The Mary Kay Con in China

Is Mary Kay Cosmetics celebrating or lamenting today’s article in the New York Times on their business in China? While the Mary Kay spin machine got its typical praise for the pink Cadillacs and the “unlimited opportunity,” the article also cited several criticisms of the multi-level marketing company.

China has over 200,000 Mary Kay consultants and sales directors, with 28,000 of them attending the Chinese version of Mary Kay’s Seminar in September. True to form, the gathering was about fluff rather than substance. Testimonials about Mary Kay changing lives and the presentation of a pink Cadillac were the focus.

As China’s economy grows (and the country has a massive population), multi-level marketing companies like Mary Kay are targeting it for growth. Indeed, as Mary Kay’s sales and recruiting figures in the United States have been falling over the last several years, recruiting in countries like China and India has been propping up overall numbers.

But as with the media in America, the sales methods used by Mary Kay are referred to as “direct selling” rather than some other term like multii-level marketing, which would hint at the endless chain recruitement scheme that it is.

A bit about the “controversy”:

But that growth has not come without controversy. Many direct sellers in China have been accused of operating sophisticated pyramid schemes and other sales swindles. (In one widely publicized case a few years ago, people were conned into buying stakes in ant farms.)

Even American companies operating in China have been accused of manipulating and misleading sales recruits.

“Some of them recruit people in a deceptive way, like you can become super-rich in a month,” says Chen Defa, chairman of the Chinese Academy of Direct Selling Management.

Because of such concerns, China banned direct selling in 1998, saying that it was often used as a cover for “evil cults, secret societies and lawless and superstitious activities.”

Big direct-selling companies disputed those claims, saying regulators simply misunderstood their business model.

In 2006, after heavy lobbying from American companies, China lifted its ban. And since then, direct selling, with some modifications, has flourished in China, growing into an $8 billion industry that now markets products as diverse as health supplements, cosmetics, toothpaste and dishwashing liquid.

“Direct sellers see unlimited opportunities here,” says Kent Kedl, a Shanghai-based analyst at Technomics Asia, the market research firm. “They see the combination of entrepreneurial sellers and adventuresome consumers.”

Even China is not immune to the lie of “unlimited income.”

And the article does come clean about the focus on recruiting in Mary Kay:

Companies engaged in direct selling are succeeding in China by using many of the same techniques that worked elsewhere, analysts say. They often recruit young women and motivate them to sell aggressively, particularly to friends and family members. Companies also use multilevel marketing programs that reward workers for recruiting other agents.

And Mary Kay is obviously doing well in China:

Revenue in China for Mary Kay, which is based in Dallas, has doubled to $600 million in the last three years. “We’re going to grow another 20 percent this year,” despite the economic downturn, says Paul Mak, head of Mary Kay China, despite the global economic slowdown. “People haven’t stopped buying cosmetics.”

But here’s my favorite part: Mary Kay admits they are exploiting the fact that women don’t have a lot of opportunities to own their own businesses in China.

Like other direct sellers, Mary Kay has expanded in China — one of the 35 countries where it operates, generating total revenue of $2.6 billion last year — by working hard to recruit new representatives.

The company operates with a kind of missionary zeal, analysts say, pushing sales agents to invite friends and family members to makeup classes and seminars that quickly evolve into small communities of women who follow the sales gospel of Mary Kay.

The article does mention low earnings:

While many Mary Kay sales representatives say they earn very little, those who follow the company’s sales and recruiting strategies can become wealthy.

One sales director, Jin Yan, said that after 12 years at Mary Kay, she earned nearly $400,000 last year.

She now drives a pink Cadillac, a reward from the company.

But not everyone succeeds. Shang Qun, a 28-year-old sales agent in eastern Jiangsu Province, said she was pressured to meet unrealistic sales goals and to deliver dozens of names of potential clients to the company during her first months of selling.

“Mary Kay has many direct-selling refugees,” she says. “They claim Mary Kay can make you big money, but their pockets are empty.”

And of course Mary Kay puts the blame squarely on the representatives. It’s too easy to blame the sellers, rather than that awful business model that Mary Kay uses (which just so happens to ensure that most will make no money):

Crayton Webb, a Mary Kay spokesman, defended the company. “Mary Kay is extremely careful in communicating to members of the independent sales force that their success is up to them,” he wrote in an e-mail message. “There are no guarantees and that they should invest in their business carefully.”

What do you think about this article? Fair and balanced? I was surprised at the amount of negative information the NYT was willing to publish in this article. It’s a step in the right direction, getting closer and closer to exposing multi-level marketing for the sham that it really is.