. Later in 1956, it added Herb-lax, a herbal laxative. The next year, it

introduced Vita-Lea, a multivitamin, multimineral supplement in tablet form that would quickly become one of the company's mainstays.

Dr. Shaklee's concept of 'thoughtsmanship' entered Shaklee Products' operations through its sales force. Rather than hire a permanent sales staff, the company decided from the outset to recruit independent contractors and offer them a series of lucrative incentives that would reward them in proportion to the sales that they generated. It was a system that one loyal Shaklee saleswoman later described as 'unstructured' and requiring highly self-motivated participants--a system that was wholly in keeping with Dr. Shaklee's belief in self-motivation and his own persuasive powers. In their first attempt to recruit a sales force, the Shaklees placed an ad in the Oakland Tribune asking interested readers to attend an introductory meeting. Six people answered, and all six signed on as distributors.

Shaklee distributorships spread quickly, so that the company was well established throughout California by the end of the decade. This required a grueling travel schedule from all three Shaklees, father and sons, who wanted their distributors to meet all of them personally. At the same time, the company continued to introduce new products and to branch out from the field of dietary supplements. In 1960, Basic-H Concentrated Organic Cleaner, a soap-free, biodegradable cleaning solution, made its debut after Dr. Shaklee experimented with ways to help the wife of a distributor with sensitive skin. Soon thereafter, the company introduced a line of skin care products made from natural ingredients.

In the early 1960s, the Shaklee gospel began to find an even larger audience. In 1962, a Shaklee customer who had moved from San Diego to Minnesota established the company's first distributorship outside of California, selling mostly Basic-H. Shortly thereafter, a Massachusetts family whose grown son had discovered Basic-H while living in Minnesota established the first Shaklee distributorship on the East Coast. In the early 1970s, Shaklee recruited its first Spanish-speaking distributors.

1970s: Astounding Growth

The 1970s saw astounding growth for Shaklee. Annual sales skyrocketed from $20 million to more than $300 million by decade's end. In 1971, the company opened a new research facility, the Forrest C. Shaklee Research Center, in Hayward, California. The company changed its name to its current form in 1972 and went public the next year. In 1976, Shaklee established two subsidiaries, Shaklee Japan and Shaklee Canada, to handle some of its foreign distributorships. During this time, the Shaklees themselves began to play less important roles in the company as it evolved from a family-run organization into a major corporation. Even so, the Shaklee family continued to own a substantial portion of the company's stock. Dr. Shaklee himself continued to be wildly popular among his salespeople (a company staff attorney once attested that 'if we didn't have a bodyguard around him [at company conventions], they'd tear his clothes off')and was still vigorous enough at the age of 85 to break ground on the company's new manufacturing facility in Norman, Oklahoma, in 1979. The next year, the company moved its headquarters to a new complex in San Francisco.

At about the same time, however, Shaklee found itself at the center of a nasty and highly publicized controversy. In 1978, the company sued former distributors Franklin and El Marie Gunnell for more than $1.6 million, charging that the Utah couple had illegally defamed Shaklee's products and interfered with its business relationships after signing on with a rival company. The dispute was made all the more bitter by the fact that the competitor in question was Enhance, a health food company that had been founded by Robert J. Wooten shortly after he resigned as chairman and president of Shaklee in 1976.

In 1981, a Salt Lake City jury decided in favor of Shaklee after a six-week trial, but awarded it a judgment so small that it did not even cover the company's legal fees. The evidence showed that the Gunnells had indeed made outrageous claims about Shaklee's products, but also revealed information about one Shaklee product that the company had hitherto concealed. Company documents subpoenaed for the trial showed that in 1973 Shaklee discovered that the alfalfa it was using to make alfalfa tablets--then something of a fad in health food circles--was tainted with salmonella bacteria. The company began treating its alfalfa with ethylene oxide (ETO), despite the fact that the fumigant, used mainly to sterilize medical instruments, had been banned by the U.S. Department of Agriculture as a suspected carcinogen. In 1977, the Shaklee finally burned its alfalfa supply and stopped making alfalfa tablets. However, it had never revealed that it had treated its alfalfa with ETO. After the trial, the jury foreman said that 'most of the jurors felt that Shaklee had lied about its products.'

The 1980s: Turnaround Follows Hard Times

The first half of the 1980s proved to be a difficult time for Shaklee, and not just because of the negative publicity that came out of the Gunnell case. Profits declined as, ironically, economic prosperity in the United States drew many Shaklee distributors who preferred secure employment back into the conventional job market. At the same time, changing demographics affected the company's sales force; as the female homemakers who had used Shaklee distributorships as a second household income began to seek careers outside the home, the company turned more and more to men to distribute their products. In 1985, the company suffered a great loss when Dr. Forrest Shaklee died at the age of 91.

Shaklee soon began to pull out of its difficulties, however. In 1984, it received a publicity boost when it was named Official Nutrition Consultant to the United States ski team that competed at the Winter Olympics in Sarajevo. In 1986, it found a way around its distribution problems when it acquired Bear Creek Corporation, which was well known for the luxury fruit baskets and confections sold through its Harry and David mail order catalogue. By the end of the decade, Shaklee began selling its own products through the Harry and David catalogue.

Sales turned back up in the second half of the 1980s, drawing the attention of the investment community. In March 1989, Minneapolis-based investor Irwin Jacobs launched a $40-per-share

tender offer for Shaklee. Jacobs's bid was not entirely welcome, especially among Shaklee salespeople, who feared that a hostile takeover would bring radical changes in corporate culture and destroy the intimate, family-like feeling that had bred loyalty between the company and its sales force. Some distributors even considered making a counter-offer.

Two weeks after Irwin Jacobs began acquiring Shaklee stock, however, a white knight appeared in a rather unlikely form. In mid-March, Shaklee agreed to be acquired by Yamanouchi Pharmaceutical, a large Japanese drug company with a substantial presence in that country's competitive market for anti-ulcer medication. Yamanouchi's offer came as a surprise to Shaklee management and industry analysts, as Yamanouchi had acquired Shaklee Japan in February but had given no sign of being interested in acquiring its parent company. Yamanouchi's financial package was valued at $395 million, or $28 per share plus a $20 per share one-time dividend to Shaklee shareholders. As part of the deal, Yamanouchi also bought out Raleigh and Forrest Shaklee, Jr., who owned 28 percent of Shaklee stock between them.

Yamanouchi's move was part of a general trend affecting Japanese pharmaceutical companies. Faced with worldwide consolidation in the pharmaceutical industry, Japanese companies began to expand overseas in the late 1980s, entering into joint sales, production, and research ventures with foreign drug companies. Acquisition of smaller American and European companies was seen by analysts and Japanese drug executives alike as a way of gaining quick access to important foreign markets. Nonetheless, some analysts familiar with the Japanese pharmaceutical industry questioned the wisdom of Yamanouchi's move, saying that Shaklee offered the company few obvious strategic advantages, neither strengthening its research operations nor building its overseas distribution network. Whatever the wisdom of Yamanouchi's move, Shaklee continued to grow and to expand its overseas operations. In 1992, it created Shaklee Mexico, and, in 1994, it established Shaklee Taiwan.

In 1994 the company loaded its calendar with events commemorating the 100th anniversary of the birth of Dr. Forrest Shaklee. The company had surmounted a number of challenges over the years--not just the alfalfa scandal of 1981 and Irwin Jacobs's hostile takeover bid in 1989, but also continual skepticism from different sectors of the scientific community about the efficacy of high-dosage nutritional supplements.

New Directions in the Late 1990s

By the late 1990s, Shaklee was looking forward again. The company's 1996 sales had reached almost $4 billion, and the following year the company broke ground with a kiko-shiki ceremony on the first part of a three-phase construction project expanding its manufacturing facility in Oklahoma. The facility, once completed in 1998, became Yamanouchi's first U.S.-based pharmaceutical manufacturing plant. Yamanouchi-Shaklee Pharma, the new pharmaceutical division, was spun off in 1999, as Yamanouchi Pharma Technologies Inc., a separate entity.

Also with its parent Yamanouchi, Shaklee also entered into an agreement in 1997 with Stanford University to build a new research center in the Stanford Research Park that specialized in developing and commercializing new delivery technology for nutritional and active pharmaceutical compounds as well as conventional solid dosage forms of new drug compounds. The new Yamanouchi-Shaklee Pharmaceutical Research Center, opened in November 1997, began a close creative and financial relationship between Yamanouchi and Stanford University and forwarded Yamanouchi's plans for expanding into healthcare products.

In an unforeseen diversification in 1997, Shaklee joined with AT & T to sell the latter's phone services directly to consumers through Shaklee's 500,000 independent sales agents. Other new agreements included securing the rights to Cosmederm Technologies proprietary anti-irritant for a new anti-aging treatment product. With this anti-irritant, Shaklee then introduced a skin care line known as Enfuselle. In 1999, the company began marketing a new nutritional system called Shaklee Basics, which became available in 2000 via, a web presence designed to allow the company's independent sales agents to build their own e-business sites.

Shaklee Corporation officially opened new corporate headquarters in Pleasanton, California, in March 2000. The 106,400-square-foot administrative building was surrounded by nearly ten acres preserving the area's native ecosystem; plans were being made to build a special demonstration garden of herbs from around the world on the grounds. In September, Shaklee built a new distribution warehouse in Ohio and saw a change in leadership, as Masakatsu Inoue was appointed president and chief executive officer. Throughout it all, Shaklee's loyal and enthusiastic sales force, unusual even by the standards of direct sales, remained true believers, famous for using the products that they sold with an exclusivity that bordered on fanaticism.

Principal Subsidiaries: Bear Creek Corporation.

Principal Divisions: Shaklee Manufacturing Center; Shaklee Research Center; Shaklee Mexico; Shaklee Japan; Shaklee Taiwan.

Principal Competitors: Herbalife International Inc.; Avon Products Inc.; General Nutrition Companies, Inc.; Amway Inc.


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Further Reference

Brenner, Nancy, Shaklee: The Enduring Dream, San Francisco: Shaklee Corporation, 1995.Chase, Marilyn, 'For Shaklee Faithful, Selling Is Believing,' Wall Street Journal, March 9, 1989.Emert, Carol, 'Shaklee Merging Two Offices: Company to Build Offices in Pleasanton,' The San Francisco Chronicle, June 7, 1997, p. D1.Hill, G. Christian, 'Japan's Yamanouchi to Acquire Shaklee for $395 Million, Thwarting Jacobs' Bid,' Wall Street Journal, March 14, 1989.'Shaklee Corporation Announces New President and CEO,' Business Wire, September 15, 2000.'Shaklee to Break Ground for World Headquarters,' Business Wire, May 28, 1998.Zonana, Victor F., 'Health Products Firm Used Toxic Substance, Ex-Distributor Claims,' Wall Street Journal, January 21, 1982.

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