NEW STYLE: Salon de Capello owner gets a wild hair to make over his business model

Steve Stephenson is the kind of hair stylist who follows you to the front door snipping at any stray hairs to make sure you walk out with a perfect haircut.

He’s that passionate about what he does. He’s also passionate about the business side of his salon, Salon de Capello, but in 2005 his desire to stay focused on styling led him to try a business model new to mainstream Columbia hair salons.

In Columbia, the majority of hair salons operate on the commission-based-pay business model. In this situation, stylists receive 40 percent to 60 percent of the fees customers pay, with the remainder going to the salon. But at Salon de Capello, each stylist rents a booth or station in the salon and then keeps all the money his or her clients pay for services.

“Now we’re all entrepreneurs,” said Stephenson. “It’s a win-win situation.”
This change is just one of several affecting hair care, a $50 to $60 billion-a-year business that employs about 900,000 to 1.2 million people, said Gordon Miller, executive director of the National Cosmetology Association (a nonprofit professional organization for salon owners, stylists, nail technicians, estheticians, educators and students).

How it works

As the salon owner, Stephenson provides each stylist with a key to the salon, a place to do business, shampoo and conditioner, utilities, a credit card machine, and an a front desk clerk. He also makes sure the salon is clean, towels are washed, and fresh flowers and other niceties are kept up. Beyond that, it’s up to the stylists to set hours, buy color and perm products, and manage their clients and their money.

“I’m not the boss anymore!” crowed Stephenson.

Prior to moving the salon to its Nifong Boulevard location in 2005, Stephenson had operated his business under the typical salon model, using commission-based pay, which provided the salon owner with a portion of each stylist’s payment. But, as the salon owner, Stephenson also had the complications of employee relations and other issues, such as paying for workers’ compensation insurance. He calls the relief “unbelievable.” “It’s the best move ever,” he said.

Stephenson changed to what he calls the co-op model after a long learning process. He opened Salon de Capello in 1990 in a 900-square-foot space on Cherry Street. Then in 1999, he expanded to 3,000 square feet and nine stylists at a Chapel Hill Drive location. But by 2005, tired of managing other people, he decided to downsize and move to the 1,100-square-foot space, where he made the switch to booth rental.

Now, instead of supervising, he’s doing what he loves: working long hours cutting and styling hair.

Origins of the co-op model

Stephenson had heard about this business model from friends and family in other parts of the country, and he was intrigued. While booth rental allows stylists to be their own bosses and keep all their earnings, it also requires them to attract loyal clients, do their own paperwork and manage their own tax payments.

“It’s not for everybody,” said Stephenson.

It’s also not so new, noted Miller of the NCA. The booth-rental model has been popular for years on the East and West coasts. In California, Miller estimates, about 90 percent of salons use this model. Also, he notes, it’s also the traditional approach in African American hair salons.
Stylist Debra Harris and her husband, barber Al Harris, run A Cut Above the Rest on Providence Road, primarily serving clients of African descent. Debra Harris, who has been in the business 17 years, says most African American salons use the booth-rental model. She said the downside is that it can be difficult to find stylists who are self-motivated and go-getters.

“They have to be aggressive and have the skills to promote themselves,” she said.

For the salon owner, sometimes the booth rental income doesn’t cover all the costs of the salon, and then the owner can come up short. That’s why Harris and her husband make sure the business they bring in covers the entire cost of the salon in case booth rental fees don’t.
It’s also common for stylists to leave a salon to start their own businesses. But Harris doesn’t see this as a negative. That’s part of the business for her: mentoring other stylists, reaching out and helping other people. “There’s enough for everybody,” she said. “The pie is big enough for all of us.”

Industry stagnation

Miller might disagree with Harris’s sentiment.
With huge numbers of salons and stylists saturating the market, more stylists and salon owners are turning to the booth rental model in an attempt to increase their income in an industry that hasn’t seen growth in recent years, he said.

One factor that contributes to industry stagnation, Miller said, is the increase in low-cost salon chains. The chains themselves, however, may not suffer as much as independent salons in the flat market. For example, at Fantastic Sam’s a haircut costs $12, a price that hasn’t changed much in the 13 years Donna Wheeler has managed the Columbia salon. She estimates that revenues increased 15 percent during the last quarter, which she attributes to the recent opening of the nearby Wal-Mart Supercenter on Nifong.

Miller said another blow to the hair-care industry comes from increasingly sophisticated hair-care products on store shelves, which divert a significant amount of income from in-salon sales of similar items.

While some research indicates hair-care industry revenue will increase as baby boomers age and seek more ways to look younger, Miller said “that bump is already in the numbers.” As for teens and young people, who reportedly have more income, there’s no indication they will be flocking to salons. Many of them, said Miller, are more comfortable coloring their own hair or even doing each other’s hair.

As more stylists and salon owners continue to face a flat market and too many salons and stylists, booth rental becomes a real option for them, Miller said.

“It’s a shifting industry,” he said.

What’s good about the other model?

Sara El-Toumi, owner of Salon Nefisa at 9th and Walnut streets, has heard of the booth-rental business model for salons, but she’s sticking to commission-based pay.

A stylist for 20 years and a salon owner for three years, El-Toumi said there are benefits to the commission-based pay model. For example, new stylists have the option of working for an hourly wage and receiving a smaller commission until they have developed a client list. This provides a safety net for those starting out.

In addition to earning a commission, which ranges from 45 percent to 60 percent, the nine stylists at Salon Nefisa also can get health-care coverage and paid vacation time. A percentage of the retail sales stylists make goes into an education fund, which they can use to pay for conferences or other expenses. Scissors, for example, can cost $300 to $500 a pair, a cost born by the stylist in some salons.

For the customer, the salon offers another benefit. Salon Nefisa has an open-door policy, which means clients can change stylists without changing salons. This gives the customer the option of using a different stylist without committing a faux pas.

“We’re all adults here,” El-Toumi said. “As a stylist and as a salon owner, we work together to help each other out.”

For the paperwork-phobic stylist, working for a salon also means not having to keep track of products, taxes or other paperwork. “They don’t have to be an independent business owner,” said El-Toumi.

It’s this inter-dependence that Stephenson says is a danger for the salon owner. Among hair-care professionals, a perennial topic of conversation and concern is the “walk out,” when a stylist or group of stylists leave a salon and take their clients with them.

El-Toumi acknowledges that danger. “I haven’t had to handle it yet,” said El-Toumi, although she participated in a mass exodus from another salon several years ago.

But for now, El-Toumi’s salon is doing well, with a 15-percent increase in business during the last year and growth from three stylists to nine stylists, an esthetician and four front-desk workers since opening in 2004.

“I also have much less sanity than I ever did,” she joked.

El-Toumi said she is confident about the future, with plans to build her business so she can make ends meet without standing behind a chair.
As for Stephenson, he’s looking forward to the future too, standing behind the chair and doing what he loves to do—without supervising anyone but himself.

“Now it’s fun,” he said. “I look forward to coming to work.”