While there is no such thing as “recession insurance”, the good news is that if you own a beauty business, this is one industry that doesn’t seem to be hit as hard as others. This is in part because beauty, generally speaking, is considered to be an important part of wellness and self-care routines and not considered to be a luxury purchase.
In times of heightened stress, people are even more willing to spend money on self-care. In fact, this phenomenon was defined as the “lipstick effect” by economist and sociology Professor Juliet Schor in her 1998 book The Overspent American where she found that when money is tight, women splurge on luxury brand lipsticks used in public (like restaurants, bathrooms, etc.) rather than on high-priced beauty products used in the privacy of one’s home, like cleansers or eye makeup. This was further explored with a study by the Economist magazine that noted an increase in revenue of 11% during the recessions of 2001 and 2008 for prestige brands like Estée-Lauder and Chanel, for example.
This is good news for the beauty industry as a whole, but I am sure you are wondering how do you recession proof your business right now? Below, we will share five tangible tips that will help get you through these tough temporary times. Just remember, if you can make it through the challenging times with your business, you can make it through pretty much anything. As the old saying goes—what doesn’t kill you will make you stronger.
Determine The Impact On Your Business (If Any)Before you jump into action recession-proofing your business—make sure you understand how it is affecting business, if at all. You will want to check your revenue, costs, and profits monthly and compare them to the previous years. Look for trends over time rather than fixating on a few quiet months. If your revenue is declining month on month, there is no need to panic.
Reduce Expenses For Non-EssentialsNow is a good time to examine your expenses more closely to identify which ones are essential and which ones can be cut from the budget. These newfound funds can either be put away in savings or allocated elsewhere for the business.
Stick With Your Marketing Plan (And Even Increase Marketing Spend)While it is wise to cut non-essential expenses from your budget—now is not the time to cut your marketing spend. In fact, many business owners go the other direction and increase marketing spend in tougher economic times. The Excess Share of Voice Rule (ESOV) states that the more a company spends on advertising compared to its competitors, the more it will grow. So figure out a solid marketing plan, run some numbers, and determine which digital channels will yield the biggest bang for the buck for your beauty business.
Negotiate A Flexible Lease For Your BusinessOne of the most important business decisions is your lease, which can make or break you. Whether you are a new beauty business owner searching for a location or your current lease has expired, and you are looking for a new space, take advantage of the fact that building owners are now willing to offer more flexible commercial leases—partly due to COVID. Pre-COVID, most landlords required a 3-7-year term for a lease. Now, many landlords will negotiate a 1–2-year lease. In addition to negotiating flexible lease terms, there are several other details you can negotiate in a commercial lease.
Most commercial leases require a guarantee of sorts. Instead of a personal guarantee, which is common with commercial leases and can open you up to personal liability, you could try and negotiate a “good guy guarantee”, which limits your personal liability. As you can imagine, if you default on your lease with no way out with a personal guarantee, you could be on the hook personally for a large amount that you will legally owe. If a good guy guarantee is negotiated, if for some reason you can no longer pay your rent you won’t owe the remainder of the rent if you leave the space in excellent condition.
You should also try and negotiate approval to sublease the space in your lease, which allows you to leave should you find someone to take over the remainder of the lease. Another detail you will want to negotiate is to have a clause for “force majeure”, which states that should an Act of God/Act of Violence occur (like the pandemic, political unrest, or other catastrophes) you won’t have to pay rent for a space that cannot be used.
You may not get everything you ask for, but if you don’t ask you won’t know. Landlords who are eager to rent can be agreeable negotiating partners. No matter what, it’s advisable that you hire a licensed real estate professional, like an attorney, to represent you in the negotiations and review your agreement before signing.