Survival Tactics: Back to Black

With the subprime mortgage meltdown and disposable incomes in the gas tank, consumers who can’t control the big things are micromanaging the minors and “watching what they spend on everything,” according to Wendy Liebmann, chief executive of WSL Strategic Retail.

Speaking plainly at the National Retail Federation’s recent 2008 conference, Liebmann concluded, “It’s anarchy out there.”

Salon owners with some vintage on them have seen recessions, walkouts, downturns and consumer unease before. The first thing they say is that if you don’t have a well-defined brand, you’re going down. It’s a must to combat the effects of price shoppers, salon hoppers and the latest competitive lures.

What else you need: Structure with built-in flexibility and a staff that sticks around.

 

Staff Savers

At J. Gordon Designs in Chicago, owner Jerry Gordon attributes his recent “best-ever Saturday” to a mature business with long-term clients and stylists. Long ago, he overcame a walkout and has only lost staff for relocation reasons since.

“Your staff and your clients must be of equal importance,” says Gordon. “It’s a major mistake to try to get new stylists in the workforce fast. Train for quality, build a vested interest in that person and use legal contracts.”

Gordon puts so much into training that he won’t hire without a signed contract. Because idle hands drive hairdressers wild, he fills any downtime with classes, school, in-house training and photography sessions.

“Today’s stylists want those things,” he says.

Heinz Mikula, CEO and vice-president of Paule Attar Salon and Spa in Bellevue, Washington (home of Microsoft), says he sees no business negatives on his horizon, but he still boosts his location luck with constant business tracking.

His secret to staff retention is to make them an offer they can’t refuse: a place with plenty of clients, health and dental insurance, and a true open-door policy. Like service add-ons, staff parking allowances add to the allure.

Because monthly service tracking is a must for business survival, Mikula also uses a sophisticated computer network.

 

Profit Boosters

Every service acts as a key indicator of business health, and Mikula doesn’t wait for a full-fledged flu to take hold before taking preventive measures.

“The only area that didn’t grow last year was spa, which was flat,” says Mikula, whose overall business has grown five to 10 percent every year since its 1988 debut. “We purchased a list of 4,000 clients from a failing spa and we’ll use it soon.”

To stay profitable through good times and bad, knowing your financials is a must. While Mikula’s Bachelor of Science degree and previous business life help him know just where to cut and what to save, he advises lesser financial wizards to meet with their accountants monthly.

“Get rid of any waste,” he advises. “Paying a three-percent credit card fee is too much. Track advertising, and if it isn’t working, get rid of it. Cut costs first! If you make a lot of long distance phone calls, Vonage charges a flat fee in the U.S. and in Canada, $21 a month.” (The service requires high-speed internet access.)

In the Detroit area, Rob Willis, owner of Rob Willis International, agrees that anything that doesn’t pay for itself has to go.

“If the salon doesn’t pay the bills, you work for a salon; you don’t have a salon that works for you,” says Willis. “Too few have a strong cash flow, and money is coming out of the owner’s pocket to pay for the business.”

Gordon’s solution is a cash reserve.

“At the end of the week, I put a certain percentage of gross in a money market fund,” he says. “Remember, the profit has to be in service work. It’s bad business and an old-world paradigm to give away service to sell retail.”

Booming online sales (Sephora is one of the biggest online success stories in the country) and extreme store competition underscore Gordon’s point.

“Specialty retailers are now taking on the beauty business because that’s where opportunity is,” Liebmann told her NRF audience, noting that Victoria’s Secret stores now sell shampoo.

 

Client Keepers

In Wills’ Motor City, the declining auto business took down complete neighborhoods, and African-American women, who are renowned for spending on beauty, are cutting back. In fact, clients have been elongating returns for a while; the crisis is simply greater today, he says.

“Three years ago I’d have agreed African-American women spend more; today, professional women are dealing with the cost of taxes and property and don’t feel secure about their employment,” says Willis. “I took a close look at this four years ago and got a smaller location. Now, I can spend more on advertising and community relations and less on rent and utilities.”

Clients are continually on the move and no salon can avoid price shoppers entirely. But, says Willis, his downsized space allowed him to shave his rent and get closer to his clients by upsizing his image for greater impact. Gift cards, an internet presence and attendance at networking parties all keep him close to his clients.

“You must build a relationship, so no matter how bad it gets, they will spend with you and not trade down to someone else,” adds Willis. “In the salon, you have to give in every possible way, from support and extra attention to conversation. Bring trust to a new level, so clients will feel they can tell you if they are having a problem instead of just going to a cheaper salon.”

For Gordon, giving comes down to the Japanese system of perfection that goes beyond customer service.

“The devil is in the details,” says Gordon. “You need an extremely sanitary salon, clean smocks, the right type of coffee, the ideal water temperature at backbar. A million components keep you operational.”

In a recession, consumers become value oriented, distributors are concerned about cash and employees worry about their jobs. But a downturn is no time to stop spending on marketing. Always be in a business-building mode, because as cost of products increases, margins shrink.

Websites are a must, e-blasts anchor current clients and mailings attract new ones. Mikula uses direct mail to introduce new stylists, offering consumers half-off to give his or her cutting skills a try.

 

Future Think

Mall locations aren’t what they used to be; the number of weekly shopping trips is down for almost all income groups—particularly those crunched in the middle. In 2006, 28 percent of women surveyed by Liebmann had gone to a specialty store in the last week. By 2008, that number was down to 17 percent.

As a result, mall salons’ walk-ins are down and the new, hot locations are as close to consumers as possible.

“Locavores,” consumers who eat locally produced food to reduce their carbon footprints while saving time, are affecting more than farms. Merchandising mixes are changing everywhere and technology is being retooled to allow consumers to click a button to order whatever they see on TV—in any ad or show. That’s why going where the clients are is a must. 

In such a complex climate, you need both business structure and extreme flexibility so you can give consumers exactly what they want. For instance, over a six-month period last year, Mikula sold $60,000 worth of French Miranidi jewelry in the salon. Now, he and his partner are the exclusive U.S. distributors and make $60,000 a month through art museum, boutique and hair salon clients.

His success wouldn’t have surprised Liebmann. According to her, women want wide selection in one place ... when they aren’t looking for cool, local shops. Seeming contradictions reign in retail, she said; when the match is right, women will buy greeting cards at a car wash. “Knowing your customers is key to surviving chaos.”