International Law

Could Mary Kay survive in Only A Retail environment?

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Tracy Coenen raises a fascinating question over at Pink Truth, about whether Mary Kay could survive in a pure retail market.

As we all know, the market for Mary Kay with actual retail customers is pretty small.

Mary Kay depends on inventory orders from consultants and directors.

Corporate has little regard for whether the products are actually sold to bona fide customers.

Mary Kay's customer is the consultant and they're happy when products go from the warehouse to the consultant.   Quite simply, Mary Kay relies on the recruitment of new consultants for its survival.

The products are really secondary, and are merely the vehicle used to lure in new consultants.  

What if Mary Kay decided that "real retail" was the way to go? What if the executives finally admitted that the billions of dollars pried out of the hands of consultants are no longer worth it?

What if they admitted that damage is done to millions of women each year with this scheme? What if they decided to get away from the multi-level marketing scheme and made Mary Kay a real retail business?  

Last week I polled members on the issue of whether Mary Kay could make it as a real retail makeup sales company. Here are the results"

This is a fascinating question because it goes to the very heart of the economic rationale for having a network marketing business model.

The historical rationale is that by having independent distributors the cost of inventory is lowered which can then be passed on to both the distributor and the end consumer.

Instead of having to pay retail prices for a storefront, Mary Kay and other MLMs, take advantage of the distributor's ability to store product at little cost.

Of course this hasn't made sense for almost 20 years, since most of the network marketers have only 3 or 4 large distribution centres with which they supply the market.

Are the distributors then gaining the advantage of not having a storefront?  This is much harder to gauge.  It is virtually impossible to make out the claim without having a disclosure document that explains the relative earnings of the average Mary Kay distributor.

My sense is that the distribution of earnings is much like the Arbonne distribution - with very few individuals making more than minimum wage.

Contrast that with sales staff for cosmetics - aren't they also making little more than minimum wage?

I think that this is right, but in the MLM model the entire risk of inventory costs is placed on the distributor, while for the independent sales consultant in a retail environment there is little risk.

Big difference if the reward ratio is the same!

Full post as published by Misleading Advertising Law on September 16, 2008 (boomark / email).