Grabbing the Controls of Distribution
Establishing a distribution center almost from the outset in 1989 to supply our Canada-based GS Beauty Group salons was a no-brainer. In those days the company consisted of 15 stores in the Toronto area, a head office and a 1,200sq ft warehouse with four employees and a minivan for deliveries.
We knew the only way to get better margins was to buy in volume. Plus, as we expanded and started dealing with distributors we realized that every new market meant dealing with a different distributor. Pricing varied and some even refused to sell to us as they saw us as disruptive to their existing salon business.
At first, convincing manufacturers to deal direct was a challenge. They had existing distributors in place. They were also concerned about the risk of diversion to the grey market. But a distributor does not have that level of control over its salons that we have over ours. I don’t believe chain salons can be managed by a distributor effectively; we are a completely different animal.
We just had to show manufacturers we could represent them as well as or better than an established distributor and salon. We were able to represent brands in the image they envisioned. We had control over our locations – all prime real estate – with strict planograms, space and retail points established and managed by head office.
By the time the GS Beauty Group reached 25 locations in 1994, we decided to start buying direct and build a distribution center that now stretches to 16,000sq ft. We carry almost every brand – 4,500 active skus and an additional 6,000 as special order. Our distribution center remained in Toronto, with our delivery vehicles covering the Greater Toronto area while we ship across Canada using LTL Transport courier. It’s more cost-effective for us to manage all local deliveries with our own fleet.
The facility gave us even more credibility with manufacturers. We bypassed distributors, sought exclusive lines and eventually went manufacturer-direct with all brands. The margins the distributor was making became ours for the keeping.
Nowadays, software has made the management easier, but sustaining the profitability of a distribution center is a growing challenge. Margins are shrinking and labor cost increasing as we seek to improve workflow process and invest in technology to budget staff costs. Consumer demands also force us to invest continually in software and technology. GS has also built a successful e-commerce business alongside its salon business and while it is run from the facility, it has its own department, including software, separate inventory, space and overheads.
Simply put, creating a distribution center is not for everyone. It’s a separate business, which, if not managed properly, can bleed you, taking away focus from the salon operations, tying up capital and interrupting product replenishment.