Money Matters

As the Pendulum Swings

Booth renters gained a foothold more than two decades ago as salon owners sought to lower their overheads in the face of stiff competition. But today salon owners are finding that booth rental doesn’t allow adequate profitability and more are considering employee setups in their establishments. Is the pendulum swinging from self-employment to salon employment?

Already a successful businesswoman, Rosemary Weiner opened the Brass Rose Spa and Salon after identifying an unfilled need in Blairstown, N.J., for a spa and salon that emphasized professionalism, customer service, and cleanliness.

Embarking on her third business venture, Weiner never considered anything but an employee-based business governed by a cohesive corporate philosophy brought to life by a unified team. Needless to say, she was surprised at the reaction of many salon and spa owners she consulted: “They thought I was insane.”

Unswayed, Weiner proceeded to recruit a staff. “Whether you’re a three- or 30-station salon, you have to have a singular corporate identity and philosophy, and the people providing the services have to buy into those,” she explains. “You have to have standards, policies, and procedures.” Now in its sixth year, the Brass Rose was named NAILS’ Salon of the Year in 2000 and the Day Spa Association’s Distinguished Day Spa of the Year in 2003.

When the Brass Rose first opened, independent contractor and booth rental salons dominated the salon industry even more so than they do now. Weiner balked, however, at the thought of relinquishing any control over her business. And independent contractors are — by nature and by legal definition — a business unto themselves. The most successful ones develop unique identities, philosophies, and procedures.

A craving for these very freedoms inspired Rachel Flowers to strike out on her own, first as a booth renter then later as owner of a booth-rental salon. “I worked in a salon with a good name and I quickly built a clientele,” remembers Flowers, now owner of The Beauty Lounge in Akron, Ohio. “I was fortunate to work in a great environment with wonderful clients.”

Even so, Flowers always had the sense that the needs of the salon outweighed the needs of its employees. “If one of my clients called and requested a time when I was busy, then they would encourage her to book with someone else,” she says. “I also never felt like I could be creative or even do something as minor as changing the music.”

After renting a suite in a salon “mall” for a year, Flowers opened The Beauty Lounge, where she works as a hairstylist and also rents space to a barber, massage therapist, and nail technician (her mother). She couldn’t be happier.

“We all work together,” she says. “I have no control over when they come and go, and they all charge what they please — but we all are of the same professional mindset and have the same goals of offering our clients the best service.” Most clients only realize the salon is booth rental when they are asked to pay each provider separately for services.

Flowers isn’t concerned — or even convinced — that booth rental ultimately will inhibit the salon’s profit potential. “The rent will go up with inflation, and the profit margin will increase when I’ve repaid the startup costs,” she responds. “Booth renting kept my start-up costs low.”

Then there’s Robert Costa, a veteran hairstylist who relocated from the UK to accept an executive position with a chain of 600 salons. After several years, however, he realized that as much as he loved the industry, keeping the salons filled with professionals and clients alike was too stressful.

“I decided the way to go was to set salon professionals up in business for themselves,” says Costa, founder and president of Salon Suites. The Cleveland-based chain of beauty malls builds out retail space with 20-25 private suites. Construction costs average six to seven times more than a traditional salon space.

Salon Suites does not share in its tenants’ success. “We have a lower rate of return because all we get is a fixed rent,” Costa admits. In his view, the reduced financial risk and fixed rate more than make up for the lower profit margin.

Employee, independent contractor, booth rental: As these owners attest, any of the three can form the foundation of a successful business model. But at the industry level, independent contractor and booth rental setups often are blamed for pushing salon profits into the red while giving the industry’s professionalism a black eye. Several states — including New Jersey, Pennsylvania, and Virginia — have had their say on the issue by outlawing booth rental and independent contractor salons.

Booth rental and commissioned contractors gained a foothold more than two decades ago as salon owners got caught between the threat of value-priced chains on the one side and fast-rising overhead (driven by rising real estate and energy costs) on the other.

Whether because or in spite of this, salons survived. Still, thriving salons are in the minority today — and a disproportionate percentage of them are employee-based. All of which leads us to ask: Is the pendulum swinging from self-employment to salon employment? ‰

Employment Has Its Perks

The reasons owners of booth-rental and independent contractor salons eschew employees are valid: Taxes, worker’s comp, and liability insurances, as well as supplies are all costly and time-consuming. Salon employees also tend to be younger and less experienced, which means more time and money to train and manage them.

Salon employers, however, write it all off as the cost of doing business. “We service 6,000 clients each month,” says Randy Currie, owner of Currie Hair, Skin, Nails (Glen Mills, Pa.). “To do that well we need every available team member ready and willing to help where it’s needed.”

For Weiner, it boils down to control. “The most important thing is consistency in services and quality,” she explains. “With employees you can get the employee buy-in. You also keep control of marketing and client ownership.”

Consistency and quality are key to salon and spa success today, agrees Peggy Wynne Borgman, CEO and director of Preston Wynne Spas and principal consultant for Preston Wynne Success Systems, both based in Saratoga, Calif.

Be prepared to make a trade-off, however. “You have to deliver value to these people who are giving up points of potential income in exchange for your career management services,” Wynne Borgman says. “As owners, we are the marketing and brand entity, and we manage employees’ careers with a steady supply of customers and growth opportunities.”

Ironically, the most difficult step for many salon owners is the one that takes them from behind the chair to behind a desk, says Deb Hunt, a senior coach and trainer with Salon Training (Vista, Calif.). “If you’re an owner with no time to train and no time to coach, what’s the point?” she asks. “Nail techs are right to think that they can be that chaotic on their own.”

Hunt, who has helped numerous salon owners make the transition, suggests starting by dedicating one day a week to managing the business — meet individually with techs, take inventory and place orders, and analyze the salon’s financials (an easy, painless task with salon management software).

“Honestly, any type of salon can be profitable as long as the owner knows her numbers and what the salon needs to produce,” she says. “She also has to know how to lead people and how to help them reach their own goals as well.”

Employee-based salons only work when the owner rises to the responsibilities of an employer by providing a supportive work environment, sound business policies and practices, benefits package, and opportunities for employees to grow and advance.

Showing Independence

Work when you want, wear what you want, set your own policies, enjoy self-employment tax breaks, use the products and techniques of your choosing … what’s not to love about self-employment?

Actually, there’s a lot. Booking appointments, marketing, calculating and paying taxes, doing paperwork and the myriad other tasks that come with owning a business extend the workweek hours after the last client leaves.

Even so, numerous salon professionals find it a small price to pay in exchange for freedom and flexibility.

“Owning your own business is the American dream, and it’s a good thing,” says Ken Cassidy, owner of Kassidy’s Salon Management and Pygmalion Salon in Long Beach, Calif. “But 90% of people don’t have a clue about how to manage and guide a business to profitability.”

Enter Salon Suites. “This is an ideal way for people to go into business for themselves,” Costa says. “Their rent includes everything except a telephone, products, and towels. It’s basically a turnkey operation.” Renters also have access to free consulting on everything from marketing to taxes to business-building from Salon Solutions, Costa’s consulting company.

“I’ve found that self-starters do very well in this environment,” he adds. “The ones who sit and wait for it to come to them aren’t going to make it.”

Even the pro-employee consultants and owners we interviewed acknowledge that there’s nothing inherently wrong with booth rental and contractor structures. So why the bad rap? Costa and Cassidy say salon owners adopted the structures in a desperate move to cut costs in the 70s when they felt the squeeze of discount family salons on one side and rising overhead on the other.

“With a booth rental or independent contractor situation, owners get rid of 80% of the top expenses, including advertising, supplies, and payroll taxes,” Cassidy says. Like employee-based salons, however, independent contractor and booth rental must be approached as a potentially profitable business model rather than a cost-cutting measure.

Markham, Ontario-based Premier Salons International, which operates approximately 500 salons in the United States and Canada, has the independent contractors to prove the structure works when done correctly. According to CEO and president Brian Luborsky, they began offering salon professionals a choice between employee and independent contractor status more than two years ago.

“We sat down and worked it out to where the professional makes the same whether they are independent contractor or employee,” Luborsky explains. “For the company, the benefit is having access to more potential workers.”

By making its independent contractors’ sub-licensees of its space, Luborsky says they have to follow the same rules as the company’s employees. “It all depends on how you set up the situation,” he explains. “If you open a salon in a mall, there are all sorts of rules you have to follow even though it’s your business: The mall says you have to be open until 9 p.m., that you have to keep your store clean, and that you must have their approval of any signage.” In fact, mall property managers have a lengthy list of rules that space lessors must abide by or risk penalty.

Contrary to others we asked, Luborsky believes even more people will choose independent contractor status in the future. “We aren’t seeing growth in employees,” he reports.

If he had to make the choice, Luborsky says he would without hesitation choose to be an independent contractor. Even so, he cautions every salon professional to weigh the options against their own needs and to run the numbers twice to make sure they’re getting the best deal.

“If you’re making 45% as an employee and another salon offers you 50% as an independent contractor, you need to know how much you’d be giving up in benefits as well as the write-offs you’d gain, etc.,” he advises. “There isn’t a yes or no answer, nor is one better than the other. It all depends on how it works for the individual.”

Which Way Will It Go?

While employees have grown their ranks to surpass independents in the beauty industry, the trend could just as easily reverse. For example, Levy and Wynne Borgman credit some of the growing employee base to spas, which can’t survive without the consistency and quality they can demand only of employees.

Both Hunt and Wynne Borgman believe the industry’s conversion to employee-based salons and spas will accelerate in coming years as displaced corporate workers look to salon ownership as a business opportunity.

Cassidy, on the other hand, believes independent contractors will make a comeback as the current influx into the industry gains some experience and clientele.

Rather than getting caught up in debating future trends, these consultants urge salon owners to get down to business to ensure their own future. “Any of the three structures can be successful or disastrous,” Cassidy emphasizes. “Owners need a business foundation and a formula that they then can apply to any price or service mix.”

Keywords:   booth rental  

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