Hair Space

Hair Space

commercial real estate by Jean Gruss | Editor/Lee-Collier

How 500 square feet translated to a 55% jump in revenues at a Fort Myers hair salon. It's a lesson in maximizing the use of commercial real estate.

In retailing, how well business owners use their commercial space can make a big difference in sales.

Consider Karen Steuber and Renee Walker. When they leased 2,650 square feet of space for their hair salon in Fort Myers 15 years ago, they allocated 500 square feet for a Seattle's Best coffee bar in the back of the store.

As business at their Studio RK hair salon grew, they realized coffee sales weren't keeping up. So they ripped out the coffee bar in 2004 and put in four hair stations.

The result was a 55% jump in year-over-year sales.

"It was a no-brainer," says Walker.

But it took a hard look at their business to realize that a coffee bar wasn't the best use for their space, even one as small as the size of a bedroom. To help them do that, Steuber and Walker hired a consultant and attended an intense business seminar called Summit Salon Business College.

Now, the pair is evaluating closely how it uses space to sell more hair-care products, from shampoos to professional hair dryers. That's because the products are much more profitable than the services they provide, such as haircuts and manicures.

In conjunction with changes in the space, Steuber and Walker have retrained their staff of 38 employees and reconfigured their compensation.

Hair stylist and barista

When they moved into their current location in Fort Myers, Steuber and Walker worried the 2,650-square-foot space was too big. After all, they had expanded from just 450 square feet.

So the pair set up the coffee shop in the back of their new salon, figuring they could use the space to sell lattes to existing and prospective customers. Walker became a barista and generated a respectable $9,000 in sales per month.

From a profit standpoint, the coffee shop broke even. Interestingly, most of the customers were men who weren't interested in a haircut.

But that paled in comparison to the sales four salon chairs could generate in that same space, which totaled $25,000 a month. It was a slap-your-forehead moment.

So they ripped out the coffee bar and added four salon chairs. Sales totaled $840,000 before they removed the coffee bar in 2003 compared with $1.3 million in 2004 when they added the four chairs.

Shampoo and hard tools

In the hair styling business, the profits are in the shampoo.

Because the hair stylists work on commission, the salon makes three cents for every dollar of haircut and manicure sales. By contrast, it makes 30 cents of profit per dollar of sales of shampoos, cosmetics and "hard tools" such as hair dryers and curling irons.

Studio RK now sells $18,000 per month of retail items, roughly 15% of total sales. Realizing they could sell more shampoos and cosmetics, Steuber and Walker are now adding more retail shelves in their salon.

Their shampoos and cosmetics are products made by companies such as Redken, L'Oreal Paris and PureOlogy that are hard to find outside salons. And some customers want to buy professional hairdryers and curling irons that aren't available in retail stores.

What's more, profits can be even higher on their own labels. For example, Steuber and Walker plan to introduce a line of makeup called Identity that is made by an undisclosed contract manufacturer in New York. Profits on those items can be as high as 90 cents for each dollar of sales.

Still, sales of private-label items don't always generate big profits. Walker says an effort to sell their brand of shampoo a few years back failed because customers are very loyal to established brands.

Selling employees

Changing the way the salon space is used required Steuber and Walker to persuade their employees to embrace the changes.

To encourage the sale of retail items such as shampoos, they changed their compensation structure so that pay is now based solely on how much sales an employee can generate. Before, compensation was based on seniority. "Now, everything is based on production," Walker says.

Pay is directly tied to things such as referrals employees can generate as well as how many haircuts they can do. In addition, employees are compensated on how much shampoo and other products they can sell. So a client who might be coming in for a haircut might leave with a manicure and two bottles of shampoo in addition to the haircut. "We're very conscious of multi-servicing a guest," Walker says.

While total sales won't rise as dramatically as they did after they eliminated the coffee bar, Steuber and Walker expect their bottom line to benefit as they sell more retail items. With employees' compensation directly tied to sales, they are confident of devoting more shelf space to shampoo and other products. "This is their business within our business," Steuber says.

REVIEW SUMMARY

Industry. Hair salons

Company. Studio RK

Key. Better use of existing space can translate to a jump in sales. Getting employees involved helps, too.