Since beauty services operation Blushington closed its doors on March 13 due to the coronavirus pandemic, chief executive officer Natasha Cornstein has been forced into a business balancing act.
In order to retain her talent — the makeup artists — she had to continue to pay them. And to be able to afford that without sales from stores or one-on-one applications, she had to cut back on other costs. The process has included everything from negotiating with landlords and insurance companies to asking outside workers with retainers — publicists, digital marketers and graphic designers — to work for an hourly rate instead. Corporate Blushington employees took a pay cut.
Blushington is one of many previously healthy, growing beauty companies navigating how to stay in business as the COVID-19 pandemic shifts the entire global landscape. Brands are finding themselves striking a balancing act — protecting employees on one side while conserving cash flow on the other, and navigating financing options for today while thinking through what the future of beauty sales and their companies will look like down the road.
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Companies that were on solid financial footing pre-COVID-19 are finding themselves weighing the possibility of a loan from the Small Business Association versus a Paycheck Protection Program loan, newly available though experiencing delays under the Cares Act, versus more traditional bank loans.
Cornstein plans to apply for the PPP loan, she said, because of the benefits: It would give Blushington 2.5 times its average 2019 monthly payroll, provided the business continues to employ 90 percent of its workforce, and after a certain length of time, wouldn’t need to be paid back.
It’s just one of many options the company is considering as it looks towards its current goal — “staying solvent” — Cornstein said. “In order to be able to reopen, you have to really shore up your financial house and get that in order,” Cornstein said.
For small and mid-sized beauty companies, that means paying extra close attention to cash flow and working capital, and looking into bank loans, Small Business Association loans, or the PPP program. On the softer side, companies are being advised to evaluate financial needs while maintaining robust product innovation and making sure to stay connected and engaged with employees, executives agreed.
“This is about expense management and being very conservative about how your sales are going to come in over the next few months,” said Ilya Seglin, managing director at Threadstone LP. “Your expenses are the only thing that you can 100 percent control in this environment, so get aggressive with that sooner rather than later.”
“At the end of the day, for every dollar you spend on inventory, that’s a dollar at risk should our current environment last for a longer period of time. You’re much better holding that cash on hand for as long as possible while still supporting demand,” said Martin Okner, president of home hair color brand DpHue, which has seen an uptick in sales during the past few weeks.
Skyn Iceland, which asked employees to take a 20 percent pay cut for April and May to be repaid later in the year, plans apply for multiple financial relief options. “We’re trying to apply for as many of them as we possibly can,” said founder Sarah Kugelman.
Kugelman acknowledged that navigating the current financing climate can be confusing, but that she’s already called Chase to ask to be “high on the list” for consideration for relief under the Care Act, she said. But on Monday, Chase told her they were waiting to find out when they could start processes the funds. “By the time all this relief comes through, some of us will be in much worse shape,” Kugelman said.
Luxury skin-care brand ReVive, backed by Tengram Capital, is also looking at outside sources of funding, according to ceo Elana Drell-Szyfer. “The reality is as a small company you don’t have a huge amount of cushion in terms of resources. It’s not like you have tons of money in the bank,” she said.
In addition to seeking outside financing, ReVive is slashing spending, Szyfer said. “It’s a reduction in almost every single type of non-essential spending, even essential spending. We are not going ahead on launches planned for the second half of the year, and really just trying to minimize all external spend.”
That doesn’t mean cutting everything, she noted, but does include optimizing costs spend with partners and agencies. “Everybody is going to be in pain. You’re in pain. Your warehouse is in pain. Your p.r. agency — everybody feels the slowdown. We’re trying to treat it as an ecosystem of people who all need assistance — we all may have less, but we can help each other along with less,” Szyfer said.
At Dr. Dennis Gross, ceo Carrie Gross said the company drew down its line of credit. “We drew it down just to be safe — not that we’re going to dip into it — it’s just an insurance policy to us,” Gross said, adding that the company is also looking into the stimulus package for relief. The business is also cutting costs on events, testers, gratis products and clinical trials.
Jamie O’Banion’s BeautyBio is trimming expenses, and thinking through stimulus options. “We’re in a solid spot, but I will say that we’re certainly being mindful of cutting any expenses that aren’t essential,” O’Banion said, noting that events have been shifted, which has deferred those costs. “If we get to a place where we have to free up capital, I’ll be the first one to go without a salary,” she said.
She and many other beauty executives noted that they’ve run best and worst case scenarios and nearly everything in between in order to plan around those possible outcomes. “You have to be running multiple financial models right now to plan,” O’Banion said.
“If we don’t have stores open until July 1, we’re going to have a contingency plan around that,” Gross said.
At Blushington, negotiations have been successful with two of its six landlords and business insurance provider Mogil, Cornstein said. To negotiate the leases, Cornstein is suggesting adding extra rental time and payments to the end of the leases. Negotiations for the other four locations are in the works, she said, noting that real estate is Blushington’s biggest expense.
On the insurance side, Blushington has gotten all payments pushed until May, and then, premiums have been reduced by 60 percent, Cornstein said. She’s also tried to negotiate with the company’s health insurance provider, which has not been successful, she said.
“Open communication versus not making your payments is a critical approach at this time,” she said.
That communication also extends to employees, with frequent Zoom meetings and the like. Szyfer said that she’s upped the number of meetings per week for the ReVive team in order to keep everyone on the same page. Skyn Iceland is also coordinating via Zoom, Kugelman said.
Okner noted the importance of “battling the distance” of work-from-home life by helping employees to feel engaged and focused on managing their areas of the business.
“It’s easy for us to manage cash and keep employees focused on the longer game…[but] you want to make sure your innovation pipeline doesn’t suffer,” Okner said. “Companies [should be] thinking hard about the value proposition to consumers and what you’re going to deliver in spring of next year.”
Gross said Dr. Dennis Gross is also “strategizing for the future.”
“I don’t imagine testers are something anybody’s going to feel comfortable using in store,” she said. “We’re deploying individual-use packets to teams, so when they do go back in store and they’re interacting with clients we’ll have the ability to have the client touch and demo the product on themselves.”
In the near term, beauty companies are also looking to find ways to make up for retail sales that have been lost to store closures.
“Unlike something that’s systemic in our economic system, something like this — yes, it will have an impact — however it will be temporary. Things will come back. It may not look like it did before though, and that’s something we need to be ready for,” Okner said.
Online sales are up for many. DpHue, Dr. Dennis Gross, Skyn Iceland ReVive and BeautyBio all said e-commerce sales were up, but each business is looking for different ways to engage with consumers in the current climate.
For Blushington, business going forward entails focusing on e-commerce and launching curbside delivery in Manhattan, as well as testing out Zoom birthday parties, which will be offered for free for 30 days to first responders and their families, and then more broadly to paying customers.
Skyn Iceland’s direct e-commerce sales are up, and the brand has reworked its social media strategy to strike the right tone, Kugelman said. “People really want positive, helpful content right now, so we’re trying to change messaging from sell, sell, sell to how we can be helpful and create a sense of community,” she said.
While ReVive has been able to increase online sales, the back end of operations is by no means business as usual. Szyfer said that ReVive’s New York warehouse is open, but “they’re working at much lower productivity because people have to stand six feet apart.”
Kugelman encountered similar problems when running a promotion with Ulta Beauty last week. She had thought Skyn would be able to make up for some of the sales not coming through stores, “but then Ulta shut down the promo before we were out of stock,” she said. “We got on the phone with them, and they’re trying to navigate this, too…they don’t have the same level of labor in their fulfillment centers that they do during normal business times, it’s hard for them to process all the business that’s coming.”
Issues are also popping up with Amazon, which has been showing customers delivery windows that are weeks out, Kugelman said. “That’s discouraging them from shopping. As much as we want to try to drive people to Amazon, the customer goes there and sees they can’t get the product and it makes them not want to place the order,” she said.
For ReVive and BeautyBio, some sales are old school.
At some of ReVive’s retailers, counter staff have taken home iPads and are still able to sell to clients one-on-one. “People are doing incredible business with their individual customers,” Szyfer said.
BeautyBio has been “clientele-ing by phone,” O’Banion said. “Which hasn’t happened since when, 1980?”
Financing Options to Consider:
Beauty brands are weighing different types of financing as they navigate business in the time of the coronavirus pandemic.
• Bank Loans: Some companies are considering bank loans in order to have additional liquidity during the coronavirus pandemic. Companies are advised to call existing bankers and discuss extending lines of credit or potentially deferring payments, according to Hughes Klaiber, a New York M&A advisory shop.
• Small Business Association Loans: The SBA is offering Economic Injury Disaster Loans, which can be up to $2 million. The loans can be used to pay fixed debts, payroll, accounts payable and other bills affected by the coronavirus, and have an interest rate of 3.75 percent.
• Paycheck Protection Program: PPP loans, which can be up to 2.5 times average the monthly payroll or up to $10 million, are meant to help small businesses keep employees employed. If employees are kept on the payroll for eight weeks, the SBA will forgive the part of the loan used for that, rent mortgage interest or utilities. Depending on how the money is used, the whole amount could be forgivable, according to the SBA.
• Grants: Several companies, including Google and Facebook, are offering small business grants.