Sally Beauty Supply: The Way Forward
The beauty industry is one of the biggest industries on the planet. By the year 2022, the cosmetics industry (which includes hair) will generate earnings of up to $450 billion.
Sally Beauty Holdings, Inc. is a household name in this industry and is one of the most prominent players. With global earnings of about $3.8 billion in the previous year, Sally Beauty Supply contributes to quite a significant chunk of the total earnings by beauty retailers and distributors around the world.
With a catalog of up to 10,000 branded hair, skin, nail, and beauty products, it is one of the biggest companies in the industry. The business doesn’t have only an offline presence but has waded into the online world by producing YouTube videos that show tutorials on how to use hair, makeup, and beauty products.
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The need for transformation
Despite all that seems to be going well for the company, recent events show that Sally Beauty is in a somewhat prickly situation. Steps taken now will affect the future success or downfall of this empire.
The bigger you are, the larger the target on your back, and this is what Sally Beauty Supply faces. A many businesses now have the ability to imitate and disrupt its business model, Sally Beauty faces stiff and increasing pressure from its competitors. While retailers like Sephora, Ulta Beauty, and even Glossier are some of its competitors, it faces the most pressure and danger from other sources: Amazon, Wal-Mart, CVS, and similar sellers.
Amazon especially, is the biggest thorn in the flesh for the company. Earlier this year, Amazon launched an online store specifically directed at servicing professionals, going head-to-head with Sally Beauty Supply, and it seems to be winning!
This rivalry has been long coming as Amazon, with its Prime membership, was already snatching customers away from Sally Beauty Supply. However, through the new beauty store launched, the attack has been formalized. Unlike Sally Beauty, Amazon said stylists only need to open a free business account to gain access to various beauty brands.
To get ahead of the competition and survive in a cutthroat industry, Sally Beauty has taken several steps and proposed plans. This plan includes the program to reduce costs by improving the efficiency of the organization. And one of the most popular ways to do this is by headcount reductions.
Furthermore, the company has sought to improve the sourcing of products and brands, to reduce operation costs, to enhance inventory management, and more all in a bid to enhance customer service and retention.
These are applaudable steps indeed, and the company hopes to re-invest the capital saved into market-competitive store wages. The company aims to increase focus on its hair care and hair color categories, enhance customer experience, and improve offline growth, among other ambitions.
Perhaps the President and CEO Chris Brickman described the most succinct explanation for these steps.
“We will be re-investing in strategic initiatives to accelerate growth in color and care, which, combined, represent more than half of Sally’s revenue in the U.S. and Canada”
He also revealed in the statement that the company had put in plenty of work to create and implement initiatives that are projected to improve the financial standing of the company. In 2018, the company had its shares sink around 15% due to flagging sales. Although sales have picked up in the first quarter of 2019, it is still meager compared with the usual projections from Sally Beauty.
The hair color and hair care sectors make up almost half of all the revenue from Sally Beauty. It is therefore not surprising that the CEO says that any revenues generated from the cost-cutting and other initiatives will be re-invested to improve hair color and hair care sectors.
All these seem well and good for the company, and without close scrutiny, you might think that it guarantees a way forward for the company.
However, here lies my problem with the purposed plans by Sally Beauty. In my years as a consultant, I have often seen such programs designed to “reduce costs and fund initiatives” to be disastrous in the end.
While the air of positivity hangs above the company as the plans are laid and implemented, this happy atmosphere disappears in the long-term. It papers the cracks but doesn’t cater to the long-term financial health and growth of the business. When a business focuses on reducing costs and improving operations instead of directing attention to innovation, creating a competitive advantage, and more, then problems arise. The strategies put in place by Sally Beauty are, in my opinion, like putting a Band-Aid over a bullet wound.
In most cases, when the business does not look far into the future but focuses on 2-year or 3-year results, it is often bad. Amazon knows this and plays the long game instead; that is why it is so successful. If Sally Beauty decides to go the fast route, it will inevitably meet disaster and end up as a “has-been.”
What is The Right Strategy For Sally Beauty Supply?
After hearing all that the company aspires to do, the question you might be asking is that “is it the right strategy?” Well, time will tell. However, from my experience as a consultant, I must say that I do not believe that it is.
Firstly, the comments from the CEO indicate to me that the aim and focus of the big wigs at Sally Beauty Supply are too narrow and do not look far into the future. There will be changes in the future, and these executives do not seem ready for them. Amazon looks primed (pun intended), to take over the market.
While I understand the CEO’s desire to invest in initiatives to promote growth, especially in the hair color and care department (which incidentally are responsible for more than 50% of the overall revenue in the last year), these resolutions do not seem enough.
I believe that the danger of such a view is that the competitors look far ahead and create better plans to deal with problems in the long-term. Competitors have faster-growing revenues and are steadily improving brand loyalty. Hence, when the opportunity arises, they are poised to take over Sally Beauty’s share in the market.
Take as an example, Madison Reed. The company provides customers with an impressive array of products (hair color and hair-care) through an online model. This model is steadily growing in popularity, and sooner rather than later will become more common.
Sally Beauty’s main competitor, at least for now, Amazon has seemingly perfected this business model. The company recently released a range of products (specifically private-label synthetic motor oil), which has wrested away a significant market share from the leaders in the industry. Amazon has waded into the market, and with the private-labels, it is expanding and taking more customers away from mainstay manufacturers.
If Amazon wants to, it can very quickly take away the market share from Sally Beauty. Why? Because Sally Beauty’s business model is straightforward to imitate and to disrupt!
With this in view, what should Sally Beauty do? Is there a way out of this ever-closing trap? Yes. The way forward, I believe, is not to try to beat Amazon at its own game (Amazon is too strong at this point), but to collaborate with Amazon. A classic case of If you can’t beat them, join them.”
How Can Sally Beauty Supply Survive
To survive this onslaught from all sides, Sally Beauty Supply has to design and implement a whole new strategy; one based on capabilities. By doing this, the company can grow from its core business and even expand into other companies. In other words, Sally Beauty must re-invent itself and create a new business model.
Here are some ideas I believe, if implemented, can turn things around for the company.
Although the company has its YouTube channel, in terms of sales and customer acquisition and retention, this isn’t enough online presence. This shift will change the business model, but I believe it will be for the company’s good. Cutting costs is a great move as well, and this can be done by reducing (eliminating, if possible), the use of direct sales consultants. Partnering with Amazon Business to cater for all distribution and logistics needs is vital as well. It is essential that the company work hard to make an online marketplace, a place where it can sell exclusive professional salon brands to licensed professionals.
Outsourcing is a move that can help the company now and in the future. If Sally Beauty Supplydoes not feel like snuggling up with Amazon, other options can help with distribution and logistics. Entering partnerships with companies like Wish.Com or Spreetail can be a good move forward. The executives must assess a franchise model for the company. There are scores of companies that can be partnered with, as well.
Expand and Rebrand
While I am not implying that the company changes the entire brand, creating a new concept and brand can help with flagging sales and encroachment by rivals. By reimagining the beauty experience to deliver an in-store experience for hair color and hair care, while ensuring that it is easy for the customer to enjoy similar experiences from the comfort of their home will help the company.
The company can draw inspiration from Ulta Beauty which made a wonderful offline and online experience for its customers. The new brand shouldn’t be an exact copy of Ulta Beauty, but should instead be an improvement, incorporating makeup and beauty products and tips, as well as offering products and services to both men and women.
What is more, in recent times, retailers love the “store within a store concept,” and Sally Beauty can use this to advantageous ends. Furthermore, by creating an exceptional in-store and digital experience for the customers, it can be launched inside stores of other competitors like Wal-mart, Walgreens, Kohls, and others.
Maximize omnichannel experience
By maximizing the digital and omnichannel experience, Sally Beauty Supplycan give customers more flexibility in choosing their preferred method of interacting with the company.
I won’t presume to know all the answers or to know the best method for progression for Sally Beauty Supply. However, the experience I have as a consultant makes it clear to me that my proffered ways are better than what Sally Beauty Supply has on the ground right now.
It is quite clear, in my opinion, that the company lacks an organized supply chain platform, which is one reason why it will run into problems eventually. I have closely followed the company and have understood the proposed transformation plan. The company might believe that implementing software from JDA will solve its challenges, but as said earlier, this will be a temporary fix and will paper over the cracks. While the implementing software is admirable, Sally Beauty’s fundamental problem is its now obsolete business model. If the company fails to transform the business model and throw in a software implementation into the mix, it simply will not work. Furthermore, the company’s resolve to continue an in-house distribution and logistics system of operations is laughable. The main goal, the first step on the path to recovery, is to outsource distribution and logistics.
Having a physical retail store model as the only option is a very shaky business model. It is far too easy to disrupt. Also, opting to jettison all physical retail stores to move all operations online is folly.
To survive the coming years, Sally Beauty must create a salon experience with an optimized Omni-channel strategy, along with a franchise model. This, in my opinion, is how the company can thrive.