Sally Beauty Company, Inc. Business Information, Profile, and History

Company Perspectives:

As the largest purveyor of professional beauty supplies in the world, Sally Beauty has more than 2,200 stores that offer the salon professional and the consumer, between salon visits, more than 5,000 salon-quality products for hair, nail, and skin care.

History of Sally Beauty Company, Inc.

Sally Beauty Company, Inc., is the world's leading retail distributor of professional beauty supplies. Sally Beauty occupies a unique niche, operating a chain of stores that sell primarily to beauty salons and cosmetologists. Sally owns and operates over 2,000 retail outlets. These are found across the United States and in Mexico, Puerto Rico, the United Kingdom, Japan, and Germany. Sally Beauty stores stock some 5,000 different items, from hair, skin, and nail products to professional cosmetology equipment. The company serves its stores through distribution centers in the United States in Jacksonville, Florida; Reno, Nevada; and Columbus, Ohio. The firm started with a single store and began rapid expansion in the 1980s. Sally has been owned by the Alberto-Culver Company since 1969.

Modest Beginnings in the 1960s

The Sally Beauty chain, now worldwide, began as a single store in New Orleans, Louisiana, in 1964. The shop, located on Magazine Street, sold beauty supplies and equipment to registered beauticians. The original owner franchised the idea, and within five years there were 12 Sally Beauty stores in the New Orleans area. The chain might have stayed a modest regional phenomenon if it had not been discovered by Leonard Lavin, chief executive of the Alberto-Culver Company. Alberto-Culver began as a Los Angeles beauty supply company, Blame Culver, which made hundreds of shampoos and beauty products, including Alberto VO5 Conditioning Hairdressing. In 1955, Leonard and Berenice Lavin bought the Los Angeles company and moved its headquarters to Chicago. The Lavins revamped the company, discontinuing most of its product lines to focus on Alberto VO5, which had been developed by a chemist at Culver specifically for Hollywood movie stars. Lavin was traveling in New Orleans in 1969 when he was intrigued by Sally Beauty. It offered a new way to distribute hair care products. At the time, most large hair salons were serviced by traveling salespeople. Some of the best-known names in the U.S. beauty business started out door-to-door, including Charles Revlon and Vidal Sassoon. Nevertheless, the salon sector was and remains extremely fragmented, and so this kind of distribution was patchy at best. In New Orleans, salon owners could go to a Sally Beauty store and buy directly the shampoos, dyes, and lotions they needed. Leonard Lavin thought the Sally Beauty chain was a great way to sell hair care products, so Alberto-Culver bought the company for around $1 million.

Sally Beauty was not an immediate success for its new owners. In 1972, Alberto-Culver gave management of the division to Michael Renzulli, a trained pharmacist. Renzulli described his early years with Sally to the Dallas-Fort Worth Business Journal: "I served as a Jack-of-all-trades, traveling from store to store with beauty products in a station wagon." The chain did not make money, and Renzulli decided to discontinue the franchise arrangement. The company bought out the franchisees and ran the retail outlets itself. Still, another Alberto-Culver executive described the early Sally in Institutional Investor (January 2002) as "very problematic for most of the 1970s." Despite some discouragement, the chain did grow, and by 1980 it had evolved into a company-owned chain of almost 40 stores. Revenue increased, and Sally began to make a profit. At that point, the chain began to grow through acquisitions.

National Growth in the 1980s

Sally Beauty first focused on buying beauty supply operations in the South, giving it regional strength. It bought four Southern beauty chains in the early 1980s, including a Tennessee business with 20 stores and a Houston chain that had 26 stores and a warehouse operation. In 1982, Sally purchased Gibson Beauty Supply, based in Denton, Texas. That year, Sally moved its corporate headquarters to Denton. Alberto-Culver headquarters remained in suburban Chicago. In 1985, Sally bought two beauty supply chains near its parent's headquarters in Illinois. This moved Sally into the Midwest and brought the chain 50 more retail outlets. The Illinois chains also gave Sally two new distribution centers. In addition to acquiring competitors, Sally built new stores on its own. By the mid-1980s, it was opening six or seven stores a month.

By 1986, chainwide sales had reached $135 million. This was roughly a third of Alberto-Culver's total sales. Sally brought in about a third of Alberto-Culver's net income as well. By 1987, Sally Beauty had 440 stores spread across 24 states. The chain had grown very quickly, but it was still going strong. On the brink of becoming a nationwide chain, Sally had no national competitor. Its retail formula seemed to work well and to answer a real need. The Sally chain was able to buy in bulk from major suppliers, so it could offer attractive discounts to the professional beauty operators who made up the majority of its customers. It did not manufacture its own products, but some manufacturers produced special lines exclusively for Sally. The stores were generally located in strip malls, where customers could conveniently drive up and load their cars with boxes of goods. Though at first the stores focused on hair care items, by 1987 Sally was selling cosmetics and skin care products as well. Managers at the Denton headquarters assisted the stores with marketing, sending flyers to thousands of licensed beauty professionals within a new store's area. Sally's warehouse system was quite up-to-date and efficient, so the chain seemed able to absorb its rapid growth smoothly. By the mid-1980s, the chain used four warehouses, each of which was automated and computerized for quick fulfillment of orders.

Sally was handling its expansion so well that its president, Michael Renzulli, compared it to fast-food hamburger chain McDonald's. In 24 states by 1987, Renzulli planned to move into all 50 states by 1990. Coast-to-coast coverage took a little longer than that--Sally stores were found in 46 states by 1990. Nonetheless, it was clear that Sally had a winning formula, and there was plenty of room left in the market. In 1987, Sally began to test the waters overseas, again expanding through strategic acquisitions.

International Growth in the 1980s and 1990s

Sally Beauty's first international acquisition was a chain of beauty supply stores in Scotland, Ogee Hair & Beauty Supply, which had about 40 outlets and was the largest U.K. retailer of its type. The United Kingdom seemed a good place for Sally to start its international growth, since its parent's hair care brands, Alberto VO5 and Tresemme, were already well-known there. Sally's international expansion proceeded more slowly than its domestic growth. In 1994, the company made its second foray abroad, forming a joint operating agreement with a small beauty supply chain in Japan. Sally chose C&C Cash & Carry Beauty Supply, though it had only four stores. Over the next decade, Sally gradually expanded its presence in Japan. By 1997, the firm operated 12 outlets in that country. That year Sally made another acquisition in the United Kingdom, buying the 30-store chain Embassy Ltd. By this time, Sally had added new stores beyond what it had bought from Ogee, and with the Embassy purchase it now had close to 100 U.K. outlets. The Embassy stores were expected to add some $20 million in revenue. Sally also ventured into Germany in the mid-1990s. In 1996, it purchased a chain of six stores called Friseurland-Kosmetik Gmbh. Sally planned to focus its growth on these three countries--Japan, Germany, and the United Kingdom--for the time being. The firm hoped to have 400 stores in both Japan and Germany eventually. By 2003, it had 150 stores in the United Kingdom, 35 in Germany, and 23 in Japan.

Meanwhile, Sally Beauty continued to expand rapidly at home. By 1997, chainwide sales had reached $880 million, which was half of parent Alberto-Culver's revenue. About 10 percent of this came from Sally's international operations. Domestically, Sally was opening a new store every three days on average in the mid-1990s. It continued to buy up small regional chains. In 1992, the company bought most of the assets of its only large competitor, the 174-store chain Milo Beauty & Barber Supply. Milo, based in Akron, Ohio, was in the midst of bankruptcy proceedings, and its stores went for only $1.3 million. Milo had followed a trajectory similar to Sally's, beginning with Ohio stores in the early 1950s and then snapping up regional chains after 1967. In 1984, it bought an 88-store chain, Beauty Fair USA, which turned out to be a real money-loser. Milo had problems of its own when its founder was murdered, and his brother was convicted of hiring a hit man to do the crime. Milo, with less than 200 stores, was a distant second to Sally in size. By 1993, Sally had over 1,000 stores. That year, it bought Beauty Biz Inc., an Oklahoma chain of 35 retail beauty supply stores. Through acquisition and opening new stores, Sally Beauty had more than 1,800 retail outlets by 1997.

Changes in the Late 1990s and After

Sally Beauty grew in new ways in the late 1990s and into the 2000s. The company kept abreast of its expanding empire by investing in its distribution network. In the mid-1990s, the retail outlets were served through four distribution centers, and the company was now looking for a new way to serve its southeastern market. In 1995, Sally made an investment of more than $15 million to build a huge new warehouse and distribution center in Jacksonville, Florida. It then made plans to close its older facility in Atlanta, Georgia. The 13-acre Jacksonville site housed a 225,000-square-foot building. Sally left room to expand the plant by an additional 100,000 square feet in the future. The company also invested more in advertising in the late 1990s. Sally had previously handled much of its marketing and advertising internally. In 1995, it spent over $1 million on advertising. In 1998, Sally hired a Texas-based advertising firm, BJK&E, to come up with a new store image campaign. At the same time, Sally hired another Texas agency to come up with television and radio advertising aimed at Latino customers.

Chronology

• Key Dates:
• 1964: Sally store is established in New Orleans.
• 1969: Alberto-Culver buys the Sally chain.
• 1972: Michael Renzulli becomes president of Sally division.
• 1981: The chain begins national growth.
• 1987: The company begins international expansion with the acquisition of Ogee in Scotland.
• 1994: Sally moves into the Japanese market.
• 1996: The company buys a German beauty supply chain.
• 2000: Company sales top $1 billion.Sally began to court a slightly different group of customers beginning in the mid-1990s, when it developed a new subsidiary, its Beauty Systems Group. Sally stores were open to the public, though most of its customers were beauty business professionals, who received a special rate. Beginning in 1996, Sally bought three midwestern chains which sold only to salon owners. These were Barnum Beauty Supply, of Cleveland, Ohio; Victory Beauty Supply, a Chicago chain; and Locklear Beauty Supply, based in Rochester, New York. Because these stores, and others that became part of the Beauty Systems Group, sold only to store owners, they were able to stock some products that had previously been kept out of other Sally outlets. Some well-known hair care lines, including Redken, Nexxus, and Matrix, sold only through beauty salons. These lines had not been sold through Sally stores. The Beauty Systems Group stores, which were known as full-service stores or "professional business" units, were able to sell Redken and other salon-only product lines. Alberto-Culver's president Howard Bernick, the son-in-law of founder Lavin, told WWD (October 24, 1997) that he believed Sally's professional business division alone could one day bring in $500 million. This was at a time when Sally's worldwide sales were $880 million. Bernick also told WWD that he believed Sally "can and will be a $2 billion to $3 billion entity in the next five to ten years."
• This may have seemed an extravagant aim, yet nothing seemed to get in the way of Sally's continued growth and prosperity. By 2001, the Sally Beauty chain had grown to 1,900 stores in the United States. The Beauty Systems Group was a fast-growing subsidiary, with 265 professional-only stores. As the market slowed down for regular Sally Beauty outlets, the professional business group found more locations. Its stores were concentrated in the East, Southeast, and Midwest, meaning there were still many possible markets in other regions. Sales chainwide passed the billion-dollar mark in 2000, and the company invested $5 million to renovate and expand its corporate headquarters in Denton. More and more, Sally Beauty was recognized as the engine behind its parent's success. Alberto-Culver, a public company that was still run by members of the founding Lavin family, had had ten straight years of record sales and earnings growth by 2002. In that year, Sally contributed 60 percent of Alberto-Culver's sales and some 70 percent of the parent's profits. Though Alberto-Culver's consumer goods division, which consisted of hair care brands and several other niche products, saw its sales go up and down, Sally was a consistent earner. Even as the economy in the United States went into recession after 2000, Sally showed its solidity. As the economy dipped, women's visits to beauty salons also dropped off. Nevertheless, Sally's Beauty Systems Group did well despite poor conditions. "We've never been as large in that business during a recession as we are this year," Alberto-Culver's CEO Bernick told Institutional Investor in January 2002. For Alberto-Culver, the recession meant "a fantastic pickup in the Sally business." So the two Sally business groups balanced themselves out.
• With worldwide sales approaching $2 billion in the early 2000s, the Sally chain planned continued growth. In 2001, the Beauty Systems Group bought a competitor called Armstrong-McCall. Sally's parent limited its acquisitions in 2002, investing less than $20 million in purchases that year compared to almost $145 million in 2000. However, the parent realized that strategic acquisitions had worked extremely well for it in the past. By 2003, Sally had more than 2,750 retail outlets in total. The company's presence in Europe and Japan was still relatively small, though Sally had at one point planned to have hundreds of stores in its foreign markets. Perhaps in the coming decades international growth would rival Sally's domestic growth in the 1980s and 1990s. The Beauty Systems Group also seemed to be a growing market, one that harbored the potential to make Sally Beauty into an even larger worldwide presence.