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Mary Kay Inc.

Mary Kay Inc.


P.O. Box 799045
Dallas, Texas 75379-9045
U.S.A.
Telephone: (972) 687-6300
Toll Free: (800) MARY KAY (627-9529)
Fax: (972) 687-1609
Web site: http://www.marykay.com

Private Company
Incorporated: 1963 as Mary Kay Cosmetics, Inc.
Employees: 3,600
Sales: $2.2 billion (2005)
NAIC: 325620 Toilet Preparation Manufacturing; 325611 Soap and Other Detergent Manufacturing; 454390 Other Direct Selling Establishments

One of the largest cosmetics companies in the United States, Mary Kay Inc. specializes in the manufacture and direct sale of more than 200 products, including skin creams, cosmetics, fragrances, dietary supplements, and other personal-care items. Its direct sales force consists of more than 1.3 million Independent Beauty Consultants (mostly women) who sell full- or part-time through home demonstrations. The company operates in three dozen markets around the world.

COMPANY ORIGINS

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, born Mary Kathlyn Wagner, 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 became "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 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 while she built that dream company. Later, in Mary Kay on People Management, she wrote 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 to start a direct sales company since that was the area with which she was familiar; direct sales also would be appealing to women who could sell part-time and follow a flexible schedule. After deciding on a 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 and, 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.

1963: THE FIRST YEAR

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 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 in 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 companies 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. The company also initiated an incentive program that 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 preset sales level. By 1993, 6,500 consultants were driving pink Cadillacs or other complimentary cars.

Annual conventions were held to recognize achievement, a practice that 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.

COMPANY PERSPECTIVES


Achievement. Success. The realization of dreams. Mary Kay Inc. was created from one woman's desire to enrich women's lives. She began by offering quality products to enhance a woman's image and a perfect business opportunity to help women earn extra money, enjoy more flexibility and grow as independent business owners. The result is a company that, more than 40 years later, still embodies the core philosophies of its founder: to use the Golden Rule as a business guide and to help women live a balanced life by placing God first, family second and career third.

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.

PUBLIC IN 1967

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 that the company had tried to facilitate. Instead, in 1967, the company went public and used the proceeds from the IPO 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. Between 1974 and 1978, however, 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 a Food and Drug Administrationregistered 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.

PRIVATE AGAIN IN 1985

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 Rogers, 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 (IRS) claimed that for 1983 to 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 Inc. paid the IRS $3 million.

In 1989 Mary Kay tried to take over its largest rival, Avon Products, but was unsuccessful. Mary Kay 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. Avon blocked the Chartwell coalition from purchasing more stock, however. Mary Kay announced that it was withdrawing from the association in early 1991. Shortly after that, however, 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.

INTO THE FORTUNE 500

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

KEY DATES


1963:
Mary Kay Ash establishes her "dream company" to offer women unlimited opportunity.
1969:
The company begins building its Dallas plant.
1971:
International expansion begins with Australian venture.
1976:
The company goes public on the New York Stock Exchange.
1985:
The family takes Mary Kay private again.
1991:
Wholesale sales reach $500 million.
1995:
Mary Kay China is established.
1996:
Wholesale sales exceed $1 billion.
2001:
Company founder Mary Kay Ash dies.
2003:
Mary Kay has more than one million Independent Beauty Consultants.
2005:
Wholesale sales exceed $2 billion.

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 19 countries. By 1993, the company had more than 300,000 salespeople 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 also was responding 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 companywide recycling program, recycling 11 million pounds of material by mid-1993.

In 1991 Mary Kay expanded its product line to include bath and body products developed as part of its joint venture with International Flavors & Fragrances. These products, along with the 1993 introduction of Skin Revival System, helped the company recover from the slowing sales of the 1980s.

INTERNATIONAL EXPANSION

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, but some Mary Kay products were produced in foreign countries for sale in those countries. Some foreign governments required that products be manufactured locally, whereas in other countries the duties on imports were so high that only local production would make the products affordable. Samples of all products were sent to the United States for testing, however.

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 additional foreign expansion options, including acquiring a manufacturing plant in Europe. Mary Kay's most important expansion that year was its entrance into Russia. Within two years, the company's Russian operations were pulling in $25 million in revenues.

The company's expansion into Asia was even more important to the company's growth in the mid-1990s. Mary Kay had developed very successful operations in Taiwan since it began operating there in 1991. By 1995 the company was generating revenues of $29 million there and anticipated even greater growth as Taiwan lowered its duty rate. The company moved into Japan in 1994 and China in 1995. Both countries were difficult to enter: Japan because the company had to reformulate most of its products to meet strict regulations, and China because of the complicated politics that had to be negotiated.

By 1993 Mary Kay had become the best-selling brand of facial skin care and cosmetics in the United States, with wholesale sales of more than $735 million. In addition to its financial success, the company still was considered an outstanding employer, making the lists of both the Fortune 500 and The 100 Best Companies to Work for in America. Two years later, the company had surpassed $950 million in wholesale sales and was the best-selling skin-care and cosmetics brand for the third year running.

In 1995 Mary Kay Ash stepped down from an active role in the company due to ill health. Although she retained the title of chair emeritus, in the following year Ash suffered a stroke and withdrew entirely from the company's operations. Given Ash's charismatic leadership, many questioned the effect her absence would have on the company.

$1 BILLION IN WHOLESALE SALES IN 1996

In 1996 Mary Kay experienced its tenth consecutive year of record sales, with wholesale sales topping the $1 billion mark. In 1997 Mary Kay was the best-selling brand of facial skin-care and color cosmetics in the United States, its fifth consecutive year to achieve that standing. The same year the company expanded into Ukraine and the Czech Republic, and the following year into Brazil.

International operations remained an important source of growth for Mary Kay in the late 1990s. The company's prospects varied widely from country to country. Mary Kay's top-selling international subsidiary, Mary Kay Mexico, saw a 56 percent increase in revenues in 1997 over the year before. In 1998, after ten years in operation, the subsidiary held 9 percent of the local cosmetics market. Between 1995 and 1998 the sales force grew 233 percent.

Mary Kay hoped to see similar success with its operations in China, but was thwarted by the Chinese government in 1998. That year China announced a ban on direct sales, sending the burgeoning operations there of Avon, Amway, and Mary Kay into a tailspin. Mary Kay was forced to abandon its traditional sales plan and open retail stores to continue selling in the country. Despite this setback, the company entered the Hong Kong market in 1999, notwithstanding its reversion to Chinese rule that year.

The company celebrated its 35th anniversary in 1998 with the introduction of a white GMC Jimmy sport-utility vehicle to its sales incentive plan. While the famous pink Cadillac remained a top prize, two other GM cars, a red Pontiac Grand Am and a silver Oldsmobile Vibe, were soon added as entry level awards. At the end of the 1990s, Mary Kay had 3,300 employees and more than 500,000 Independent Beauty Consultants in 29 markets around the world. It was believed to have the largest passenger vehicle fleet in the world, with 9,000 vehicles in the United States.

TURNING TO A NEW GENERATION

Mary Kay's appeal was perhaps strongest to older women. The company courted younger generations with a new brand for girls rolled out in 2001. Called Velocity, its fragrance was said to convey the exuberance and possibility of youth. There was also a Velocity cosmetics line to complement the more classic MK Signature. The product line included several other brands as well.

Company founder Mary Kay Ash passed away on Thanksgiving Day, 2001, at the age of 83. The company marked her passing with a fragrance, Mary Kay Tribute, whose formula included the fragrant Pink Rose of Texas. Ash would be honored by numerous media outlets as one of the most remarkable American businesswomen of the twentieth century.

At the urging of his mother, Richard Rogers, who left the company in 1991, had returned to the CEO spot in 2001, replacing longtime Mary Kay veteran John Rochon. Five years later, the founder's son moved to the position of executive chairman as David Holl was promoted to the CEO spot. Holl had been with the company since 1993, serving as president and chief operating officer since 2001.

By 2003, Mary Kay had more than one million Independent Beauty Consultants. The company's annual convention, celebrating its 40th anniversary, drew more than 53,000 of them to Dallas. Its wholesale sales were more than $2.2 billion in 2005. About $900 million came from outside the United States. Mary Kay was active in three dozen countries by this time.

China, with 400,000 Independent Beauty Consultants, was Mary Kay's largest international market, and was growing at a pace to overtake the U.S. market in ten years. The company had had to adapt to local preferences; the bronzers and self-tanners popular in the United States were ditched in favor of skin whitening products. The sales network operated somewhat differentlyappointments were held in commercial spaces rather than in private homesalthough the system was still fueled by entrepreneurial incentives. Instead of Cadillacs, the highest performers received Chinese-made pink Volkswagen sedans.

Mary Kay was already building another plant in Hangzhou to replace its original manufacturing facility, which had been its first overseas plant. This facility produced all of the 200 or so products the company sold in China, and also exported to other nearby countries. The company also had a factory in Neuchâtel, Switzerland, and was building a manufacturing facility in South America.

Mary Kay claimed the title of best-selling skin-care and cosmetics brand in the United States and its operations in Dallas, Texas, remained very busy. When the company updated its inventory management systems in 2004, its five U.S. distribution centers were handling 24,000 orders per day from a list of about 400 products.

Wendy J. Stein

Updated, Susan Windisch Brown;

Frederick C. Ingram

PRINCIPAL SUBSIDIARIES

A.O. Mary Kay Zao (Russia); Inversiones Masdel S.A. de C.V. (Guatemala); Lesley Cosmetics AB (Sweden); Mary Kay (Moldova) Ltd.; Mary Kay (China) Cosmetics Co., Ltd.; Mary Kay Cosmetic Poland Sp. z.o.o.; Mary Kay Cosmeticos Do Brasil Ltda.; Mary Kay Cosmetics De España; Mary Kay Cosmeticos de Mexico, S.A. de C.V.; Mary Kay Cosmeticos S.A. (Argentina); Mary Kay Cosmeticos, S.A. (Uruguay); Mary Kay Cosmetics GmbH; Mary Kay Cosmetics (New Zealand) Inc.; Mary Kay Cosmetics, Pty. Ltd. (Australia); Mary Kay Cosmetics S.A. (Portugal); Mary Kay Cosmetics (Taiwan) Inc.; Mary Kay Cosmetics (U.K.) Ltd.; Mary Kay (Czech Republic) S.R.O.; Mary Kay (Hong Kong) Limited; Mary Kay (Kazakhstan) LLP; Mary Kay (Korea) Limited; Mary Kay (Malaysia) Sdn Bhd; Mary Kay Philippines, Inc.; Tov Mary Kay (Ukraine) Ltd.

PRINCIPAL COMPETITORS

Avon Products Inc.; Nu Skin Enterprises Inc.

FURTHER READING

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

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

, Miracles Happen: The Life and Timeless Principles of the Founder of Mary Kay, Inc., New York: Quill, 2003.

, You Can Have It All: Lifetime Wisdom from America's Foremost Woman Entrepreneur, Rocklin, Calif.: Prima Lifestyles, 1995.

Box, Terry, "Mary Kay, GM Sitting Pretty with Partnership: Pink Cadillacs Present a Golden Opportunity for Automaker," Dallas Morning News, August 5, 2006.

Byron, Christopher, "Garbage Time," New York, April 1, 1991, pp. 1617.

Farnham, Alan, "Mary Kay's Lessons in Leadership," Fortune, September 20, 1993.

Gentry, Connie Robbins, "More Than Skin Deep: Mary Kay Manages Inventory from Manufacture to Consumption," Chain Store Age, January 2005, p. 68.

Glick, Julia, "Exporting Mary Kay: China Will Grow to Be Cosmetic Seller's Largest Market," Cincinnati Post, August 8, 2006, p. A5.

Guest, Christina, "Talk About a Power Perk: Mary Kay's Pink Cadillac," Kansas City Business Journal, June 11, 1999, p. 15.

Halkias, Maria, "Founder's Son Takes over Dallas-Based Cosmetics Firm," Dallas Morning News, June 27, 2001.

Hattwick, Richard E., "Mary Kay Ash," Journal of Behavioral Economics, Winter 1987, pp. 6169.

Holley, Jonathan, "The Dynasty from Dallas," European Cosmetic Markets, August 2004, pp. 313ff.

Hulme, Virginia A., "Mary Kay in China: More Than Makeup," China Business Review, JanuaryFebruary 2001, pp. 4246.

Kirkpatrick, John, "New CEO of Mary Kay Cosmetics Giant to Break Up Investment Firm," Knight-Ridder/Tribune Business News, June 29, 2001.

Klepacki, Laura, "Mary Kay Celebrates Four Decades," WWD, September 12, 2003, p. 10.

Ligos, Melinda, "Direct Sales Dies in China," Sales & Marketing Management, August 1998, p. 14.

Marchetti, Michele, "Mary Kay," Sales & Marketing Management, November 1996, p. 68.

"Mary Kay Making Great Strides," New Straits Times, July 8, 2001.

Nemy, Enid, "Mary Kay Ash, Builder of Beauty Empire, Dies at 83," New York Times, November 24, 2001, p. A13.

Omelia, Johanna, "Direct Sellers Expand in Asia/Pacific Rim," Drug & Cosmetic Industry, September 1996, pp. 5860.

Pianoforte, Kerry, "Mary Kay's Youthful New Line: Velocity," Household & Personal Products Industry, August 2001, p. 135.

Ross, Teresa, "Beautiful Business: Mary Kay," Business Mexico, December 1998, p. 72.

Sheehy, Sandy, Texas Big Rich: Exploits, Eccentricities and Fabulous Fortunes Won and Lost, New York: William Morrow & Co., 1990.

Simnacher, Joe, "Cosmetics Icon Mary Kay Ash Dies," Dallas Morning News, November 23, 2001.

Stefoff, Rebecca, Mary Kay Ash: Mary Kay, a Beautiful Business, Ada, Okla.: Garrett Educational Corporation, 1992.

Underwood, Jim, More Than a Pink Cadillac: Mary Kay, Inc.'s Nine Leadership Keys to Success, New York: McGraw-Hill, 2002.

"US' Mary Kay to Invest over 100 Mln Yuan to Set Up Production Center in China," AFX International Focus, July 4, 2003.

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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 womans 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 Kays 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 Kays 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 recruits 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 companys 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 Kays 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 Kays 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 Breatheds 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. 1617.

Farnham, Alan, Mary Kays Lessons in Leadership, Fortune, September 20, 1993.

Hattwick, Richard E. Mary Kay Ash, Journal of Behavioral Economics, Winter 1987, pp. 6169.

Wendy J. Stein

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