Claire Larson

Calon Lochridge

Trevor Morgan

Josh Millheim

Jaron Beckwith

Our presentation will examine Nu Skins current situation and make

recommendations on how to build the most success from there

Background
ageLOC Spas
ageLOC Resorts

Tiered Membership System

Reflection

Nu Skin is a leader in the anti-aging and supplement industry, generating

large commissions for distributors
$3,177

Nu Skin dominates both the anti-aging and supplement

industry through innovation and commitment to its business
principals.

In 2013 Nu Skin was ranked the 8th largest MLM worldwide

according to revenue.

$2,132
$1,158

2007

$1,248

2008

$1,314

2009

$1,518

2010

$1,720

2011

2012

2013

MLM with 1.1 million distributors worldwide. Their goal is to

create more income for distributors than any other company.

In 2013 Nu Skin paid $1.48 billion in commissions (47% of

revenue) and commissions and incentives paid to date are over
$11 billion.

The MLM structure that has given Nu Skin so much success has lead to a
negative perception by others

Nu Skin has battled a negative perception, highlighted

by the Peoples Daily Report and the backlash the
followed.
While revenue has been steadily increasing, it is
expected to drop 19.4% in 2014, further fueling
negative perception and reflecting Nu Skins stock
price.

Revenues: Past and Forecast

$3,500
$2,500
$1,500
$500
2010

2012

2013

2014

$145.00

Both Nu Skin corporate and distributors suffered,

impeding their goal of generating more income for its
distributors than any other company.
Nu Skin needs to bolster their image and create new
revenue streams to create wealth for distributors and
win back their high stock prices.

2015

Nu Skin Stock Prices Last 18 Months

Peoples Daily Report
$125.00
$105.00
$85.00

2011

$65.00
$45.00
$25.00
$5.00
-$15.00

To improve public perception and generate new streams of revenue, Nu Skin should
develop ageLOC Spas, ageLOC Resorts, and a Tiered Membership System

ageLOC Spas
ageLOC Resorts
Tiered Membership System

Capture maximum market share of the Health Spa Industry and improve brand perception by
investing in traditional spas and health spa resorts

Market Share
Massage Envy
10%

Country Ranch
3%
Woodhouse
Spa
Golden 2%
Door
1%

84% of the health and wellness spa industry comprises

of other companies with less than 1% market share.

Out of the $15.4 billion industry, $13 billion is and open

market for Nu Skin.

Other
84%

Leverage anti-aging products and

move into both traditional spas and
large scale health spa resorts.

Our 5-year goal capture a

projected 5% market share.

Market share capture will improve

public perception of Nu Skin
Brand.

Desired Market Share

Massage Envy
10%

Country Ranch
3%
Woodhouse Spa
2%

Golden Door
1%

Nu Skin
5%
Other
79%

Nu Skin can save on purchase costs over competitors, this will incentivize Distributors to
invest in the ageLOC Spa franchise.

Nu Skin will supply products reducing product

cost by 85% and increasing profit margin
approximately 20% higher than competitors.

Industry Cost Comparison

94.5%
84.0%

Identify Lapis or Ruby PIN title Distributors and

offer opportunity to franchise ageLOC spa.

8.9%

7.2%

28.8%

73.5%

23.4%

7.2%

63.0%

Charge franchise fee of 35% in exchange for

free product supply from Nu Skin Corporate.

3.5%

Offer new spa customers the opportunity to join

the Nu Skin team or register as a customer with
Distributor in their area.

Rent & Utilities

Marketing

52.5%

Depreciation

42.0%

Profit

31.5%

Purchases
43.5%

43.5%

Wages
Other

21.0%
10.5%
12.9%

12.9%

Industry

Nuskin
Nu Skin

0.0%

The ageLOC Spa Entrance Strategy has Nu Skin entering spas in six locations, each with
high Asian population to build initial market share.

Build 1.7% Market Share with

ageLOC Spa.

Franchise spas in 3 locations of

historically high Nu Skin activity
(West Coast, Pacific Northwest,
and Southwest).

Build 3 more spas on the East

Coast in areas where we want
Nu Skin to expand.

All spas are located in

metropolitan areas with an Asian
population of 10% or greater.

United States Entrance Plan

ageLOC Spa

ageLOC Resort will be a larger scale inclusive resort that will improve brand image, facilitate
sign-up of distributors, and increase revenue.

ageLOC Resort will capture an additional 3.3% market share to complete five-year goal is to
capture 5% market share of the $15.4 billion health spa industry.
ageLOC Spa will have positive discounted cash flows (DCF) for owners ($92,388,138) and Nu
Skin ($223,148,008).
Franchise fees for resorts will be lowered to 20% to adjust for investment and financing.
6.0%
5.0%

MARKET SHARE GROWTH

4.0%

S PA A N D R E S O RT R E V E N U E
$200,000,000

3.3%

3.0%

5%

$150,000,000

2.0%
1.0%

$100,000,000
1.7%

$50,000,000

0.0%

Spa

Resort

Total

$2014

2015

2016

2017

2018

Note: DCF analysis use an imputed WACC of

7.65% - calculations found in appendix.

The ageLOC Resort Entrance Strategy has Nu Skin simultaneously building two resort
locations, one in Los Angels and one in Miami

Contract ageLOC Resort in Los

Angeles and Miami.

Resorts will be offered to

current distributors and
entrepreneurs with Nu Skin
providing the option to finance.

The resorts are also placed in

areas with 10% or greater Asian
populations.

United State Entrance

Plan

ageLOC Resort
ageLOC Spa

Implement a Tiered Membership System allowing distributors to opt in to a monthly fee in

exchange for business support.

Leverage existing partnerships to print

and sent monthly supply to subscribers.

Level 1 Business Materials

Provide assistance in social media and

current Sound Concepts website (OPS).

Level 2 Internet Marketing

Free on-site sales and business trainings

every month and access to webinars.

Level 3 Training

Create a team of strategists to assist

subscribers in generating new leads.

Level 4 Lead Generation Consultation

Provide monthly lease of Nu Skins S3

Scanner as a major sales aid.

Level 5 Scanner

Monthly business cards and brochures

Provide website and social media help to distributors

Free web access/registration to monthly trainings

Monthly support from our new lead generation support team

Monthly lease to the Biophotonic Scanner (with down pmt)

Note: Distributors DO NOT have to subscribe to the membership system

Breakdown of costs, revenue and profits at five years of implementation for the tiered
membership program.

Revenues
Four year projection
$65 million by 2018

Margins
Roughly 77%

Profits
Low fixed costs, high margins

Other Benefits
Distributor buy-in
Indirect revenue

Projections based on a percentage buy in from

selling distributors, based on the numbers from
the 2013 annual report. Number of distributors
grown each year through a linear extrapolation.

Tiered Membership Revenue

$70,000,000
$65,350,620

$60,000,000
$50,000,000
$45,634,620

$40,000,000
$30,000,000

$27,964,680

$20,000,000
$13,272,000

$10,000,000
$2015

2016

2017

2018

Note: We estimate that the effect of this plan on distributor success will cause an increase in Nu
Skins overall revenue in addition to the revenue brought in by membership fees.

Our timeline shows five years of development for Nu Skin, moving from simple implementation
of the tiered membership system into worldwide expansion of the spa/resort program.

Year 1

Years 1-2

Years 3-4

Years 5+

Advertise and Educate on the new tiered membership system.

Develop resources and hire employees when necessary for additional support. Sign on distributors and begin
providing service

During this time we will identify Lapis/Ruby distributors who would make a good fit as a spa/resort franchiser
We will also complete research on what services should be offered, the most attractive spa packages, etc.

During these years we will build the six spas and two resorts,
tracking them closely to examine their performance.

Assuming the spas/resorts perform well, we will expand the

programs world wide, repeating the above processes.

The combination of our different programs has Nu Skin conservatively at 233.21 mm by 2018, primarily
in the US market. This does not take into account added revenue due to more effective distributors.

Total Americas Revenue with Proposed Programs

$233.21

$600.00

$175.37
$500.00

$127.16

$400.00

$13.27
$300.00
$298.22

$297.06

2014

2015

$321.24

$344.72

$367.06

$200.00

$100.00

$Projected Revenue

2016
Spa/Resort Revenue

2017

2018

Tiered Membership Revenue

*Note: Nu Skin revenue projections done with a linear percent growth model .Top number represents the
total revenue increase from both the ageLOC Spas/Resorts and the tiered membership plan

Appendix

Sources

Health Spa Industry Data - http://clients1.ibisworld.com.erl.lib.byu.edu/reports/us/industry/ataglance.aspx?entid=4186

Benchmark: Massage Envy http://www.massageenvyfranchise.com/Portals/0/2014%20FDD%20-%20Item%207%20Table.pdf,
http://www.massageenvyfranchise.com/franchise-cost, http://www.massageenvy.com/real-estate.aspx
Internet Research: http://www.franchisechatter.com/2011/06/27/massage-envy-spas-average-unit-volume-tops-1m-says-itspresident-dave-crisalli-in-this-exclusive-interview/
Benchmark: Golden Door -http://clients1.ibisworld.com.erl.lib.byu.edu/reports/us/industry/majorcompanies.aspx?entid=4186,
http://spas.about.com/od/west/p/goldendoor.htm
Franchising: http://www.fixr.com/costs/build-hotel
Financial: http://finance.yahoo.com/q/ae?s=NUS+Analyst+Estimates, http://ycharts.com/companies/NUS/revenues_ttm
Revenue by Brand: file:///C:/Users/CalonFrank/Downloads/Revenue%20by%20Brand.pdf
Annual Report: http://www.nuskin.com/corpcom/en_US/newsroom.html,
file:///C:/Users/CalonFrank/Downloads/NUS%20annual%20report%20final.pdf
Demographics:
http://en.wikipedia.org/wiki/Demographics_of_Asian_Americans#mediaviewer/File:AA_Alone_or_in_Combination.jpg
Land and Cost Analysis: http://www.realtor.com/realestateandhomes-search/Miami_FL/type-land,
http://www.landandfarm.com/search/FL/Miami-land-for-sale/, http://www.fixr.com/cost-estimates/?description=build+pool,
http://www.hwhotels.com/checklist.html

The combination of our different programs has Nu Skin conservatively 233.21 mm by 2018, primarily in
the US market. This does not take into account added revenue due to more effective distributors

Total Revenue with Proposed Programs

$233.21

$3,500.00

$175.37
$127.16

$3,000.00

$13.27
$2,500.00

$2,560.00

$2,550.00

2014

2015

$3,150.90
$2,959.15

$2,757.57

$2,000.00
$1,500.00
$1,000.00
$500.00
$-

Projected Revenue

2016
Spa/Resort Revenue

2017

2018

Tiered Membership Revenue

*Note: Nu Skin revenue projections done with a linear percent growth model .Top number represents the total
revenue increase from both the ageLOC Spas/Resorts and the tiered membership plan

Revenue projections (based on a percent growth model)

Year Revenue Percent Growth

2007
$1,158
2008
$1,248
8%
2009
$1,314
5%
2010
$1,518
16%
2011
$1,720
13%
2012
$2,132
24%
2013
$3,177
49%
2014
$2,560
-19%
2015
$2,550
0%
2016 $2,757.57
8%
2017 $2,959.15
7%
2018 $3,150.90
6%

60%
y = -0.0083x + 0.1561
50%
40%
30%
20%
10%
0%

0
-10%
-20%
-30%

10

An exhibit of the calculations that went into the costs and revenues associated with the spa and
resort structure, compared to benchmark.

Nu Skin/Benchmark Costs and Revenues

Benchmark

ageLOC Spa

ageLOC Resort

Revenue

$ 1,463,000,000

$ 261,800,000

Franchise %

$ 76,230,000.0

117,040,000

91,630,000

Cost (CoGS)

508,200,000

$ 17,837,820.0

Wages

636,405,000

$ 113,883,000

$ 221,067,000

Rent

105,336,000

$ 18,849,600

36,590,400

Other

188,727,000

$ 33,772,200

65,557,800

Net Profit

117,040,000

76,230,000

167,860,000

Total

91,630,000

Note: Franchise % is bases on a 8% franchise fee for

benchmark (massage envy), a 35% fee for ageLOC
Spa, and a 15% fee for ageLOC Resort

Assumptions regarding revenue growth over five year period and Nu Skin cost percentages
compared to industry data

Spa/Resort Revenue Growth Assumptions

2014

2015

2016

2017

2018

Spas

Resort

Spa Rev

$ 61,086,667

$ 91,630,000

$ 91,630,000

Resort Rev

$ 38,115,000

$ 38,115,000

$ 76,230,000

Total

$ 99,201,667

$ 129,745,000

$ 167,860,000

Note: Industry related data was

taken off IBIS world. Link:
http://clients1.ibisworld.com.erl.lib.by
u.edu/reports/us/industry/ataglance.
aspx?entid=4186

Category
Profit
Wages
Purchases
Depreciation
Marketing
Rent & Utilities
Other
Total

Spa Cost Breakdown

Industry
8.9%
43.5%
23.4%
2.1%
2.0%
7.2%
12.9%
100.0%

Nuskin
28.8%
43.5%
3.5%
2.1%
2.0%
7.2%
12.9%
100.0%

Tiered Membership System yearly breakdown

Level

2015
1,309,470
$12,500
$125,000.00
6,250.00
$125,000.00
3,750.00
$562,500.00
2,500
$187,500.00
530
$106,000.00

2016
1,349,796
$26,339
$263,390.00
13,170.00
$263,400.00
7,902.00
$1,185,300.00
5,268
$395,100.00
1,116
$223,200.00

2107
1,429,608
$42,985
$429,850.00
21,493.00
$429,860.00
12,896.00
$1,934,400.00
8,597
$644,775.00
1,820
$364,000.00

2018
1,488,734
$61,555
$615,550.00
30,778.00
$615,560.00
18,467.00
$2,770,050.00
12,311
$923,325.00
2,607
$521,400.00

Total Rev/Month

1,106,000

2,330,390

3,802,885

5,445,885

Total Distributors
Total Rev/Year

1,335,000
13,272,000

1,403,591
27,964,680

1,517,399
45,634,620

1,614,452
65,350,620

0
1
2
3
4

Subscribers
Revenue
Subscribers
Revenue
Subscribers
Revenue
Subscribers
Revenue
Subscribers
Revenue
Subscribers
Revenue

2014
1,335,000
$$0
$0
$$0
$-

Number of Selling Distributors projections (based on a linear growth model)

120,000

Year

Number of Selling Distributors

2011

41,816

2012

51,790

2013

102,117

2014

102,117

2015

102,117

2016

107,584

2017

117,558

2018

127,532

y = 30151x - 6E+07
R = 0.8701
100,000

80,000

60,000

40,000

20,000

0
2010.5

2011

2011.5

2012

2012.5

2013

2013.5

A breakdown of estimated profit margins associated with the tiered

membership program (appendix).
Level 1:

500 business cards: $5

300 pamphlets: $20
Total cost: $25/distributor
Distributors pay $120/year. (120-25)/120=.79 margin
This is conservative, as not all distributors will take advantage of full quantity

Level 2

Incorporates $25 of cost from tier

Web design team creates templates: $25,000 spread out over 5 years= $5000/25000 subscribers= $.20/year (negligible)
Domain and Hosting: $15/month*12 months= $180
Distributor pays 240/year. (240-180-25)/240= .15 margin

Level 3

Recording quarterly training (negligible)

Distribution via web page (negligible)
Distributor pays 900/year. (900-180-25)/900= .77 margin

Level 4

30 consultants with expertise in specific regions. Each with salary of $100,000. $3,000,000/15,000 distributors=$200 cost
Distributor pays 1,800. (1800-200-180-25)/1800= .78 margin

Level 5

Scanner production and distribution cost= $250

Distributor pays $2400. (2400-250-200-180-25)/2400= .73 margin

Breakdown of costs, revenue and profits at five years of implementation for

the tiered membership program.
Level

Subscribers in
2018

Perks

No support

Brochures/business cards

Internet Marketing

Training

Lead Generation
Consultation

Scanner

1,488,734
61,555
30,778.00
18,467.00
12,311
2,607

Cost

Revenue Per Year

-- $

10.00

20.00

75.00

150.00

200.00

Total Rev.
Net Profit

Profit Margin

Net Profit

-$7,386,600.00
$7,386,720.00
$33,240,600.00
$11,079,900.00
$6,256,800.00

0.79
0.15
0.77

0.78
0.73

$5,835,414.00
$1,108,008.00
$25,595,262.00
$8,642,322.00
$4,567,464.00

$65,350,620
$45,748,470.00

Note: We estimate that the effect of this plan on distributor success will cause an increase in
Nu Skins overall revenue in addition to the revenue brought in by membership fees.

DCF Analysis of cash flows from the ageLOC resort for Nu Skin and for the owner of the resort
assuming a WACC of 7.65%.

Present Value of Cash Flows

Nu Skin Cash flows are calculated as shown to the right.

Owner cash flows in year 1 are netted with initial outlay to
represent the cash flows after investments.
Owner cash flows in year 2 are assuming no change in NWC
ageLOC Resort (Nu Skin)

Year 1
Year 2
Year 3
Year 4
Year 5
Cash Flow
$ 51,125,881 $ 53,324,293 $55,617,238 $58,008,779 $60,503,157
Present Value
$47,493,499
$46,016,316 $44,585,077 $43,198,354 $41,854,762
Total
$223,148,008

ageLOC Resort (Owner)

Cash Flow
$
Present Value
Total

Year 1
Year 2
Year 3
Year 4
Year 5
9,035,796 $ 25,468,206 $26,563,338 $27,705,562 $28,896,901
$8,393,822
$21,977,844 $21,294,270 $20,631,957 $19,990,245
$92,288,138

*Calculations of WACC on next slide

Analysis of Cash Flows

Cash Flows (Nu Skin)
EBT*(1-T)

66,855,922

Depreciation

(Capex)

(Change NWC)
Cash Flow

(17,837,820)
$

49,018,102

Cash Flows (Owner)

Earnings

7,901,722

Depreciation

16,516,500

(Capex)
(Change NWC)

(14,845,276)
$

(537,150)
9,035,796

Initial Outlay

(15,382,426)

Analysis of land, building and start up costs associated with ageLOC Resort to reach an
estimated initial outlay.
Land Analysis (LA):
Acres
Cost
58.25
$ 319,000
10.41
$ 139,000
35.91
$ 1,250,000
$
463
10.29
$ 950,000
420
20.64
$ 288,000
7.35
$ 825,000
75
8.23
$ 100,000
6.95
$ 1,389,990
31,500
4.27
$ 195,000
10,500
16.79
$ 795,000
Average
10
Median
5
Land Analysis (Miami):
3
Acres
Cost
$
3,200
9.6 $ 225,000
2.00
$ 395,000
$
8,000
10.13
$22,000,000
$
50,000
9.68
$ 8,000,000
$
2.5
1.22
$ 4,000,000
13.42
$ 395,000
9.02
$ 850,000
10.00
$ 999,999
15.68
$ 1,750,000
(14,595,000.00)
Average
Median
(250,276.27)

Per Acre
$ 23,437.50
$ 197,500.00
$ 2,171,767.03
$ 826,446.28
$ 3,278,688.52
$ 29,433.68
$ 94,235.03
$ 99,999.90
$ 111,607.14
$ 759,235.01
$ 154,553.57

(222,000)
$ (315,150.00)
$(15,382,426.27)

$ 390,023.19
$ 92,322.64
$ 100,110.51

Assumptions
Initial Investment Costs
Building
47%

50%

1%

1%

1%

Land
Pool/Hot
Tub/Sauna
Spa Equiptment

Initial Outlay = $15,382,426

Resort Costs:
Cost per Sq/Ft
Avg. Room Size (sq/ft.)
Number of Rooms
Square Footage (Rooms and
Lobby)
Square Footage (Spa)
Number of Saunas
Number of Hot Tubs
Number of Pools
Cost Per Sauna
Cost Per Hot Tub
Cost Per Pool
Resort Acreage

Investments:
Building
Land
Pool/Hot Tub/Sauna
Spa Equipment
Total Investment

Average Land Costs

Median Land Costs
Average Median

Per Acre
$
5,476.39
$ 13,352.55
$ 34,809.25
$ 92,322.64
$ 13,953.49
$ 112,244.90
$ 12,150.67
$ 199,998.56
$ 45,667.45
$ 47,349.61
$ 57,732.55
$ 45,667.45

Computation of Nu Skins Weighted Average Cost of Capital (WACC) using market data.

Cost of Equity
Cost of Debt

WACC

11.66%Weight of Equity 0.47Beta

6.19%Weight of Debt

7.65%

1.68

0.53RFF

2.35%

ERP

7.89%

Tax Rate 34.22%

Cost of Equity determined as

CAPM [RFF+(ERP-RFF)]
Cost of Debt calculated as the
median of Nu Skins current
outstanding bonds.

Nu Skins Beta found on Google Finance

Risk Free Rate set at the rate of a 10-year Tbill.
Weight of Equity = Equity/Total
Equity Risk Premium set at the 10-year return
Assets
on S&P 500.
Tax rate calculated as the three-year average Weight of Debt = Debt/Total
from Nu Skins financials
Assets.

Amortization schedule of payments received from ageLOC spa owners, assuming that Nu Skin
offers franchising at a rate equal to WACC.

Amortization Schedule
Nu Skin can make
an addtional $5
million through
financing.
This schedule
assumes the
issuance of a 15
year note with
interest due
annually.

Period
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Total
Present Value
Interest
Payment

Cash PMT
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700
$1,758,700

7.65%
$1,758,700

Interest
1,176,473.40
1,131,943.71
1,084,008.31
1,032,406.74
976,858.60
917,062.04
852,692.14
783,399.13
708,806.47
628,508.84
542,069.92
449,020.00
348,853.48
241,026.05
124,951.80

Income
582,227.06
626,756.75
674,692.15
726,293.72
781,841.86
841,638.42
906,008.32
975,301.33
1,049,893.99
1,130,191.62
1,216,630.54
1,309,680.46
1,409,846.98
1,517,674.41
1,633,748.66
$15,382,426.27
$5,092,433.36

Principle
15,382,426
14,800,199.21
14,173,442.46
13,498,750.31
12,772,456.59
11,990,614.73
11,148,976.31
10,242,968.00
9,267,666.66
8,217,772.67
7,087,581.06
5,870,950.51
4,561,270.06
3,151,423.07
1,633,748.66
(0.00)