Sally Beauty Supply 2011 Annual Report Download - page 27

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Customer Service
We strive to complement our extensive merchandise selection and innovative store design with superior
customer service. We actively recruit individuals with cosmetology experience because we believe that such
individuals are more knowledgeable about the products they sell. Additionally, Sally Beauty Supply recruits
individuals with retail experience because we believe their general retail knowledge can be leveraged in the
beauty supply industry. We believe that employees’ knowledge of the products and ability to demonstrate
and explain the advantages of the products increases sales and that their prompt, knowledgeable service
fosters the confidence and loyalty of customers and differentiates our business from other professional
beauty supply distributors.
We emphasize product knowledge during initial training as well as during ongoing training sessions, with
programs intended to provide new associates and managers with significant training. The training
programs encompass operational and product training and are designed to increase employee and store
productivity. Store employees are also required to participate in training on an ongoing basis to keep
up-to-date on products and operational practices.
Most of our stores are staffed with a store manager, and two or three full-time or part-time associates.
BSG stores are generally also staffed with an assistant manager. The operations of each store are
supervised by a district manager, who reports to a territory manager. A significant number of our store
managers and assistant managers are licensed in the cosmetology field. Additionally, in certain geographic
areas in the U.S., a significant number of our store personnel, including store managers and assistant
managers, speak Spanish as a second language. We believe that these skills enhance our store personnel’s
ability to serve our customers.
Relationships with Suppliers
We purchase our merchandise directly from manufacturers through supply contracts and by purchase
orders. For the fiscal year 2011, our five largest suppliers, The Procter & Gamble Company, or P&G, the
Professional Products Division of L’Oreal USA S/D, Inc., or L’Oreal, Conair Corporation, John Paul
Mitchell Systems and Shiseido Cosmetics (America) Limited, accounted for approximately 42% of our
consolidated merchandise purchases. Products are purchased from these and many other manufacturers
on an at-will basis or under contracts which can be terminated without cause upon 90 days notice or less or
expire without express rights of renewal. Such manufacturers could discontinue sales to us at any time or
upon short notice. If any of these suppliers discontinued selling or were unable to continue selling to us,
there could be a material adverse effect on our business and results of operations.
As is typical in the distribution businesses, relationships with suppliers are subject to change from time to
time (including the expansion or loss of distribution rights in various geographies and the addition or loss
of product lines). Changes in our relationships with suppliers occur often, and could positively or
negatively impact our net sales and operating profits. Please see ‘‘Risk Factors—We depend upon
manufacturers who may be unable to provide products of adequate quality or who may be unwilling to
continue to supply products to us.’’ However, we believe that we can be successful in mitigating negative
effects resulting from unfavorable changes in the relationships between us and our suppliers through,
among other things, the development of new or expanded supplier relationships.
Distribution
As of September 30, 2011, we operated mainly through 17 distribution centers, eight of which serviced
Sally Beauty Supply and nine of which serviced BSG. We recently completed implementation of a
comprehensive optimization program to consolidate warehouses and reduce administrative expenses
related to BSG’s distribution network. Total capital expenditures for this program were approximately
$22.0 million and certain related expenses were approximately $5.0 million. This program has resulted in
annualized cost savings of at least $14.0 million beginning in the fiscal year 2010.
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