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A Letter to Hairdressers & Salon Owners

My name is Eli Halliwell and after a nine year hiatus from the world of hair (I ran Bumble for five years and helped build Bb.U – one of the proudest achievements of my professional life), I’ve come back because the world changed and put the hair industry in upheaval, but the companies serving it didn’t adjust.  I had an idea one day to create a new kind of hair company that would help hairdressers adapt to a world where the old rules don’t apply.  I quit my last job and created Hairstory within 6 months of having the idea.

The salon industry is undergoing unprecedented upheaval and change is happening faster than most people either realize or are willing to acknowledge. When I left Bumble in 2006, salons still needed expensive POS software packages to manage their business, street frontage still drove new client acquisition, and professional retail still only sold through salons. Now that’s all changed.  Why?  Massive technology disruption. 

The rise of the smartphone has enabled hairdressers to book appointments, charge credit cards and essentially manage their entire business for almost no cost.  They don’t need a front desk, salon software or management support.

Instagram has enabled hairdressers to acquire new customers directly online, leveraging social networks to present their portfolio directly to hundreds of potential new customers every day.  Expensive, street frontage real estate is no longer relevant or necessary to drive new customer acquisition.

As a result, the power dynamic has shifted from the salon owner to the individual hairdresser.  That is putting pressure on salon service profitability.

On top of that, from my time at Bb. U analyzing hundreds of salon P&Ls, I know running a salon has never been all that profitable to begin with.  If there was any salon profit, it came from retail sales, which are now under at least as much pressure as service revenues.  Every professional retail line is for sale on Amazon for Prime (free) delivery, and half of them are sold directly to Amazon by the brands.

Putting that all together, I believe the salon as we know it is going to be extinct in ten years.

What evidence do I have to support this claim? I know from my time on Wall Street that Google trends are better than almost any other data source at revealing changes in behavior.  Here’s what they show:

  • Searches for “opening a salon” => down 40%
  • Searches for “salon furniture” => down 28%
  • Searches for “salon software” => down 33%
  • Searches for “salon for sale” => up 83%
  • Searches for “beauty school” => basically flat, up 8%
  • Searches for “booth rental” => up 198%

Anecdotal industry sources I talk to regularly confirm that product sales through salons have been declining every year since 2009 – even the biggest brands are seeing negative sales through the salon channel. 

The government data says new salon formations are positive and the outlook is strong, but that’s because the government data is misleading.  It is capturing new corporation formations.  Anyone with an accountant knows that they need to form an S corp or a partnership when they go out on their own to form a new business.  The growth in formations is because we have gone from 20% of hairdressers being independent to 50%.  Many of those newly independent hairdressers have their own corporate entity for tax purposes.  It’s the smart thing to do.

Interestingly, while retail sales through salons are down, overall prestige haircare sales are up.  NPD just reported 13% sales growth over last year.  That’s because NPD measures sales to consumers through retail and online, not salon sales.  Salon retail sales are negative and have been negative for a while. Consumers are still buying the first bottle in salon based on their hairdresser’s recommendation, but they are replenishing online.  It’s just a massive change in consumer behavior.  And now you can buy brands like Bumble or Oribe on Amazon prime or on the company’s website or at Sephora or Ulta. 

Last week Bumble announced they are going into Ulta. That’s a big change from when I was there.  And two weeks prior Oribe said 35% of their sales are online.  And the whispers are that Oribe is about to be sold to either L’Oreal or Kao. 

We saw all of this coming two years ago, and built Hairstory from the ground up to enable hairdressers to participate in the ecommerce revolution.  The model is simple: hairdressers introduce their clients to our products and every time their clients buy – whether in salon or online – they make the same money.  Because we know each hairdresser’s clients, we can always make sure they get credit for the sale.  We don’t sell on Amazon or any other websites or at retail, because if we did we couldn’t guarantee that hairdressers get paid every time their clients buy our products. This way we can.

Under this new model, we don’t offer the same 50% margins as traditional salon brands.  Our hairdressers make 25% of every purchase by their clients, but the key is they make that 25% every time.  Would you rather have 50% once and then let Amazon/Ulta/Sephora get all the profits thereafter or would you prefer to get 25% on multiple purchases far into the future? And you don't have to invest in inventory when the sales happen online.

Because our core product, New Wash, is so unique, our repeat purchase rates are higher than any other beauty product I’ve ever seen.  We have only been accepting product reviews since last October, and New Wash already has more 5 star reviews than any other professional haircare product in existence.  Strong repeat purchase rates make our business model more profitable for hairdressers and salon owners than the traditional model ever was, even though we offer lower margins per transaction. 

The nature of change is that it happens very slowly, building bit by bit quietly, unnoticed, until suddenly there is a fundamental switch.  Recent announcements, like Bumble going into Ulta, should be a resounding wakeup call to all hairdressers and salon owners across the country.  I believe the salon industry is imperiled and tens of thousands of salons will go out of business in the next ten years – Amazon has already killed almost every other form of retail and they won’t stop.  Many product companies will die as well.  Traditional product companies are doing what they think they need to do to navigate this changing landscape – abandon the hairdresser.  But they are making a false choice – there is another way. 

Maybe I’m being alarmist.  I hope I’m wrong that the salon service business will be under significant pressure.  But I know that salon retail is not going to remain the way it was.  To survive, the best salons will need to evolve and adopt new business models like what we offer at Hairstory.  The old model is dead.

The purpose of this blog is to start a dialog about the forces impacting the hair industry.  Most people are completely unaware it is even happening.  You can agree or disagree, but let’s discuss.

We have created a new way forward.  We’ve dedicated ourselves to helping people rethink everything about hair in a world where the old rules don’t apply.

Let start talking. 

Eli

Google trends data shows the depths of change in the hair industry