Mary Kay Is Singing I Feel PrettyWendy Zellner
Every year, Mary Kay Cosmetics Inc. gives more than 300 of its top salespeople a small token of appreciation: the use of a a pink Cadillac for two years. That has always summed up the flamboyant spirit of the cosmetics company founded by Mary Kay Ash in 1963. But not long ago, a Pinto might have been a more apt symbol. By the mid-1980s, Mary Kay found it tough to recruit women as sales representatives because of the better-paying jobs open to them. And with more women working, the remaining reps had trouble reaching new buyers. Sales and earnings tumbled.
But look at Mary Kay now. Even as rival Avon Products Inc. is stumbling, the company seems to have regained its footing. The two competitors have an unusual relationship. Mary Kay owns a 3% stake in Avon -- and was part of a failed takeover bid launched by Chartwell Associates two years ago. But these days, Mary Kay is more concerned with making its own business grow than with snatching away someone else's.
TIGHT MARKET. Under the leadership of 48-year-old Richard R. Rogers, son of Chairman Emeritus Ash, the company has used shrewd marketing, better sales incentives, and new products to get back on track. Since 1985, when management engineered a $450 million leveraged buyout, sales have risen a stunning 96%, to $487 million. And Mary Kay has more than doubled cash flow -- a blessing considering its still-hefty $347 million in debt. Cash flow will be flat this year, thanks largely to spending on a $3 million telephone ordering system. But few are complaining. "They've done remarkably well since their buyout," says John E. Schlifske, associate director of Northwestern Mutual Life Insurance Co., a Mary Kay bondholder.
By offering sweeter commissions and bonuses, Mary Kay has replenished the ranks of its sales force with more part-timers. Nearly 70% of the sales force now have other jobs, vs. 33% before the buyout. Mary Kay now boasts some 220,000 salespeople, up more than 50% since 1985.
All those salespeople will be battling in a tighter market, however, with the nation's cosmetics business expected to grow by little better than the rate of inflation in coming years. But Richard C. Bartlett, president of Mary Kay Cosmetics, hopes that with its more personalized service and lower prices, Mary Kay can steal business away from department stores, many of which are reeling from heavy debt pressure.
All the same, Mary Kay's best growth prospects are overseas, where it has a foothold in 15 countries. The company aims to boost foreign sales from 11% to 50% within 10 years. To do so, Mary Kay is looking to acquire a manufacturing plant in Europe and move its forces into Japan.
Rival Avon, which gets 55% of its sales from overseas, scoffs at Mary Kay's expansion plans. "They have been trying to do that for the last 15 years," says CEO James E. Preston. Maybe. But given the way things are going for Mary Kay, Avon had better keep an eye on its rearview mirror: A pink Caddy might be gaining on it.