The Revolution in Salon Retail
In this conversation with Hairstory President Mauricio Bellora, we pull back the curtain on traditional salon retailing to reveal how the old model puts corporate financial health above hairdressers’. Learn how buying inventory is actually financing product companies, and why retail areas are like storing cash in a safe without a combination.
Q&A With Mauricio Bellora
In this Q&A, we are going to be asking Mauricio his thoughts on how salons have adapted in their retail space. Read on to find out how Hairstoy is evolving the beauty industry one hair product at a time.
We know that salon retailing is important, but we also know that it is undergoing huge changes. What do you see happening, and how does your experience give you such a unique perspective?
I have been CEO or in an executive position at several companies for many years now, starting in 1989 in the pharmaceutical industry. I moved to the cosmetic market in 1998 with a little experience of three years in the nutrition market, and while I was at Allergan, I launched Botox. So, I saw how retail evolved and all the reasons it was important in different ways at different times, and I have a very particular opinion right now – especially about retail and salons.
I used to be in charge of a product line called Contact Lens Care, back in the day when care products were more expensive than contact lenses. How does that relate to hairdressers at a beauty salon? Opticians recommend things to people who trust them. They perform a service, and then they recommend retail products. They don't produce the products; they say, "For your eyes to continue being healthy, this is what you need to do." And you trust them.
I think of retail as a matter of justice. It’s kind of strange to think of justice and business, right? I think fairness in business makes people feel better. I don't like to say a hairdresser sells professional products; I like to say that a hairdresser converts people to a regimen. Back in the day, they converted people from using soap to shampoo. Then they converted them to conditioner because shampoo was destroying hair. Then hairdressers advised, "Listen: stay away from sulfates," and converted people to washing with sulfate-free hair products.
Hairdressers deserve to make money with those salon products – not just because it's another thing they do at the salon, but because the products sold are the consequence of hairdressers' actions, and hairdressers' actions are very valuable. They put their work on the table along with the trust they build with clients.
Let's be honest. What a hairdresser does with clients all the time is build trust. People put their heads in a hairdresser's hands and say, "I'm trusting you with the next two months of my life, and if you screw this up, I'll be wearing a hat every day.” So, when a hairdresser says, "You need to use this product for your hair," it's not just an advertisement. They're putting their work, their knowledge in play. And the clients trust them. So, why shouldn't the hairdresser participate in the profit of that retail product?
“Fair trade” is basically giving back to the people who produce what you're selling. Well, the hairdresser is making a recommendation that changes behavior. So, retail is a matter of fairness.
So you see an ethical dimension to retail and a degree of unfairness in the old model.
Absolutely. That's why I think that retail needs to evolve and why what we're doing at Hairstory makes ethical sense. One of the injustices involves the fair distribution of retail profits among salon staff; the business may keep the lion's share while stylists on the floor are the ones recommending the products they trust and use every day. That may have made sense with the old model because the owner bought all the inventory. With the new model, the distribution of profits is more fairly aligned.
I think that there should be a symbiotic relationship between hairdressers and product companies because the companies cannot live without hairdressers. Hairdressers make us better, and that's where fairness makes business sense.
The new model, where the client goes directly to the company and buys – do I need to explain? The hairdresser gets nothing. That is not just unfair but shortsighted from the company’s perspective.
In a commission salon, hairdressers are making very little on product sales, 10% maybe. When hairdressers have been cut out of online sales, the company or its distributor is making money, and hairdressers get nothing – and many of them are throwing in the towel. Either they retail the old way or they don't retail at all. So, both models are unfair.
The question is how do you accept reality and understand the convenience of buying favorite brands online? We cannot deny that. How do we do the right thing? How do we recognize the hairdresser as a partner?
If you just reward the act of selling, you're forcing hairdressers to do something they don't like instead of paying for what really has value. What has value? Their recommendation, and that’s why they are so effective at selling hair products. Converting a client to a new product regimen is the act that deserves payment. We can insert hairdressers in the process by saying, "You're a partner, and the value of your recommendation goes beyond the value of selling the product."
The simple act of selling has no value today. You don't need salespeople when there are so many options for people to buy whatever they want. The act of recommending is what has value. So, to me, the new model is: recognize reality. Make the hairdresser a partner in that reality and pay for the right thing – the conversion.
Think about the traditional selling architecture of a company. Normally a salesperson will sell to a client, open the account, and that account will stay with that salesperson for the rest of the relationship who receives commissions regardless. Why isn't it that way with hairdressers? Product companies say, "Well, your client is not your account. If you sell to your client, you get the commission, but if I sell to your client it's our sale."
What we're proposing is a different thing. When we started, I used to say, "Listen, this is the deal: If your client comes to us through you, those sales are yours forever. If the client comes through us, it's ours." If a hairdresser converts a client, it's their account. And if the client goes to another hairdresser? The partnership is all about who converted the client; it doesn't matter how many hairdressers the client goes to afterward. That's a very new thing.
In the past, big companies created an illusion that hairdressers and salon owners bought into. They said, "Listen, I'm going to give you 100% profit instead of a 50% discount," which is part of the illusion. “You buy for $5, you sell for $10 and you have 100% profit.” But the reality is that they give you a 50% discount because the price is $10 and you're paying $5. Then they’ll say, "I'll give you 30 days to pay, but you need to buy $10,000 from me as a minimum order." But the hairdresser says, "$10,000 is probably three or four months of inventory for me."
"Well, that's our minimum," they say. Big companies spend money to produce my inventory and transfer the cost to hairdressers. Let's say you buy an amount of product from me that's worth four months of inventory for you. I'm giving you 30 days to pay me. What that means is that you, the hairdresser, are financing me for 90 days because you gave me the money three months before you sold it. I already have your money, and you have the product.
That is called financing. Think about what happens at a bank. The bank gives you money; you produce a product; you sell it, and then you pay the money back. In retail, the hairdresser gives money to the company and it takes three months for the hairdresser to get the money back. So, under that model, the hairdresser is financing the big companies – and promoting them in order to push that $10,000 inventory.
So, basically, the companies say, "we give you our product, you promote it, you convert the clients. And by the way, if you can't sell it, just discount it, but we won’t refund you anything.” That was the real deal, and hairdressers got used to it.
In time, the retail model evolved: "You know what? We don't need you, hairdressers. Remember when we told you that this was going to be a strictly professional channel? We changed our minds. Now we're going to go directly to the public without you." That's when hairdressers decided, "I don't have the room to keep inventory. I don't have the cash to buy products. I'm not going to sell at all."
If you ask me who our largest competitor is, it's not L'Oreal. It's hairdressers not selling. We are bringing retail back by saying, “There's an ethical reason why hairdressers should be part of the chain; there is a different way of being part of that chain, and that way concedes the fact that what we both need is the money from the client.” I don't need money from hairdressers while they wait to get the money from clients. If we're partners, we're going to get the money together. When your client buys directly from us, we share it with you because you're part of the chain.
We turned everything upside down. Hairdressers contribute their knowledge, clients put their trust in hairdressers, and the company administers the inventory, the shipping, and the collection of money at the hair salon. In this way, hairdressers not only get to build stronger relationships with their clients, but it can also be a passive form of income for them as well. This is what companies are meant to do. What differentiates the new model from the old model – and the intermediate model – is that now the hairdresser is part of it – for the right reasons. They are not part of it because they wanted to become salespeople.
The old way involved buying as much inventory as possible with the theory that stocking more means selling more. The old adage was, “Stack ’em high, watch ’em fly.” Does that still apply?
That was a tricky truth: the more you buy, the more you’d sell. It was true only because the hairdresser was feeling the pressure to sell their salon products. It's a kind of tough love: "We’re going to make you richer, but by forcing you to buy more inventory you'll owe more so you'll need to sell more." That's the way it was. But what is the value of inventory today?
Well, there's one intangible and one tangible. The intangible is that more experienced hairdressers have been using this inventory system for a long time, which is why we don't ask them to buy minimum quantities. But the real advantage to having inventory is when you're changing from one model to another, one product line to another, one regimen to another. Then, the sense of urgency is important.
When you're introducing clients to a completely different regimen like Hairstory, it’s better not to run the risk of them going home and using their old products. A client taking a new product home has a real value; you close the circle.
We don't sell inventory at all to qualifying salons with something called Hairstory Zero. It’s a consignment model where we charge salons only when they sell as part of the new concept – in the future, that's going to be the only way we do inventory.
What do you think of the discounts that product companies offer?
Product companies give you a discount to encourage you to buy more. Nobody wins. It is an illusion. A hairdresser buys with an extra discount, sells the same amount of product, and the next month buying less. In reality, there are no more clients who buy products; it was just a dance.
With the Hairstory Zero concept, it's completely different. We say, "You have Hairstory products on your shelf, but you haven't paid for them yet. Here’s the deal: for everything you sell this month, we’re going to give you an extra 10% discount because we want to promote a particular product." When do the hairdressers get the discount effectively? Only when the customer does.
Instead of being just advance sales, more products went to the customer – and the hairdresser didn't pay a cent until they were sold. The new model puts hairdressers where they should be – as partners and not merely points of sale with little difference from Sephora, Ulta, or any other store.
For us, it's a point of conversion. The hairdresser prescribes the product as a doctor does. Does the doctor sell you pharmaceuticals? No. As a matter of fact, it's illegal. They recommend the product and you take your prescription to the pharmacy. If the pharmacist asks if you’d prefer a different one, you insist: “No. This is what the doctor prescribed.”
For people who are still bridging the old model and the new model, how would you advise them to negotiate with product companies or protect themselves in a more traditional relationship?
The first thing is to avoid imposed minimums. That is what stops growth. One of the benefits of the new model is freeing up cash. I remember when Nackie Karcher, one of our hairdressers, told me, "I used to have $10,000 in inventory on my shelves. Now I have $2,000, but I still sell the same amount of products online. The $8,000 that I recoup is now in my hands. I bought three more chairs, and those are generating $350 a week."
So, suddenly this money is working in a different way. So, the first thing that hairdressers need to learn is: “Don't ask me to spend $10,000, because I need to manage my cash – not yours.” Second, never buy more than what you can sell during the period of financing. If you have 30 days to pay, never, ever buy more than 30 days of inventory.
I would also suggest asking suppliers, "What if you sell through other channels? What's in it for me?" The best way to sweeten a bad deal is to avoid the worst parts. Don't buy more inventory than you can sell, or better, don't buy more inventory than what the company is financing.
And don't accept closed packages. Typically, product companies require salons to buy into all of their new product launches. Why? Because those products often become what I call the collectibles, the ones that don’t always sell. You know what happens then; you need to discount them, and your so-called 50% discount is not a 50% discount anymore. Keep your cash in your pocket.
Many salon owners have invested a lot of money in retail walls and counters and dedicating real estate to products that eat up more and more space. What's the ideal equation here?
Make sure that space is used for the things that give you the best return. Retail space is not the worst thing, it’s the cash it eats up. Make it into stations if there is enough room. If you no longer have shelves full of product, use that cash to put another chair, or another wash station so everything goes faster, or a lounge where people can have a cup of coffee to contribute to the client experience and possibly improve your retention.
Try this: stand in front of your retail area, close your eyes, and instead of having all these nice bottles and tubes, imagine little stacks of money in their place. You have thousands of dollars sitting there, and you can’t touch it. I understand this being okay in the past without e-commerce and all that because it was the only way that the client would get products. But it doesn't make any sense today. It’s time to divest.
Before I got involved with Hairstory, I was doing something similar for professional fitness trainers. I knew they were recommending lots of products and nutritional supplements. But these guys were giving these recommendations, but losing out on the actual sales.
I had two points: One, you need to participate in the business where you're generating value. Two, the cash should be in your pocket. You need to find a way to participate without needing to invest real cash. Think about the bloggers. Do they actually buy any product? No. Zero. It's all free.
They're influencing people. And what does a hairdresser do? Influence. So, why should hairdressers spend cash to participate in a business that bloggers are participating in? There's no reason. What is it that you're investing? Your knowledge. Your time. Your influence. Your trust. And your following.
In the new era, the most valuable thing is not your point of sale, because of Amazon and big retailers. You can't cut hair online, but what is important is your ability to convert clients to something new. It's a change of mindset as well as a change of business model.
I can hear veteran hairdressers saying, "Where's the catch?" And the answer is, there is no catch. It's already happening. Unfortunately, people sometimes don't see the wave until it’s over their heads, close their eyes and keep on doing things the old way. The point is to accept that technology is going to be an important part of your business.
More than technology, it's a different way of thinking. What is it that you're selling? What is it that you're getting paid for? Shouldn't a hairdresser get recognition for what they really do and value? Hairdressers should create their own value and demand that the commercial system adapts.
Don't say, “Amazon is getting all the business, so why should I bother?" You are entitled to this money. Legally? No, but ethically? Yes. You should be part of this new way. Are there better ways? I'm sure we'll find them, but today? This is the best there is.