Mary Kay, Inc.
Mary Kay, Inc.
Incorporated: 1963 as Mary Kay Cosmetics, Inc.
Sales: $1.2 billion (1997 est.)
NAIC: 32562 Toilet Preparation Manufacturing; 325611 Soap & Other Detergent Manufacturing; 45439 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 primarily of women who sell full- or part-time through home demonstrations. As of 1999 the company operated in 29 countries around the world.
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 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. 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 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.
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.
Expansion in the 1960s and 1970s
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 an FDA-registered drug manufacturing facility, allowing the company to manufacture and distribute over-the-counter drugs such as sunscreen and acne treatment products.
Our vision: To provide women with an unparalleled opportunity for financial independence, career and personal fulfillment. To achieve total customer satisfaction by delivering the products and services that enhance a woman’s self-image and confidence. The principles we live by: Integrity and the Golden Rule must guide every business decision.
Enthusiasm encourages a positive attitude and provides inspiration as we work together to achieve our goals. Quality in our products and services must be a priority in order for us to deliver value and satisfaction to our customers. Service should be prompt and proactive to provide convenience with a personal touch. Praise motivates everyone to reach their full potential. Leadership among our sales force and employees must be encouraged and recognized in order to achieve long-term success. Teamwork allows each person to be valued and appreciated by others while contributing to the Company’s success. Balancing our lives with God, family and career in harmony will lead to happy, fulfilled lives.
Trouble in the 1980s
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 (IRS) claimed that for 1983–85, 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 three 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.
Recovery in the Early 1990s
The sales force also grew, boasting 220,000 in 1991, an increase in large part due to the inducements 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.
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.
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 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.
Continued International Expansion in the Middle to Late 1990s
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 bestselling 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 bestselling skin care and cosmetics brand for the third year running.
In 1995 Mary Kay Ash retired from her position as chairman because of ill health. Although she retained the title of chair emeritus, by the following year Ash had withdrawn entirely from the company’s operations. Given Ash’s charismatic leadership, many questioned the effect her retirement would have on the company.
Yet 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 bestselling 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 the Ukraine and 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 nine 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 enter the retail market 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. That year Mary Kay was named once again to Fortune magazine’s list of The 100 Best Companies to Work for in America.
Mary Kay Cosmetics Inc.; Mary Kay Mexico; Mary Kay Cosmetics Chile S.A.; Mary Kay Cosmetics China; Mary Kay Cosmetics (Japan) K.K.; Mary Kay Czech Republic S.R.O.
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.
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.
Omelia, Johanna, “Direct Sellers Expand in Asia/Pacific Rim,” Drug & Cosmetic Industry, September 1996, pp. 58–60.
Ross, Teresa, “Beautiful Business: Mary Kay,” Business Mexico, December 1998, p. 72.
—Wendy J. Stein
—updated by Susan Windisch Brown