Mary Kay Corporation

Mary Kay Corporation

8787 Stemmons Fwy.
Dallas, Texas
U.S.A.
(214) 630-8787
Fax: (214) 905-5721

Private Company
Incorporated: 1963
Employees: 1,700
Retail Sales: $1.2 billion
SICs: 6719 Holding Companies, Nee; 2844 Perfumes, Cosmetics & Other Toilet Preparations

One of the largest cosmetics companies in the United States, Mary Kay Cosmetics, Inc., specializes in the manufacture and direct sale of more than 200 products, including skin creams, cosmetics, and other personal care items. Its direct sales force consists primarily of women who sell full- or part-time through home demonstrations. Mary Kay Corporation is the holding company for the cosmetics firm.

Mary Kay Ash founded the company that bears her name in 1963, after 25 years of direct selling for other companies, beginning in the late 1930s. A direct sales career allowed her the flexibility she needed as a single mother raising three children.

For many years Mary Kay was a sales representative for Stanley Home Products, presenting “home shows” at the residences of customers. She operated as an independent contractor who purchased merchandise from Stanley and then sold it herself. After a slow first year, the next year she had become “sales queen.”

She recruited other women as salespeople since Stanley paid a small commission to the recruiter for the sales of each person recruited. She had eventually signed 150 women and received a small percentage of the sales of each. When Stanley insisted that she move to Dallas to develop its market, but would not pay her any commissions for the sales of the women she had recruited in the Houston area, she reluctantly made the move, but in 1959 Mary Kay left Stanley. Soon afterward, she became a representative for World Gift Company, where she quickly became its national training director. After a disagreement with World Gift, she resigned in 1963.

With no full-time occupation, Mary Kay Ash decided to write a book about direct sales, but it became a book on managing people. She began to think about what a “dream company” might look like, and the book waited 20 years to be written and published. She wrote in Mary Kay on People Management that her main objectives became to build an organization where the Golden Rule was the guiding philosophy and to “establish a company that would give unlimited opportunity to women.” She also said she based her company on three fundamental principles: God first, family second, and career third.

Mary Kay decided on a direct sales company since that was the area with which she was familiar; direct sales would also be appealing to women who could sell part-time and follow a flexible schedule. After deciding on structure, she chose as a product a line of skin care products she had been using for more than a decade.

She had been introduced to the skin care products while she was selling Stanley products at a home party. The hostess, a cosmetologist, was testing these products on her friends. This woman had developed the products from a leather tanning solution her father had formulated, after he noticed how young his hands looked from using the solution every day. Although the cosmetologist marketed the products to her friends, she did not achieve great success in sales. After her death in 1961, Mary Kay bought the formula from the woman’s daughter.

Mary Kay and her husband invested their life savings of $5,000 to rent a small office and manufacture an initial inventory of skin care products. They also recruited nine independent sales representatives.

Only a month before the company was to open for business, Mary Kay’s husband died, but Mary Kay decided to proceed with the opening. Her 20-year-old son Richard Rogers quit his job and for $250 a month ran the financial and administrative operations. His qualifications consisted of two college marketing courses and his experience as a sales representative for a life insurance company. Within the year, Mary Kay’s son Ben moved his family to Dallas, took a pay cut, and went to work for the family company. Daughter Marylyn joined the company later, becoming the first Mary Kay Director in Houston.

Beauty by Mary Kay opened on Friday, September 13, 1963. The products were manufactured by a Dallas company and sold through a network of salespeople, who were called “beauty consultants” and were required to purchase an initial “Beauty Showcase” kit. The beauty consultants were trained on scheduling and conducting Mary Kay parties, or “skin care classes,” in private homes. Beauty consultants purchased Mary Kay products at 50 percent below retail and resold them. They also received commissions for sales of salespeople they recruited.

The company tried to differentiate itself from a company that used illegal pyramiding. Unlike pyramid operations, Mary Kay sold its products to all of its consultants for the same 50 percent discount. It also took recruiter bonuses out of company earnings, not out of each sales recruit’s earnings.

The company also developed specific guidelines for its salespeople. Emphasis at home parties was on teaching, rather than selling, and the number of guests was held to no more than six.

Delivery and payment on the spot were required, and beauty consultants could not purchase from the company on credit. Mary Kay also limited its product line so that salespeople would be knowledgeable about each product.

Unlike many companies, Mary Kay did not limit sales territories. Beauty consultants could recruit other consultants from anywhere in the world. She also initiated an incentive program which included the use of a pink Cadillac. This famous prize was established in 1967 when a pink Cadillac was awarded to the top sales director. The year after that, five Cadillacs were awarded and the next year, ten. By 1970, the company was awarding 20 Cadillacs. Later, rather than awarding them on a top-seller basis, they were awarded to any sales director reaching a pre-set sales level. By 1993, 6,500 consultants were driving pink Cadillacs or other complimentary cars.

Annual conventions were held to recognize achievement, a practice which quickly became an important public relations event. Among other programs, the conventions featured workshops for husbands of Mary Kay consultants on how to be supportive of their wives’ Mary Kay careers.

In the first full year of operation, sales totaled $198,514 and the company had 318 consultants. Soon, more office space was needed and Mary Kay moved to a three-office headquarters with a training room and warehouse space for a total of 5,000 square feet. Within two years, Mary Kay had about 850 beauty consultants selling its beauty products.

After that year, Mary Kay considered franchising to reach a wider market but decided against it because many women would have to turn to men for financing, which would reduce the level of independence which the company had tried to facilitate. Instead, in 1967, the company went public and used the proceeds from the stock to fund its expansion. Mary Kay Cosmetics was the first company on the New York Stock Exchange chaired by a woman.

For the next decade and a half, sales grew at an average of 28 percent per year. However, between 1974 and 1978 sales slowed. To revive them, the company increased compensation rates for consultants. Sales rates once again rose and ranged from 29 percent to 82 percent growth for the next four years.

As sales grew, so did the company’s need for space, so in 1969, a new 275,000-square-foot manufacturing facility was built in Dallas. A few years later, four regional distribution centers were constructed and in 1977 a new eight-story headquarters building opened in Dallas. In 1993, the Mary Kay manufacturing facility was the size of three football fields. It also became an FDA-registered drug manufacturing facility, allowing the company to manufacture and distribute over-the-counter drugs such as sunscreen and acne treatment products.

The 1980s brought a reduction of growth as employment opportunities for women grew and more entered the full-time workforce. Between 1983 and 1985, Mary Kay’s contingent of sales consultants was cut in half to 100,000. Sales fell from $323 million to $260 million. Fewer women were available to sell the products and fewer were home to buy them.

Mary Kay stock value dropped significantly because of investors’ worries about dropping profits. Concerned about how new product introduction and incentive programs were being affected by quarterly disclosure of financial information, Mary Kay and son Richard, Mary Kay’s president, decided to take the company private again and bought back all outstanding stock for $315 million. The buyout proved troublesome for Mary Kay because the Internal Revenue Service claimed that for 1983, 1984, and 1985, Mary Kay owed back taxes since the notes that were issued during the buyout should have been considered equity. Mary Kay contended that its interest payment deductions were proper. The matter was settled in 1991 when Mary Kay Corporation paid the IRS $3 million.

In 1989, Mary Kay tried to take over its largest rival, Avon Products, but was unsuccessful. Mary Kay Corporation then joined forces with other investors to form Chartwell Associates, and this group purchased a 19.8 percent share of Avon. The group also controlled two seats on the Avon board. However, Avon blocked the Chartwell coalition from purchasing more stock. Mary Kay announced it was withdrawing from the association in early 1991. However, shortly after that, Chartwell sold most of its shares, leaving Mary Kay and another associate with a 3 percent share of rival Avon.

Despite tax and acquisition troubles, sales started to rise and climbed to $280 million a year after the company became private again. Mary Kay Ash became chairwoman emeritus of Mary Kay Cosmetics in 1987, and Richard became chairman.

The sales force also grew, boasting 220,000 in 1991, an increase largely due to the inducements of larger commissions and bonuses. More consultants, however, were part-timers. Nearly 70 percent of the consultants had other jobs, while prior to the buyout, only 33 percent of the sales force held other jobs.

Mary Kay Cosmetics was included in both the 1984 and 1993 editions of The 100 Best Companies to Work for in America. In 1993, Mary Kay also became a Fortune 500 company. The company surpassed $1 billion in retail sales in 1992, distributing more than 200 products through a sales force of more than 250,000 consultants in nineteen countries.

By 1993, the company had more than 300,000 sales people in the United States and abroad selling to nearly 20 million customers. More than half its national sales directors had earned more than $1 million during their Mary Kay careers, and the company was awarding nearly $38 million in prizes every year.

Mary Kay has also responded to growing pressure to improve its environmental practices. In 1989 it was the target of Berke Breathed’s satirical “Bloom County” comic strip for testing its products on animals. The company stopped this practice later that year, and it also instituted a company-wide recycling program, having recycled 11 million pounds of material by mid-1993.

The cosmetics market was highly competitive going into the 1990s, and industry growth was expected to hover only around the rate of inflation. Mary Kay Cosmetics, however, was looking to the overseas market for its greatest growth. It had been steadily adding foreign subsidiaries since 1971 when it opened its first international subsidiary in Australia. Mary Kay opened subsidiaries in Canada in 1978, Argentina in 1980, Germany in 1986, Mexico and Thailand in 1988, Taiwan in 1991, and Spain in 1992.

Beauty consultants in many international markets distributed products made in the United States; however, some Mary Kay products were produced in foreign countries for sale in those countries. Some foreign governments required that products be manufactured locally, while in other countries the duties on imports were so high that only local production would make the products affordable. However, samples of all products were sent to the United States for testing.

By 1993, Mary Kay Cosmetics also had representatives in Bermuda, Brunei, Chile, Guatemala, Malaysia, New Zealand, Norway, Singapore, Sweden, and Uruguay. The company was considering foreign expansion options, including acquiring a manufacturing plant in Europe.

Further Reading

Ash, Mary Kay, Mary Kay, New York: Harper & Row, 1981, 1987.

____, Mary Kay on People Management, New York: Warner Books, 1984.

Byron, Christopher, “Garbage Time,” New York, April 1, 1991, pp. 16–17.

Farnham, Alan, “Mary Kay’s Lessons in Leadership,” Fortune, September 20, 1993.

Hattwick, Richard E. “Mary Kay Ash,” Journal of Behavioral Economics, Winter 1987, pp. 61–69.

—Wendy J. Stein