2016 Business Predictions from ISBN
Gordon Logan, CEO Sport Clips; Pat Neville, president of BeautyFirst Salon Venture Group; Rhoda Olsen, president of ISBN and CEO of Great Clips, Inc.; Larry Walt, president of Design 1 Salon Spa; and Peter Mahoney, president of Summit Salon Business Centre, Salon Consultants International, Inc. and Salon Resource Group.
With a presidential election, increased competition and potential licensing de-regulation disrupting the marketplace, how do you position your company for success in 2016?
The International SalonSpa Business Network’s members share their forecasts, expectations and goals for their multi-unit companies and for the professional beauty industry.
“I love the quote that ‘Business will never be as easy as it is today.’” says Rhoda Olsen, president of ISBN and CEO, Great Clips, Inc. “As we are challenged with more complexity related to technology, the digital world and the changing legal environment, we will be more distracted. And if we can keep our stylists happy and make sure they know how important they are to our brands, we will have great growth in 2016. If we lose the focus, it might not be a good year.”
“Overall, I think general overall growth will be limited to 1 to 2%,” predicts Peter Mahoney, president, Summit Salon Business Centre, Salon Consultants International Inc. and Salon Resource Group. “However, forward-thinking salons who are embracing technology and using it to make stylists’ (internal communication, performance results, reward and recognition, culture building) and clients’ (real-time appointments, shopping, rewards) experiences richer and more convenient will gain market share. Finally, traditional salons must do a better job of embracing millennial stylists and adopting their leadership styles to embrace the needs of this growing salon population with flexible schedules, better use of technology, giving them a voice, providing constant positive feedback and developing careers vs jobs.”
“2015 was a strong year for our industry, with continued growth by chains of all sizes, and franchises,” says Gordon Logan, CEO of Sport Clips. “This trend has been developing for many years, with it becoming increasingly difficult to start and operate a small business, although we are seeing a number of well-managed smaller salon chains start to expand in their local areas. The men’s market has attracted a lot of attention, from industry newsletters and magazines as well from established upscale men’s salon groups such as V’s, 18/8 and The Boardroom, and Sport Clips continues to open more than 150 new locations each year, with very few closures.”
Adds Gordon, “There are a number of new products being introduced in the men’s market, and in the up-and-coming blow-dry salon niche. Blow-dry salons are still in their infancy, but more and more are popping up around the country. Most are single or dual outlets, many have been opened by people with no industry experience and are struggling. It remains to be seen if this is a long-term trend or a passing fad. This year should shed some light on that!”
Gordon expects another strong year for the industry in 2016. “From what we are seeing around the country, other chains are in a rapid expansion mode, as well. Quality real estate is becoming more available, but at increasingly expensive rates and competition for good centers is as tough as we’ve seen it in years. Salons compete not only with one another for space, but also with frozen yogurt, sandwich and other users who are looking for 1,200 to 1,500 square feet.”
He adds, “The biggest challenge to all of us is the continued de-regulation attempts in many states by very well-funded groups. Strange bedfellows like the Obama Administration, the Institute for Justice and the Koch brothers all have focused on the excessive licensure requirements in many trades, and cosmetology is frequently mentioned as a poster child for excessive regulation. Department of Education guidelines for beauty schools have been toughened, and unless the time required to obtain licensure and the corresponding debt loads of graduates is reduced, many schools will fail the DOE tests and lose federal funding, which usually means schools close. It is becoming increasingly important to our industry for us to come together to promulgate reasonable regulatory guidelines to counter the efforts to totally de-regulate and to make it easier for schools to meet the DOE guidelines on Gainful Employment.
“ISBN has been a leader in these efforts, and will continue to work collaboratively with other industry associations to develop defendable guidelines for cosmetology education that will take some pressure off the de-regulation front and help the schools survive so they can continue to graduate the young professionals we need so badly,” concludes Gordon.
“Hair color will be a service leader in the industry for both men and women,” says Gary Reed, president of Hair Zoo. “We see more men wanting permanent color and women continuously wanting to elevate their looks with a fresh color.” He adds, “In 2016, we will focus on creating innovative ways to enhance and improve the overall guest experience. In addition, we will continue to invest in our team members by offering continuous monthly paid education on topics ranging from the newest trends to local business. Lastly, we plan to continue to improve our overall systems behind-the-scenes, while growing our chain in both New York and California.”
“Our most recent quarter was strong—up about 15%,” says Larry Walt, president of Design 1 Salon Spa. “We ended the year up 8% total sales for the year. Gift certificate sales were up 11% and equaled about 15% of total sales. I am optimistic about 2016 for the industry and for Design 1. I am going to budget for another 10% increase in sales. We have a lot of momentum right now and will work to ensure that it continues.”
Larry adds, “We sold more product last year, but our retail sales dollars were flat. We had to discount more to move more product to compete with retail salons. Now, we always offer featured monthly products at a discount of at least 20-25%. When I can buy right, we will offer 30% off. Also we offer promotions like buy 1 product/get a 2nd at 1/2 off or buy 2 and get the 3rd for free.”
Pat Neville, president of BeautyFirst Salon Venture Group, concurs with Larry’s observations on retail. “As an industry, we’re killing the golden goose—the retailing of professional products is on life support,” says Pat. “It’s the salon’s most profitable line item, but the dollars we’re bringing in from retail are diminishing dramatically across the board.”
Why? “The root problem is that professional products have been devalued in the eyes of consumers. Manufacturers increase prices 2 to 3% per year, but over the past 10 years, discounting to the consumer has grown from 10 to 18%,” explains Pat. “That reflects the products’ real value in the eyes of the consumer.”
He continues, “At the same time, we haven’t added any value to our products, and consumers’ perceptions of what professional products are worth has gone away. There’s a blurred line between professional and over-the-counter products, with professional brands available in non-professional outlets and consumers expecting to see them there. There’s no longer limited distribution, ‘professional’ products are available in multiple channels, and their prices have increased, but then they’ve been devalued. That’s a problem. What’s more, professional products’ perceived value has been lowered even further by the dawning of Amazon and the online discount-oriented sites where products are offered up to 40% off—with manufacturers selling directly to those sites or to third parties that sell to those sites,” he adds.
“On top of that, manufacturers, for the most part, have increased promotional budgets while reducing education, so stylists don’t have the tools they need to engage in prescriptive selling. Rather, manufacturers are selling by promotions and discounts.”
So how do we turn the tide and add value back to professional products?
“First, product manufacturers must agree to sell to legitimate salons—even if they create a separate line that’s for salons only. Second, they have to remove diversion—which is now 16% of all sales—from their business plans. Then they have to follow up and educate stylists. That’s doing business the old-fashioned hard way, but it’s the only way to preserve our retail business long-term,” says Pat. “Plus, with technological innovations reaching market first through professional products, we need to talk about those benefits to consumers.”