John Cook, an Australian entrepreneur in the salon business, has written an eye opening article on the consequences of Covid crisis on the salon business in his country. John and his wife have owned 8 hairdressing salons in Sydney for over 40 years. They are full-service salons with an average staff of 12 (pre covid) and they are located in major regional shopping centres, Westfield. Approximately 70% of their sales are in professional services and 30% in retail salon haircare. John also owns his hair care brand, Trichovedic. During 2019 sales were around AU10 million.
by John Cook
The first hint of covid in Australia came in March 2020. There were cases of a ‘mystery’ illness/virus which started in the Chinatown precinct of Sydney. At first I don’t believe too many people took much notice or treated it too seriously.
This changed very rapidly
By the end of March it became apparent that this was serious and covid increasingly dominated the news. During April in Sydney the majority of non-essential shops closed. Public health measures were introduced including self-isolation at home. Wearing masks in shops and shopping centres became mandatory and businesses had to introduce strict social distancing rules.
This meant that in our salons we could only have 1 client per 4 sq metres. Clients were temperature checked, hand sanitiser everywhere, contactless payment and masks for all clients and staff. The government introduced QR Code scanning so that clients could be traced if necessary. Clients had to produce digital certification that they were vaccinated. Our staff had to be vaccinated to be able to work in a close contact environment.
Due to all of these measures, combined with a general fear of shopping centres and hairdressing not being deemed an essential service, business declined quite dramatically.
Several other factors came into play quite quickly. The federal government, understanding that small business was the largest employer in the country, very quickly introduced a raft of financial support measures. Job keeper, a payment of AU$750 per week for any employee who could not go to work or was subsidised if their hours were reduced. During April 2020 all of our staff were paid job keeper while we were closed. Cash flow support of AU$150,000 was paid to every business. The retail code of conduct was introduced with prescribed rent relief measures landlords must provide to tenants. In a major shopping centre situation like us this was extremely important as our rent was a major expense. All these measures contributed greatly to keeping many businesses open rather than failing and for providing a source of income for staff who could not attend work.
A condition of the job keeper support for staff was that it was only available to Australian citizens and permanent residents. A consequence of this was that backpackers, overseas students and others on short term work visas were ineligible for this support. The result, the vast majority of them returned to their home base where either a similar sort of scheme or family support was available.
Australia is still suffering an acute shortage of workers today, more than 2 years later, particularly in hospitality, aged care and personal services like hair and beauty.
I look back on the past 2 plus years as if it was almost a bad dream. 2021 compared to 2020 was actually worse from a business perspective. Federal government support was withdrawn in April 2021 and was replaced by far less generous state government support. To make matters worse non- essential businesses were ordered to close between July and September 2021 which was a very weird experience. At the end of March this year (2022) all support and the retail code of conduct were removed.
As harsh as this may sound, our government simply could not afford to continue the financial levels of support. As a measure of the cost to Australia of covid support measures, Australia’s debt to GDP ratio has risen from around 25% 3 years ago to 54% post covid. Compare this to the U.S. 124%, Italy 122%, Canada 103%, UK 86%, France 99%. Although our debt is still relatively low it has more than doubled due to covid.
Where is our business post Covid ?
During the first months of covid back in 2020 I was extremely worried where it would all end up and whether we would survive. Nobody back then imagined it would last over 2 years but, nobody knew in those early days the amount of government support we would receive. I do remember making a vow to myself that if we survived, we would come out stronger than we went in. I should add that even pre-covid in 2019, I was getting worried about our businesses as sales growth was not keeping pace with rental growth.
We went into covid with 8 salons, and we have come out with 5. The first salon that closed was in February last year. It was our only franchisee and covid ground them down, the owner was past retirement and they had lost most of their staff. The other 2 closed in March and then may of this year. I could not reach an agreement with our landlord on a suitable rent for the salon we closed in March and, without any protection or relief from the previous retail code of conduct, we decided to close. The most recent salon we closed in May was in the central business district of Sydney. Our city centre is still decimated with another phenomenon of covid, work from home, still sorting itself out. Our CBD was primarily workers rather than residential and the work from home/work at work ratio still working itself out and will most probably settle maybe around 60% of what it was at its peak. It will then take several years to repurpose office space to residential. Our landlord expected us to pay a pre-covid rent from May so we reluctantly but I believe wisely closed the salon.
Our turnover is now about AU$ 6 million which is about 5% down, like shops for like, on 2019. Our rental percentage to sales is now 20% where it was 25% in 2019.
What next? Retirement is looking quite attractive.
