Avon, Mary Kay Hurt by Changing Women’s Roles : Jafra Bucks Social Trend, Grows Despite Troubles of Cosmetics Giants

Jafra Cosmetics, a mere beauty mark in the $11 billion-a-year U.S. cosmetics industry, is trying to maintain a glamorous growth rate at a time when its bigger and better-known competitors are showing their age.

As a direct-sales cosmetics company, one that sells its skin creams and makeup in customers’ homes rather than in pharmacies or department stores, Westlake Village-based Jafra is pitted against two industry giants, Avon Products and Mary Kay Cosmetics.

In some ways, however, Avon and Mary Kay have become victims of their own success. Already familiar to consumers, the two companies have to struggle to find new customers.

Not so for Jafra. True, it is one of the five largest U.S. direct-sales cosmetics companies, and its revenue has multiplied 20-fold since being acquired by Gillette in 1973. Yet its projected revenue of $100 million this year is dwarfed by Avon’s $3.1 billion and Mary Kay’s $277 million last year.

Industry experts say Gillette intends to take advantage of Jafra’s room for expansion nationally and internationally. To that end, it recruited a 25-year Avon executive, Ronald Clark, and installed him as president and executive of Jafra three months ago, replacing Thomas Grant, who retired in December.

“We feel we’re bucking a downward trend” in the industry, said Clark, at 50 an athletic, youthful-looking man.

But the road ahead could get bumpy for Jafra and the 450 workers at its Westlake Village headquarters and plant. To begin with, social trends have dampened the entire direct-sales industry.

Many analysts say that increasing job opportunities for women have made have it harder for direct-sales cosmetics companies to recruit and keep the housewives who have traditionally sold their products. Moreover, Jafra representatives sell their cosmetics by holding “classes” or “parties” at private homes for groups of 5 to 10 prospective customers. That isn’t convenient for working women, the analysts note. Many would rather go to a store.

Emma Hill, an analyst with the Wertheim & Co. brokerage firm, said the sales parties are “a time-consuming activity that I don’t think women have time for any more. Twenty years ago it was a diversion.”

Finally, the cosmetics industry in general suffers from sluggish sales.

Jeffrey Ashenberg, an analyst with L.F. Rothschild, Unterberg, Towbin, called direct sales of cosmetics “a tired segment” of a tired industry.

Nancy Hall, an analyst with Prudential-Bache Securities, estimates that Jafra’s direct-sales force in the United States achieved a 4% sales increase last year, at the same time sales by Avon agents suffered a 2% decrease and those of Mary Kay a 14% decline.

But Hall also estimates that Jafra saw its domestic operating profits--earnings before taxes and interest expenses--decline from 15% to 20% of revenue in 1983 to 10% to 15% of revenue in 1984. She said operating profit margins overseas, where Jafra is growing faster, are lower because of the cost of expansion.

Clark declined to confirm whether Jafra’s profit margins have fallen, saying only that profits “are progressing well.” He said that the company has grown 15% to 20% a year for five years. He predicted that business will continue to expand rapidly outside the West, now the company’s main market.

Jafra, which operates in 28 countries, hopes to expand further internationally. It also is trying to expand its marketing among Latinos in the U.S.

Clark maintains that industry experts have overstated the case against the direct-sales business. He said the entry of more women into the work force has given them more money to spend on cosmetics and less time for shopping, making direct sales more attractive.

With its commitment to that technique, the company can’t grow unless it expands the sales force or increases sales per agent. Clark’s management style, however, doesn’t include table-pounding demands for productivity.

Instead, he talks about the company’s stated values, which he says place sales agents’ personal growth ahead of profits.

Suzanne Grayson, an industry expert who has done consulting for Jafra, said the company’s approach “is not selling, it’s sharing.”

“These words are repeated over and over,” she said. “Sales come from sharing.

“It’s a much more natural way of selling. It’s like, ‘I like you, and here’s how I handle my skin care problems.’ ”

Such a corporate philosophy can breed loyalty among direct-sales personnel and inspire them to recruit other salespeople. Since direct-sales agents often make little money and work only in their spare time, typically as independent contractors rather than employees, their companies are not in a position to crack the whip.

“You can’t say, ‘Do this by 5:00,’ ” Clark commented.

Contrasted with Mary Kay, known for its revivalist-style sales meetings, Jafra is considered by some to be positively laid-back.

“Mary Kay says, ‘God first, family second and Mary Kay third,’ ” said Jan Day, who founded Jafra with her husband at their Malibu home in 1956 and is the company’s chairman. “I would never want to say that about Jafra. That might be 10th on someone’s list of priorities.”

In any case, many analysts don’t make much of the differences in the ways direct sales companies treat their sales forces.

“Whatever they want to call it, what it comes down to is the bottom line,” said Diane Mustain, an analyst with Duff & Phelps in Chicago.

The financial rewards vary greatly for Jafra’s network of more than 100,000 self-employed sales agents. Some earn as little as $2,000 annually while “a handful” who sell and work as sales managers make more than $100,000 a year, Clark said.

Analysts and company executives estimate the average hourly earnings of Jafra sales agents at $10 to $25.

Instead of whip-cracking, Jafra devotes more attention to training and motivating sales agents. It is also working on several strategies to increase sales. Last month it introduced new makeup products and grouped its makeup into separate categories for women with “cool” or “warm” complexions.

The idea was to broaden the product line--the firm had previously concentrated on skin-care products--and simplify makeup decisions for sales agents and customers.

Jafra is testing a telephone ordering service aimed mainly at customers whose sales agents have left the company. Clark also said he is considering increasing Jafra’s small advertising budget.

Jafra is hardly the only cosmetics company looking into those kinds of ideas, however, given the slump in the industry.

And, even though analysts tend to approve of the moves Clark that is making, they aren’t certain how fast the company will continue to grow.

“Everyone has identified the same problems,” said Prudential-Bache’s Hall. “What it comes down to is who will execute faster and better.”