Mary Kay to Invest $25 Million in China, Soon Its Largest Market
Mary Kay Inc., the cosmetics seller famous for rewarding top sales agents with pink Cadillacs, plans to invest $25 million to build a distribution center in China, soon to be its largest market.
Mary Kay, which sells skin care and color cosmetics through 600,000 independent saleswomen in China, will this year start building a distribution center in Hangzhou, the site of its only overseas plant, Chief Executive Officer David Holl said in an interview. Construction will last 12 months, he said.
The door-to-door seller of cosmetics is benefiting from increased consumer buying power. Urban per capita disposable income rose 13.2 percent in the first half and rural cash income climbed 20.4 percent, China’s statistics bureau said in July. The nation’s beauty and personal-care products market may expand 58 percent between 2010 and 2015, to 255 billion yuan ($40 billion), according to Euromonitor International.
“True growth is coming from third- and fourth-tier cities,” Holl said yesterday in southeastern Chinese city of Nanjing, where he addressed about 40,000 sales agents in seminars. “We don’t need a shopping mall to sell, so we can do extremely well in cities where they don’t have all the infrastructure.”
Mary Kay, which has invested about $100 million in China since 1995, expects sales to increase 30 percent this year, compared with 20 percent last year, Holl said. Global sales may rise to $3 billion from $2.5 billion, and will expand by “low double digits” in 2012, he said.
‘Billion-Dollar’ Market
“We expect China to be a billion-dollar business and surpass the U.S. next year or the year after,” Holl said.
The cosmetics market may grow as much as 14 percent in tier-three cities in China, exceeding tier-one and tier-two markets, which will see growth of about 2 percent and 8 percent respectively, according to Holl.
Mary Kay, based in Addison, Texas, had a 2.9 percent share in China’s beauty and personal-care market in 2010, ranking seventh, data from London-based Euromonitor show. Procter & Gamble Co. led with a 16.6 percent share.
China introduced a new direct-selling law in 2005 that regulates agents’ compensation and the size of sales meetings, according to the commerce ministry. There are 28 direct-sales companies with approved licenses and verified business-service network records, the ministry’s website showed.
Mary Kay, which awards top saleswomen in China with pink Mercedes C- and E-Class cars, operates in all but six provinces in the world’s second-largest economy. It has tailored products to local-customer needs to help expand market share and reduce reliance on the U.S. market, Holl said.
Standalone China
“Over the course of last five to eight years, we’ve started to look at what China will need in five years,” said Holl, 51. “We’ve managed the transition so that it’s no longer all about the U.S.”
Holl, who took over as CEO in April 2006, has more than doubled revenue and expanded into 14 new markets, bringing the total to 35 worldwide.
The company, founded by Mary Kay Ash with $5,000 in savings in 1963, has about 2.2 million saleswomen worldwide. It entered India in 2007, Singapore in 2009 and Armenia in 2010, and is looking at Vietnam, Thailand and Turkey as potential markets, Holl said.
To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net
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