Money Matters

When the Economy Slows, Smart Salons Adapt

While the thought of an economic slowdown — or other financial challenge — can be scary, it can also be the catalyst for change. Take heart and learn from the struggles and strategies of two business owners who came out on top.

Have you noticed clients watching their pennies a little more closely? Well, you’re not alone. With news reporting record numbers of foreclosures, rising gas prices, and plant closings, the consuming public is showing signs of nervousness. All hysteria aside, expansion and contraction of the business cycle is to be expected. As the economy grows, clients open their wallets much more freely, but as the cycle swings back they brace for the worst. Fortunately the worst-case scenario rarely materializes

Financial experts admit the economy is slowing. They use measures like the Gross Domestic Product index (based on consumer consumption), the Dow Jones Industrial Average, and home foreclosure rates to develop a financial forecasting model. Turn on the evening news and you have no doubt seen days where the Dow lost more than two hundred points. Open the newspaper and the bold headlines announce yet another manufacturing plant closure. Turn to the real estate section and there are plenty of homes available through foreclosure.

Now is the time to flex your business muscles and develop a long-range plan for how you will use your resources.

VIP Ups Customer Service

Salon owner Renee Borowy is seeing the economic effects first-hand. Her VIP Salon and Spa is located in Riverview, Mich. — one of the hardest hit areas in the country. Riverview is part of Wayne County, where the local Ford plant is closing and other auto manufacturing facilities are following. The home foreclosure rate in Wayne is four-and-a-half times the national average.

Borowy owes a big part of her survival to faith. Her hard work and dedication led to being named NAILS Salon of the Year in 2006. With 24 nail technicians on staff (and 55 employees total) she has a lot to consider on a day-to-day basis. When asked about the negative impact on the salon industry, she is quick to point out that there are positives. “You have to reevaluate your business. You definitely have to offer value for the dollar. But, it is my belief that the beauty industry will stay solid,” she says.

She’s got experience on her side. Her salon suffered an internal slowdown when a fire, caused by a faulty charging unit on a vacuum, reduced her salon to ashes within hours. Thanks to great planning and business interruption insurance, she was able to not only rebuild, but remain in business throughout the process, even though her building and contents were undervalued. An IRS audit left her a little more business savvy. “There are so many things you can’t plan for.” Remarkably, Borowy remains upbeat and encouraging. “You learn from it and move on.”

She says that with a salon popping up on every street corner, you have to have more than great customer service. Borowy is quick to recommend the book, Chocolates on the Pillow Aren’t Enough: Reinventing the Customer Experience , by Jonathan M. Tisch, the CEO of Loews Hotels. Turns out this industry educator is also a student of business. She points out clients are not traveling as much due to increasing gas prices. This may be an opportunity for new clients in your neighborhood. So, it’s time to ramp up referral efforts and reward clients with bonuses they can use toward services they need. She recommends rewards that clients can save up and use all at once. She’s all about adding new and different services as times change.

After a ton of research, Borowy was able to bring in a physician’s line of glycolic skin treatments. Her staff was specially trained to administer the treatments. The add-on service is a great upgrade to manicures and pedicures and offers the benefits of reducing age spots and taming calluses. Her salon is the only one in the area to carry the line. She also stocks her shelves with a house brand and plenty of lines that have strong name-brand recognition. Even in a stressed business market, she points out that when people are redeeming a gift card they are more likely to upgrade the service when offered the chance. So, you bet, she’s working on selling those gift cards! Add-on options that add value to a service also boost the income for her employees. Her business philosophy is proof that we can’t make our clients’ buying decisions for them. Offer plenty of options and let clients decide if they can afford it.

Despite businesses closing, empty restaurants, and tough times in her town, Borowy has a handle on keeping clients. Her plan is simple: Keep improving customer service. Keep overhead low by evaluating all operating expenses and tighten up where you can. In her words, “Be financially savvy and lean.” She is a strong advocate of cross-licensing. With up to four apprentices a year, she can train employees in a variety of services, offering flexibility in service providers. She has also upgraded the salon to computers so tracking, scheduling, and keeping a sharp eye on the financials is much more effective.

“It’s hard. It’s challenging. Unfortunately, some salons won’t make it. When times get tight you really have to have a passion to keep going,” says Borowy.

Post Hurricanes: Katrina and Rita

Sandy Blum and Cindy Cocke still stand fast in the French Quarter of New Orleans. Their Spa Aria is located in the Hotel Monteleone. In the weeks after Katrina made landfall they lost most of their staff members and clientele. Then came Rita. Many salons have since closed.

Following Hurricane Katrina, it was up to the people to take care of each other. Blum and Cocke went to work, looking for assistance as soon as they could get back into the salon and evaluate the damage. They were lucky. The salon was high and dry and had not been looted. Damage was minimal, but in the city of New Orleans, life was moving forward at a snail’s pace. In many parts of the city, search and rescue efforts were still going on and so many were left homeless or displaced all over the United States.

Blum shares, “You know a disaster can happen but you really don’t expect it to happen to you. I was consumed with thoughts of an unsure situation. I spent two weeks on a farm with no electricity and didn’t have any idea what I would find when I went back.”

Spa Aria didn’t have business interruption insurance, but the return was not as bleak as they thought. Grants helped the salon get back on its feet. The Hotel Monteleone was not open when the salon was reopened to clients. “We wanted to get back as soon as we could,” said Blum.

Attracting new staff members was a key obstacle that was overcome by offering higher commissions and product and service incentives. Attracting clients was another issue. The salon hosted mini spa events and put out flyers. A Champagne Dreams promotion was a spa favorite. Special attention was paid to make everything fun. After all, everyone had been through a horrendous ordeal. An after-storm party was highlighted by a performance by local artist Theresa Andersson.

In the spirit of spa, Aria added little touches, like increasing service times when a little more pampering was needed. The community was in such stress. Everyone needed a little relaxation. “We were so happy to see the regulars returning,” says Blum. The city was slowly rebuilding and working very hard to reestablish their place in the tourist industry. New Orleans and the Gulf Coast have new issues to contend with. Jobs are slowly returning, but gas prices and media coverage are still hampering the efforts to recapture their market share of tourism. Blum is confident that business will return. Right now, though, the spa is still in recovery. Cocke and Blum are also working to reopen another salon they co-own, Shine Spa + Specialties on Charter Street in New Orleans.

Even during the economic slowdown, Spa Aria is taking advantage of the resources they have. They have added yoga classes. Bringing in local author Dr. Vikki Ashley to autograph books was another unique event planned by the salon.

Blum and Cocke don’t have any regrets when looking back, but are full of ideas going forward. “Cross-market services and make sure you have a variety of merchandise for clients,” says Blum. “You really have to tweak your business plan when a disaster or economic issue hits. We’ll try different things to attract clients. You can get in touch with product reps to get samples and try to co-op ads. You have to be creative and just keep looking. We were really blessed. Everything we have been through makes us realize we can depend on each other.”

Tough Financial Times

There will always be adversities to grow from. Companies restructure, move, or close. The cost of goods varies. And, inflation is working against us. What works for one salon may not work for another and vice versa. The next time you find yourself traveling, stop in and enjoy the services at a local salon. While you are enjoying that pedicure, swap marketing ideas with the technicians and you both win. There is still plenty of business for every salon and a nail technician can easily find work. Don’t believe me? One of the top challenges for salons is finding qualified nail technicians. So, if you find business slow, brush up on your skills while you are waiting for all of your marketing efforts to kick in.

While the thought of an economic slowdown can be scary, it can also be the catalyst for change. So-so business plans just won’t do. Fine-tune them. You will have to wrangle every ounce of creativity to come up with solutions when you are given a handful of problems. As clients tighten their belts, be prepared with business strategies that do more with fewer resources. Your biggest threat isn’t an economic slowdown or recession — it is the fear that keeps you from adapting when change requires you to grow. Refocus, rededicate, and reignite your passion for the nail industry.

Erin Snyder Dixon is a nail technician, salon owner, and author based in Newport News, Va.

Economist Talks Trends, Strategies To get a gauge of how general economic trends affect the beauty industry, NAILS asked Dr. Bill Conerly, an economist and senior fellow at the National Center for Policy Analysis, for his analysis and advice.

There’s an old adage that the nail industry is recession-proof. The thinking is that when times are tough, people treat themselves to small luxuries, like manicures, and forego the big ones. What have you found in your research?

Dr. Conerly: Even less-expensive luxuries are subject to recessions. When your client or her spouse loses a job, discretionary spending will be cut. The client may still come in for a basic service before a job interview, but in general she will come in less frequently and look for less expensive services.

Briefly, how are we doing now economically — are we in a recession? Is one forecast?

Dr. Conerly: Right now I am not forecasting a recession, but we economists are not perfect at this game. I figure there’s about one chance in five that a recession will come in the next two years. That’s enough risk that nail technicians and salon owners should be cautious.

I understand you’ve identified a trend regarding the timing of an overall recession and when it tends to hit the beauty industry. Please explain.

Dr. Conerly: Spending on toiletries and cosmetics drops by about 25% during recessions. Personal care services — haircuts, manicures, and so forth — drop 9%. The government doesn’t track nail care specifically, but it probably declines at least 10% when the economy turns downward.

What’s worse, beauty spending usually starts to decline before the recession starts and does not recover until a few months after the recession is over.

The good news is that nail technicians have many different clients, and most of those clients will still be coming in. In other occupations, workers are at risk of losing their entire income. Although nail technicians might take home less money in a recession, it’s very unlikely they would lose all their income.

Most importantly, what steps can a salon owner or nail technician take to weather a recession or an economic slowdown in her area? What are the best strategies?

Dr. Conerly: The steps that I advise large corporations to take also work well for individual nail technicians, but at a simpler level. First, look at your vulnerability to recession. I mentioned average data, but think about your own city and your clientele. Some cities are hit worse than average, especially cities heavily into manufacturing. Some jobs are more vulnerable. If your clients mostly come from a nearby medical center, their jobs are pretty safe. But if they work at a large corporation that makes heavy equipment, they will be very vulnerable to recession. Know your customers.

Second, keep an eye on the business news. Listen to what your clients are saying about their jobs, or their spouse’s jobs. Get a sense of whether your clients are being laid off, or are likely to by laid off.

Third, think about how you would manage if your income declined by, say, 10%. What expenses could you cut? Do you have an alternative source of income?

Fourth, make your day-to-day decisions with the possibility of a recession in mind. Don’t panic, but keep in mind the possibility that your sales could turn down. Try to live on less than you take home now. Then if the recession cuts your income, you can still get by. If a recession does not come, you have some savings for a new car or vacation.

Dr. Bill Conerly is an economist and author of , Businomics: From the Headlines to Your Bottomline — How to Profit in Any Economic Cycle . His website, www.ConerlyConsulting.com, has additional resources for business owners and executives.

Keywords:   customer service     economy     money     natural disasters     taxes  

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