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Trade Secret had the opportunity and blew it. Beauty First thought they had the right idea but they didn’t. Sally thought about it but understood its market position and wisely maintained it.

ULTA on the other hand with the backbone of Lynn Kirby fought and fought in the same battlefield and came out the ultimate winner. First known as Ulta 3 when they started in 1990, ULTA now commands the market, has upwards of 450 stores and plans on adding another 550 over the next few years. Each store is 10,000 sq.ft. and offers a 950 sq. ft. salon for services. Read more about ULTA here.

It wasn’t too long ago that their stock was less than $10 a share. Today you can’t buy it for less than $75. So what is the compelling story that made ULTA succeed when so many of its contemporaries failed? Kirby understood consumers.

Think back to the late 70’s and early 80’s when the first real wave of retail salon products arrived. This was the period of Paul Mitchell, Matrix, Nexxus, Aveda, Redken so many other brands. These brands were developed by hairdressers and sold exclusively to local salons. It was the birth of salon retailing. Soon salons outside their local markets wanted the products and the expansion of full service distributors evolved. Those lucky enough at the time to land one of these brands was set for life. Nexxus distributors ended up owning private jets they made so much money with the brand. Distributors couldn’t hire enough salespeople and open stores fast enough to satisfy the demand. It was a feeding frenzy.

This drove other hairdressers to develop their own lines and we saw the likes of Sebastian, ARTec, and dozens others. Money and profits were free-flowing and the party was huge.

But alas in the 1990’s and early 2000’s, like so many other industries, greed and market domination took hold. But the overwhelming trend that no one spotted was that salons didn’t focus on retail products even with their monopolistic position. Sure they loved the brands they used but it wasn’t their focus to sell them. As manufacturer’s grew along with marketing and promotional campaigns, consumers demanded salon products more than ever. But they weren’t happy with their choices where to buy the brands they wanted since salons focused on the brands they wanted to carry instead of the brands consumers wanted them to carry.

Most likely this is what caused the beginning of diversion. Manufacturers said to themselves, “Hey, we got a huge market and we need to position our goods so consumers can buy our products.” Retailers such as Target, CVS and Walgreen’s craved salon products because consumers came into their stores looking for them. One innovative company understood all this and became the pioneer in the diversion movement and to this day, continues to be the leader (no, not ULTA). Diversion suddenly became a huge issue but the uncanny thing about this was that salons cared but they continued to carry the same brands that were diverted. As manufacturers learned this, they thought, “Heck, if salons complain but still carry my brand, why not continue?” And they did.

During all this, ULTA strategically decides upon its business model. Kirby learns from Trade Secrets that if we have a working salon in our retail space, we can sell EVERY professional brand to consumers that we want. Unlike salons who chose brands that they had to personally like to use or retail, ULTA knew firsthand that was nonsense. The only thing important to ULTA was to carry brands consumers wanted to buy. That was the thinking that changed everything.

Today while diversion is alive and well, it’s not the key subject in the industry. ULTA changed that.

Walk into an ULTA store today and you will be amazed at the number of professional brands they carry from hair care to nail care to appliance and everything in-between. They are now getting into “Sephora” type goods which will make them even more of a powerhouse. And with their superior marketing strategy including daily email blasts, discounts, loyalty programs, free shipping and much more, how will anyone compete with them moving forward?

Salons can no longer carry all the brands consumers want, there are too many and ULTA owns the market. Listed are some strategies salons have adopted:

  • Focus on services and maintain a non-commitment to retail
  • Focus on “exclusive” brands such as Kerastase, Bumble & Bumble, and Oribe
  • Focus on niche brands new to the marketplace not sold at ULTA

Believe it or not, even when ULTA does get to 1000 stores, they will only represent less than 1% of the salon universe. This suggests that salons still have a competitive advantage much like a locally owned restaurant has over a chain. But like the locally owned restaurants that compete with chains, even though the owner/chef may not eat burgers, fries and pizza, they know their customers can’t get enough of it. Salon owners as well will need to change their mindset and start offering brands that consumers want to buy regardless of what their likes or their stylists likes are.

Two brands that are perfect examples of this include Morocannoil and black 15in1. Morocannoil is not sold at ULTA. Demand from consumers is intense. Every smart and savvy salon using the new paradigm should sell Morocannoil and become a Moroccanoil Loyalty Salon. The opportunity for salon owners is limited and they must jump on the bandwagon when they can and cash in.

It took industry pioneers to launch salon retail products. It will take industry pioneers in 2012 to rethink salon retailing philosophy and in doing so, they too will make a killing. The landscape is set and ready for take-off.

Happy Thursday!