The Financials of Retail

On average, retail sales represent 7-15% of total sales, playing a key role in salon profitability, says April McDaniel, a CPA with Kopsa Otte, a company that has been providing advisory services, financial statement compilation, analysis and tax planning to salon owners for more than 35 years. 

“Products in the salon are sold at a profit margin of 42 to 48%, compared to the service sales with an average profit margin of 36-40%, mostly depending on the compensation model a salon uses to pay its stylists,” McDaniel says. “Selling retail consistently is important. It funds salon improvements, employee benefits, advertising, rent, and an owner’s return on investment—the list goes on and on.” 

Over the past decade, some of that profitability has shifted out of the salon. More and more owners are seeing customers order from other retailers online or purchase their products at a big box store. A handful of Kopsa Otte’s salon clients have shared stories of offering a product solution to a salon customer and then watching that person place the order on Amazon right before their eyes. 

Salons today are forced to think about things differently. What avenues are available to them to offer products to their customers? How do they compete with Amazon?

There’s a saying: If you can’t beat them, join them. The reality is, without significant resources it may be difficult to build and maintain a custom online platform. With shrinking bottom line profits driven by rising employment and fixed costs, this does not leave much left to cover this type of endeavor. While SalonInteractive, an e-Commerce platform that preserves the integrity of the professional beauty industry, is fairly new to the market of online salon product sales, the professionals at Kopsa Otte see it as an advantage. 

McDaniel lists some financial benefits to incorporating an online platform like SalonInteractive, into a salon’s retail strategy:
• Less in-store real estate needed to show and store inventory.
• More online real estate to sell an expanded variety of brands. 
• More cash left in the business to cover other expenses.
• Sales tax filings and credit card fees are covered as part of the agreement, which means less hassle for salon owners.
• Less obsolescence and shrinkage. If you don’t have it on your shelf it can’t go bad or be stolen.

“The goal is to provide salon owners a solution to a problem. You are teaching your customers about a product and they are buying it from someone else!” McDaniel stresses. “SalonInteractive is offering a solution to keep salons and distributors in the mix to share in the profit of retail sales. The reality is beauty products will be purchased on the internet—how to compete is the challenge.  

 As with all things, each salon’s situation is unique. “Your facts and circumstances must be considered when determining the right solution for you,” McDaniel says. “And, don’t forget, it comes down to the relationship that the salon has with the customer. Does your team believe in the product they are recommending enough that they are using it themselves? Is your team making the recommendations to sell products and strengthen their relationship with the salon customer?”