The Australian distributor of the controversial Power Balance wristbands will be placed into receivership today, with the owner of the business saying that sales have “evaporated” since the business provided undertakings to the ACCC to stop claiming the wristbands could improve balance, strength and flexibility.
Power Balance Australia owner Tom O’Dowd has exclusively told SmartCompany that while he had been “naive” in thinking that the business would not by subject to laws surrounding the regulation of health products, the ACCC’s aggressive stance against the products effectively killed off any survival hopes.
“We can’t continue with what the business has sustained since the undertaking was given to the ACCC. The problem has been that the sales have totally evaporated,” O’Dowd told SmartCompany before he left on a trip to hike the Kokoda Track in Papua New Guinea.
The collapse of the business will leave debts of about $800,000 and O’Dowd says he knows that many creditors will think he’s running away from his problems.
He denies this.
“I will always be there to face the music. This [trek] is something we planned last February,” he says.
“To be in a situation where I can’t pay bills and the company can’t pay its bills has left me devastated.”
The Power Balance wristbands, which are endorsed by a number of celebrities and athletes in the United States, hit Australian stores – including sporting good stores and pharmacies – last year.
The bands, which are made of rubber and contain a magnet, are supposed to work by optimising the wearer’s natural energy fields using special holograms.
Power Balance claims the products improve the wearer’s balance, strength and flexibility. The bands were originally marketed in Australia with the phrase “performance technology”.
However, the claims surrounding the products drew the ire of the Australian Competition and Consumer Commission, which forced Power Balance Australia to admit that it has not conducted “double blind” scientific testing to back up the product’s claimed benefits.
On December 22, the ACCC announced Power Balance Australia had agreed to a set of undertakings that would see it stop promoting the products as “performance technology”.
“Consumers should be wary of other similar products on the market that make unsubstantiated claims, when they may be no more beneficial than a rubber band,” ACCC chair Graeme Samuel said at the time.
The ACCC also warned retailers selling the products with the “proven technology” brand that they could face separate action from the watchdog.
O’Dowd says Power Balance Australia worked with the ACCC for about six months prior to the regulator’s announcement and was happy to comply as it could not produce scientific evidence to support its claims.
“There is a degree of naivety on my part as well. We thought we were selling a sporting product and we didn’t realise that we were subject to the Therapeutic Goods Act.”
However, he was surprised Graeme Samuel “decided to make a big thing of it”. The ACCC head did a series of television and media appearances to ridicule the products (see video below).
“The ACCC sent a letter to all of the retailers telling them that if they were caught selling the product they would be fined $10,000. That just killed the market.”
While Power Balance Australia had new packaging available by early January minus the “performance technology” claims O’Dowd found few retailers were keen to re-order.
“By that stage the damage was done and they weren’t terribly interested in it.”
Despite the Power Band products being widely discredited – including by testing from Choice magazine, the results of which the company challenges – O’Dowd still believes the Power Balance products work.
He claims the return rate was just 0.3%, despite the company offering a full refund for any customer who felt they had been misled.
“For me personally, they could put a gun to my head if they like, I will never stop believing in this product. I have seen it work and I have experienced it working,” he says.
“A new distributor will come along and they will make money out of it.”
But O’Dowd is likely to return to the workforce, very much a “devastated” man.
“In real terms I was the captain of the ship and if anyone goes down it should be me.”
“I am going to go away and lick my wounds a little bit. It’s left me without any capital. I’ll get some gainful employment and make some decisions after that.”
He says the big lesson from his experience is clear – there is no room for naivety when it comes to understanding the laws covering your sector.
“Hindsight is a wonderful teacher, but it’s very difficult to know that you are breaking regulations that you don’t know anything about.”
“I do take on what the ACCC says that ignorance is no excuse. But nobody can be an expert on everything.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
