Pro Haircare is in a Vicious Cycle
What is a “vicious cycle?” It is when bad results drive bad decisions that lead to even worse results and inspire even worse decisions. We’ve all been there in our own lives and we’ve seen them happen all around us. It’s how relationships implode, people get fired, companies go bankrupt, countries go to war. They are all negative feedback loops.
Right now the professional haircare “industry” is in the midst of a massive vicious cycle. Sales through salons have shifted to other channels (brand ecommerce sites, Amazon, Sephora, etc.), which means there isn’t enough money to justify delivering education programs and staffing the field sales teams to service the salons. As a result, both education and salespeople are getting cut, which leads to less engagement among the salons and further dropping sales. This leads to more cuts and a scramble by the brands to open up more alternative distribution (Ulta, more online channels) to offset the lost sales through salons, which causes more sales to shift away from salons. More cuts, more new channels, lower salon sales, more cuts…… you get the picture. That’s how Bumble is ending up in Ulta and opening blow dry bars with MAC. That’s why Davines is selling directly to Amazon. That’s why you can buy Oribe at Walgreens.com, Walmart.com, Jet.com and Costco.com all at massive discounts.
Excess Inventory is Driving Discounts of Almost 50%
One of the worst and most common symptoms of a vicious cycle in business is excess inventory. When bad decisions start leading to bad sales results, companies decide that rather than take their knocks and figure out how to change, they are going to double down and literally FORCE more sales into the system. It starts with pushy salespeople, then moves to manic product launch cycles and eventually you see new distribution channels opening up. It’s a game of smoke and mirrors, and that’s when you start seeing signs of lots of excess inventory being offered at a significant discount, tarnishing everyone associated with the brand.
That’s where we are, folks. After several years of weak salon sales, product companies have been launching new products at an unprecedented pace, and now there is so much excess inventory it is flooding the market at massive discounts. Who are the big beneficiaries of this? Websites like Amazon, eBay, Overstock.com, and discount retailers like Costco, Walmart, TJ Maxx. Looking at just five professional brands – Bumble, Oribe, Kerastase, Davines and Kevin Murphy – listings on eBay have jumped by 33% in just four months, and the discounts offered are incredibly steep. Kerastase and Davines are offered at the steepest discount (almost 50% off retail) while Kevin Murphy has seen the largest increase in listings (albeit starting from a much smaller base). Interestingly, Bumble hasn’t seen too many more listings and it seems to have the lowest discounts, suggesting they have less excess inventory than others. That’s probably because they decided to bail on the salon channel at least a full year ago when they cut Bb.U and decided to focus on direct-to-consumer sales.
All the Big Brands are Seeing Huge Discounts
In the chart above, the bars show the number of listings for each brand on eBay in August and again in December. The % discount from retail is the line chart. You can see Kevin Murphy has the fewest listings and the second lowest discount, and Kerastase has the most listings (and the biggest absolute increase) and the biggest discount. Oribe didn’t have much of an increase, but has a pretty steep discount. Overall, it looks like Kevin Murphy is the most healthy of the five, but getting worse quickly, and Kerastase is the least healthy of the brands and showing no signs of improvement.
Salons are the Ones Who Suffer from Excess Inventory
So why is this information important to salons and hairdressers? It’s important because, aside from some employees at these brands who service the salon channel, you are the primary victims of this vicious cycle. You have built these brands into the consumer brands they are today. You have placed orders under duress and purchased all the product launches they have stuffed into the channel. Collectively, I estimate that these five brands alone have about $150 million of inventory sitting on salon shelves across the United States. That’s about 8 months-worth of sales. Put differently, if every salon stopped placing orders today, it would take about 8 months for all the shelves across the country to become bare. Is that a bad number? Not necessarily. But as these brands shift more and more sales to other channels, the months of inventory on hand will grow and grow and grow, and eventually more salon owners will decide they don’t want to keep a full year’s worth of sales sitting on their shelves collecting dust. That’s when they will liquidate their whole retail wall – even if they have to sell it at 50% off or worse – and turn it back into cash that they can use for other purposes. Where does that product end up? On eBay, on Amazon, on Overstock.com, etc., etc. etc.. It’s already all out there.
Here is a list of discounts by brand by discounter:
Hairstory is Generating a Virtuous Cycle
Ok. That certainly feels like a vicious cycle to me. So what’s a virtuous cycle, and what does it look like? A virtuous cycle is where good decisions beget good results, enabling even better decisions and even better results. It’s a positive feedback loop. Like self-love, taking care of your body, setting aside time for creativity and learning, making people feel good about themselves, investing in relationships, participating in your community, becoming a global steward for a healthy planet.
It has only been two years since we launched, but already Hairstory hairdressers are experiencing a virtuous cycle. Investments in inventory are down, more clients are buying online, repeat purchases are strong, both sales and profits are up and return on investment is through the roof. Most importantly, our hairdressers have removed complexity from their lives, letting us at Hairstory focus on servicing their clients’ retail needs so they can focus on delivering the best hair services possible.
Here is a simple case study of what it looks like to be a successful Hairstory Hairdresser:
This chart shows the indexed sales of successful Hairstory hairdressers. The blue line shows in-salon sales, which start off strong as the hairdressers introduce Hairstory products to their clients. It then slows down and normalizes at about 50% higher than where it started. This reflects exactly the same cycle of sales most salons experience when they bring in a new line – with bumps every now and then as educators inject some excitement. The Hairstory difference is the orange line. These are online sales, some of which are to first time purchasers, but most of which represent repeat purchases. Clients can simply go online to replenish and/or join the New Wash Club, and the hairdresser doesn’t lose any sales to Amazon, Sephora or Ulta. The orange line triples over the course of this study, helping drive total sales (the grey line) up about 150%.
Higher Profits + Lower Investment = Explosive ROI
This chart shows the progression of profits and, importantly, return on investment. The orange line is indexed profits, which you can see more than double. What’s important here is that return on investment keeps going up as more and more sales shift from in-salon to online. There is zero investment required for online sales, which is why return on investment can basically go up indefinitely. Instead of investing in filling a wall of retail inventory, our hairdressers can put their money to use elsewhere, improving their core service business or keeping it in the bank.
What do these two charts mean? Happy hairdressers. Not only do our hairdressers avoid investing their life-savings in a wall of retail that’s now available everywhere else, they earn money in their sleep from online sales to their clients.
We Envision a World Where Salons Never Need to Buy Inventory
Does that sound pretty good? Well, we’re working to make it even better. At Hairstory, we feel like we’ve just started to scratch the surface of our potential, and we are preparing to launch several new initiatives to help our hairdressers achieve further success. At the top of our list is leveraging technology to remove the need for inventory entirely. We are currently consigning inventory with our best salon and hairdresser partners across the US with tremendous success. Hairstory hairdressers are making money without any investment at all, freeing up their cash to make other investments in their business. Beyond experimenting with consignment, in the coming months, we will be 1) opening a laboratory to test the salon of the future, 2) launching a completely unique education program and 3) rolling out a set of tools to improve not just retail profits, but service profits for all Hairstory hairdressers.
So what should you do if you’re one of the thousands of salons in the US with declining retail sales and thousands of dollars of inventory weighing you down? There is only one way to get out of a vicious cycle: break it. Right now, even with huge discounts, professional brands are still selling online at prices above wholesale. That means you should be able to dump your current retail brand and recoup at least the majority of your retail inventory investment. One option is to join the growing ranks of people offering product for sale on eBay. For those of you who are comfortable with setting up an account and managing the sales to customers, that’s a good outlet. Alternatively, there is a massive company called Quality King – yes, the largest beauty product diverter in the US – and they would likely be happy to take all your retail off your hands in one transaction. Here’s their number in Bellport, Long Island: 631-737-5555. You may not feel good about participating in diversion, but you will probably feel worse when the only option left to you is selling your own product at a steep discount – or donating it to charity at a loss.
For those of you already unencumbered by a wall of retail inventory, please consider joining our revolution. Our products are amazing (read our reviews), our hairdressers are making great money, and we’re creating a new, virtuous cycle of growth and development for salons and professional hairdressers all across the world. Send us a note at www.hairstory.com/carryus and we’ll be happy to jump on the phone with you.
Putting "Professional" Back into "Professional Haircare"
If I were to boil everything above down to one thought, it would be this: Hairstory is putting the “professional” back into “professional haircare.” It used to work great for everyone involved. It isn’t working now, but that doesn’t mean it can’t be great again – it just needs to evolve with the changing times and embrace the massive technological disruption that has tossed the entire global economy up in the air. There is a clear way forward, and it doesn’t have to be scary. It’s actually very familiar: hair companies respecting the relationship between hairdressers and their clients, and rewarding hairdressers for supporting their brand.
Dump vicious. Go virtuous.