Inventory Control in Action
When Tonya Reid and her salon manager Kim Stivers traveled to Atlanta, Georgia, last year for a four-day session of Strictly Business, they had big plans for T. Reid and Company in Charlotte, North Carolina. Reid was considering taking out a $130,000 business loan to enclose the porch that wraps around her salon to create a new nail area and more hair stations.
Within a few days of comparing stats about the industry to her own business, Reid was having second thoughts. She realized she was over her head in inventory, and the amount of cash she had tied up in retail sitting on her shelves equaled the amount of debt that resided on her credit cards and kept her up at nights. On the fourth morning of the conference, Reid said to Stivers, “We need to rethink this buildout.”
“When we got to Strictly Business, they give you the information about your business, and our retail turns (a turn is how many times the total inventory you have sells out in a year’s time) were something like 1.12 or 1.18,” says Reid. “Which means everything we had basically sat on a shelf for a solid year.”
Looking back, Reid realizes she made a lot of mistakes. She carried lots of pieces and parts of many different lines. When the economy tanked, Reid thought it would help clients to bring in less expensive lines, but the ones she added were similar to ones she already had. When Stivers, who did the ordering for the salon, was scheduled to go on vacation, Reid would ask her to double up on retail orders just to make sure the salon didn’t run out of anything while she was gone. “We had too many products on the shelves, and we carried so many different things, it was a logistical nightmare getting it all on the shelves,” she remembers.
When Reid and Stivers went back to Charlotte, they cleaned house. “We looked through all the lines and all the products and decided what made sense to keep and what we needed to get rid of, and we looked closely at the club points different manufacturers were offering,” says Reid.
“The timing coincided with our 10th anniversary, so we had a 10th anniversary blowout sale. We set up tables on the porch, filled them with products we were getting rid of and treated it like a client appreciation event,” she says. “Most of it I sold at cost, but I decided instead of having it sit on the shelf, I’d rather have the money sitting in my checking account.”
An interesting byproduct of cleaning house for Reid is now she has a stronger partnership with her vendors. “Before we bought all our backbar, now we’re accumulating enough loyalty points that we’re stockpiling backbar.”
New Commission Structure
Reid and Stivers also renovated the salon’s commission structure. Before they paid a sliding scale percentage that increased as a stylist’s retail to service percentage increased. “I had thought it would be a great incentive, but it really wasn’t because most stylists don’t think about math at least not the way I do,” says Reid. “In a month’s time, we’d maybe have one person make 15 or 18 percent, but it’d never be the same person each month.”
Now, the salon has instituted a level system and at each level, the stylist is expected to sell a product piece per client ratio, for example Level 1 is .5 products per client. “They either hit it or they don’t and if they hit it, we pay out a straight 15 percent. Now we have about nine people hitting the goal each month. I can still see what their old percentages were and it’s amazing— where only one would have hit 15 percent before, now six staffers are and they’re going all the way up to 23 percent.”
T. Reid Today
Reid is happy to report that a year later her retail turns for the hair department are averaging 6.3, and she’s striving for 8. Instead of renovating the porch space, they built a wall through a room used as an offi ce to create a nail area and space for four stations. She paid $13,000 cash for the renovation—a tenth of what the buildout would have cost her for a similar result. “Once we had committed to the retail we had decided to keep, the manufacturers came in and retrained our staff on those lines,” says Reid. “It was really beneficial to have that education. We didn’t realize how much our staff had grown, and needed the education.”