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 Administration–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.

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 differently—appointments were held in commercial spaces rather than in private homes—although 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. 16–17.

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. 61–69.

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, January–February 2001, pp. 42–46.

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. 58–60.

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.

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

Mary Kay Inc.

founded: 1963

Contact Information:

headquarters: 16251 n. dallas pky.
dallas, tx 75248-2696 phone: (214)905-5931 fax: (214)630-8787 toll free: (800)mary-kay (627-9529)
url: http://www.marykay.com

OVERVIEW

With wholesale sales over $1 billion in 1997, which equals more than $2 billion at the retail level, Mary Kay is the best-selling brand of color cosmetics and skin care products for men and women in the United States. By the late 1990s, the company had captured 10 percent of the U.S. facial skin care market and 9 percent of the market for facial color cosmetics. However, the Dallas-based company is perhaps best known for the pink Cadillacs given to top-performing salespeople. The Mary Kay line consists of more than 200 products for facial skin care, hair and nail care, sun protection, fragrances, nutritional supplements, color cosmetics, and body care. Mary Kay products are sold by independent "beauty consultants" who choose to work either full- or part-time, buy their product inventories at cost from the company, then sell directly to consumers. By 1998 Mary Kay had 500,000 beauty consultants in 26 countries.

COMPANY FINANCES

In 1992, a year after retail sales exceeded $1 billion, Mary Kay made its first appearance on the list of Fortune 500 companies. During the period from 1993 to 1996, wholesale and retail sales continued to soar. Wholesale sales climbed from $735 million in 1993 to $1.0 billion in 1996, the company's tenth consecutive year of record sales. Corresponding retail sales grew from $1.4 billion in 1993 to $2.0 billion in 1996. Mary Kay's figures held steady in 1997.

ANALYSTS' OPINIONS

Part of the key to the company's success, according to an article in Soap-Cosmetics-Chemical Specialties, "is its focus on women. Mary Kay Ash created the company in response to her own experiences as a single, working mother who discovered there were no real advancement opportunities for women in traditional direct-sales firms, and especially not for women who had to take care of their family." By 1998, the company estimated that more than 20 million consumers in the United States alone purchased 150 million Mary Kay products annually.

HISTORY

The story of Mary Kay Cosmetics is inextricably bound to the story of its founder, Mary Kay Ash. A native of Texas, Mary Kay lived in Houston and as a child, was made to be self-reliant by her family circumstances. Her father was ill with tuberculosis, so her mother supported the family by working long hours managing a restaurant.

The stories of Mary Kay's life are a part not only of the corporate lore but also serve as inspirational and motivational tales, according to Texas Monthly. "When Mary Kay tells [her] story in public, she makes it sound so charming that her audiences burst into laughter; but the truth is that Mary Kay grew up practically an orphan."

Married at 17, Mary Kay had three children before her marriage failed after discovering her husband had lived with another woman for three years. At the time, it was unusual for a woman to work, especially a single mother. The "work" of the divorced woman was to find another husband. But Mary Kay moved her family to Dallas and began to work as a salesperson for Stanley Home Products, which sold household products at "parties" generally hosted by housewives and attended by female friends and neighbors. Her sales were remarkable, and after about a decade at Stanley, she was lured away to become national sales director for World Gifts, another direct sales company. Her professional life during this period came before that of her family. She had a couple of brief marriages during this time, but the focus was on her career. In 1963 she was given a male assistant—she taught him everything she knew about selling and training others. Less than a year later, he was promoted above her at twice her salary. Devastated, she quit. This event prompted her to form her own cosmetics company.

A few years earlier, she had met Ova Heath Spoone-more, who was selling homemade skin care products made from formulas her father, a tanner, created in the 1930s. Mary Kay paid Spoonemore's daughter for a copy of the product formulas that reportedly gave her younger looking skin.

Mary Kay's company was unusual because it was built by women for women—without men. According to Texas Monthly, "She designed a company where a woman could make as much money as she wanted based upon what she sold, not whether the male boss liked her." Knowing that the last time many women had been applauded was when they walked across the stage at high school graduation, she also created a system in which her consultants received a series of prizes—from ribbons and pins to small black and white television sets.

With $5,000, Mary Kay opened her business in a tiny Dallas storefront. The only men in the company were two of her sons. Sales in the first year reached $198,000. It was then that the tradition known as "Seminar" began. Rather than the hybridization of Las Vegas-like stage show and beauty pageant that it is today, Mary Kay simply cooked a chicken dinner for the 200 women in her company.

FAST FACTS: About Mary Kay Inc.

Ownership: Mary Kay is a private subsidiary of Mary Kay Holding Co.

Officers: Mary Kay Ash, Chmn. Emeritus; Tim Byrd, CFO

Employees: 3,500

Chief Competitors: As a manufacturer and wholesaler of facial skin care and color cosmetics, Mary Kay competes directly with: Avon Cosmetics and Beauti-Control.

Soon after the company was founded, a feud began that continues to this day. Mary Kay reportedly backed out of a promise to name one woman as the first national sales director. The woman quit and went to the Heath-Spoonemore heir looking to buy into a small company called BeautiControl. Another Mary Kay loyal went with her. In 1966 Mary Kay Cosmetics sued BeautiControl and the two former employees on the basis that they were attempting to destroy Mary Kay Cosmetics by stealing consultants and customers. This vindictive battle reached a fever pitch until, in 1969, the sides settled: Mary Kay could say her formulas came from a tanner; BeautiControl could use the actual names and pictures of the Arkansas tanner and his family. Fear of being sued by Mary Kay Cosmetics decimated the ranks of Beauti-Control sales directors and consultants. The former Mary Kay employees who headed BeautiControl would sell it in a few years to Tri-Chem, a New Jersey direct-sales company.

Also in 1966, Mary Kay was married to Mel Ash, a man who did not seem to mind her workaholic temperament. Mary Kay Cosmetics continued to thrive with the founder and her son Richard at the helm. In 1979 sales exceeded $100 million, and the company boasted 50,000 consultants and sales directors. Ironically, shortly after Mel Ash's death in 1980, Mary Kay's nemesis, Beauti-Control, resurfaced after being bought by Dick and Jinger Heath, who resuscitated the rivalry to an intense new high.

Mary Kay Cosmetics' sales dropped between 1983 and 1985—from $323 to $249 million. The stock bottomed out at $9. In part the crisis was a result of the improving economy since traditionally, women quit their jobs or find steady employment during economic peaks rather than continue to work in direct sales, according to Texas Monthly. The company's growth was stagnant.

"What few analysts or business reporters understood, however, was that Mary Kay Ash was prepared to give up her entire net worth to stay on top," wrote Skip Hollandsworth in Texas Monthly. "In a major $450 million leveraged buyout in 1985, Mary Kay and her family purchased all the company's publicly issued stock and took Mary Kay Cosmetics private. A new group of younger executives, brought in to handle the day-to-day operations, quickly updated the company's image. The rather bland line of cosmetics was revamped and pretty young models were pictured in the product catalogs. The executives also boosted the commissions paid out to consultants to persuade younger women to leave their high-rise offices and join Mary Kay." The company market position improved. Mary Kay posted earnings of more than $1 billion between 1991 and 1992. In 1995, a decade after the buyout, Mary Kay was wholesaling an estimated $866 million. Sales rose steadily during the 1990s.

STRATEGY

Rather than rely on multimillion-dollar advertising campaigns or department store sales, Mary Kay Cosmetics sells its products directly to its saleswomen or "consultants." These women are essentially independent contractors who in turn sell the cosmetics to consumers at a substantial markup.

When the World Wide Web became a retailer's paradise in the mid-1990s, Mary Kay and many other direct sales companies were reluctant to begin selling their products online. Even when the company established a web site, products could not be purchased through it. The company eventually decided that it should take advantage of the Internet's breadth, and so settled on a compromise. Although no online sales of Mary Kay products are allowed, the company charges a small fee to its independent beauty consultants to help them set up individual Web pages on the central Mary Kay computer. By 1998, 10,000 consultants had signed up.

CURRENT TRENDS

Even if a consumer has never purchased a Mary Kay product, he or she will no doubt recognize the eye-catching pink Cadillacs awarded to top-selling consultants since the late 1960s. Over the years, the company added a pink Grand Prix and a red Grand Am. In 1998 the company added a white, "Mary Kay edition" of General Motors' Jimmy sport utility vehicle in celebration of Mary Kay's 35th anniversary and as part of an effort to update its fleet numbering 10,000 U.S. cars valued at over $150 million.

CHRONOLOGY: Key Dates for Mary Kay Inc.

1963:

Mary Kay Ash establishes Mary Kay Cosmetics Inc.

1969:

Starts awarding top five Independent Sales Directors with pink Cadillacs

1971:

First international subsidiary opens in Australia

1976:

Goes Public

1985:

A management-led leveraged buyout returns Mary Kay to private ownership

1989:

Company ceases testing on animals to lead an industry-wide trend

1991:

Retail sales top $1 billion for the first time

1993:

Mary Kay becomes the best-selling brand of facial skin care and color cosmetics in the United States

1997:

Wholesale sales top $1 billion for the first time and retail sales top $2 billion for the first time

In 1998, the company held onto its rank as manufacturer of the best-selling brand of facial skin care products and color cosmetics and was listed for the third time in Fortune magazine's list of "The 100 Best Companies to Work for in America." The company continues to attract women seeking flexible schedules and entrepreneurial opportunities. The Mary Kay sales program also attracts more and more minority women; by 1997 more than 45,000 minority women had become independent Mary Kay beauty consultants and sales directors.

PRODUCTS

In response to consumers' nutritional concerns in the late 1990s, the company introduced Daily Benefits nutritional supplements for men and women. The supplements contain antioxidants and B complex vitamins. The supplements for women also feature calcium and a "targeted beauty nutrient complex" to boost the health of hair, nails, and skin.

In 1997 Mary Kay launched a new fragrance after soliciting the opinions of consumers all over the world. According to a press release issued by the company, corporate research revealed that women view life "as an adventure—every day is a chance to explore the world." And so the company introduced journey, a floral blend of peony, watercress, rose, wild freesia, water lily, and apricot musk. The company later also produced a shower gel and moisturizer scented with the new fragrance.

CORPORATE CITIZENSHIP

The Mary Kay Ash Charitable Foundation was created in 1996 to provide funding of research into diagnosis, preventions, treatments, and cures for cancers that affect women. The foundation awarded $500,000 in grants to cancer researchers in 1997. In addition, the company has made donations to the Susan G. Komen Breast Cancer Fund, the Breast Cancer Fund, and the American Cancer Society.

The company also recycles glass, aluminum, paper and plastic, and uses recycled paperboard for skin care products cartons. Additionally, Mary Kay has donated over $62,000 to the Nature Conservancy of Texas, Renew America, and other environmental organizations.

GLOBAL PRESENCE

Mary Kay's first international venture was launched in 1971 with a subsidiary in Australia. In the late 1990s Mary Kay could also be found in Argentina, Bermuda, Brunei, Canada, Chile, China, Czech Republic, Finland, Germany, Guatemala, Japan, Malaysia, Mexico, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, Ukraine, Uruguay, and Russia, where Mary Kay had 7,000 consultants and directors in the mid-1990s contributing $10 million in annual wholesale sales. Most Mary Kay products are manufactured in Dallas. A plant in Hangzhou, China, serves subsidiaries in the Asian Pacific rim, while another in La Chaux-deFonds, Switzerland, serves the European region.

EMPLOYMENT

The idea behind Mary Kay's "pink army" is to allow women to be all that they can be. Whether it's showing female executives they can be authoritative and feminine or recruiting sales people, the message is the same: you can be a woman, be feminine, and still have a fabulous career. In 1993 one of Mary Kay's first beauty consultants recorded more than $4 million in career commissions. As Hollandsworth said in a 1995 Texas Monthly article: "With Mary Kay Cosmetics, however, a woman can be a milk-and-cookie mom and have a career too, able to set her own work hours so she can take her children to school, be there when they get home, and be there for her husband . . . For the past thirty years Mary Kay has built her kingdom with a mesmerizing sales pitch that offers supremely normal, middle-class women the chance to make more money and win more prizes (including the world-famous pink Cadillac [first introduced as an incentive in 1969]) than they ever dreamed—in other words, to become just like Mary Kay."

Hollandsworth also explained the often arcane hierarchy at Mary Kay, which is not terribly unlike that of other direct sales companies such as Amway. "To become a consultant at Mary Kay Cosmetics, a woman spends $100 for a day of training and a beauty case filled with cosmetics. She tries not only to get women to buy cosmetics but also to persuade them to sell Mary Kay's cosmetics. It's in the recruitment that the real money can be made. If a consultant signs up another salesperson, the consultant makes a commission from the company on everything her recruit sells. If the recruit recruits a sales-woman, the original consultant makes a smaller commission on everything that saleswoman sells. If a consultant brings in thirty recruits and they total $16,000 in sales over a four-month period, the consultant becomes a 'director.' (The company's seven thousand directors make anywhere from $35,000 to $60,000 a year). If a consultant's sales and recruitment continue to increase, she can receive a pink Cadillac, the trademark of the Mary Kay lifestyle, and if she reaches the top of the pyramid, she attains the prized position of national sales director." In the mid-1990s, sales directors earned an average of $279,000 a year.

SOURCES OF INFORMATION

Bibliography

colwell, shelley m. "mary kay at 30: still in the pink." soap-cosmetics-chemical specialties, september 1993.

hollandsworth, skip. "hostile makeover: in dallas the frenetically fashionable jinger heath is locked in a beauty war with

the venerable queen of cosmetics, mary kay ash." texas monthly, november 1995.

mary kay home page. 22 may 1998. available at http://www. marykay.com.

napoli, lisa. "direct-pitch stalwarts reluctant to sell online." the new york times, 23 february 1998.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. mary kay's primary sic is:

2844 toilet preparations