Covid-19 Put Billionaire John Paul DeJoria’s Hair Care Empire At Risk. How He’s Investing…

In 1980, John Paul DeJoria bet $700, his entire savings, on a new shampoo he developed with stylist Paul Mitchell. With cases of plain white bottles with black lettering, as he couldn’t afford colors, DeJoria peddled his product in salons across Los Angeles. At nights he slept in his car, an ancient Rolls-Royce.

After much knocking on many doors, some salons started to buy the bottles. And then more did. The door-to-door operation eventually grew into beauty giant John Paul Mitchell Systems. Forbes estimates the company did roughly $900 million in sales in 2019. (DeJoria is more forthcoming about his humble roots than he is about his business metrics.)

The hair care brand and Patron Tequila, which DeJoria cofounded in 1989 (in 2018, he sold Patron to Bacardi in a $5.1 billion deal), has made DeJoria one of the wealthiest people in the world. Forbes estimates his net worth to be $3.2 billion. Despite four decades of staggering success, DeJoria still relies on independent salons for the bulk of his sales. (Two years ago he reluctantly started selling products on Amazon to fight phony and black market goods, and gives a portion of the online sales to salon owners.)

But the decades-long retail strategy that has made DeJoria an enormous fortune buckled during the Covid-19 pandemic. Social distancing measures shuttered hair salons and barbershops across the country—that’s more than 950,000 businesses generating more than $47 billion in revenue, according to research firm IBISWorld. “Our sales zoomed straight down,” says DeJoria. “We lost nearly 60% of our revenue almost instantly.”

With co-owner Angus Mitchell, the son of John Paul Mitchell System’s late cofounder, Paul Mitchell, who died in 1989, DeJoria rushed to craft a survival strategy. The plan focused around three key groups: their employees, their vendors and the thousands of independent salons who were the company’s primary sales engine. The employees came first. “We needed to secure our staff and their future because salons were shutting down, and they were worried,” says DeJoria. “We wanted to let them know that their jobs and livelihoods were going to be okay.”

To maintain jobs and salaries amid plunging sales, each month DeJoria and Mitchell have injected $6 million of their own money into the company to bridge the financial gap. “When we started this company, we had absolutely nothing. Even though we are having real problems and this terrible virus, we’re a lot better off now than we were back then,” says DeJoria. “We made good money before, let’s weather the storm, put our money back into the company. The entire decision took thirty minutes.”

For sure, few companies have the benefit of a billionaire owner with enough extra cash to fuel operations and avoid layoffs through times of crisis. But in DeJoria’s Covid-19 strategy lies lessons on how industry leaders can use their influential positions and capital reserves to prop up a sector until the economy stabilizes.

To take the strain off its distributors—middlemen who buy products in bulk and sell to salons—Paul Mitchell Systems extended their pay periods and offered shampoos and color treatments at discounted rates. That, in turn, let them sell to salon owners at lower prices to help drive demand.

Salon owners posed the trickiest problem. These thousands of small businesses purchased millions of dollars’ worth of Paul Mitchell products to use in their shops. They also acted as DeJoria’s frontline sales force, selling shampoos, conditioners and other treatments to their clients to use at home to maintain their new hairdos.

The entire industry—which requires close, face-to-face contact, and poses a high infection risk to customers and stylists alike—was ordered shut down as the pandemic raged. To help keep these independent businesses afloat, John Paul Mitchell Systems organized Zoom calls and built online resources to help salons adapt to safety new protocols and successfully apply for PPP loans. Virtual classes taught tips on how to increase revenue when business again opened, and kept stylists fresh on the latest beauty trends and techniques.

To help with the financial strain of the the shutdowns, DeJoria gave partner salons more than $4 million worth of free goods that owners could turn into pure profit once business resumed. “We normally spend about $2,000 on Paul Mitchell products a week,” says Liz Monreal, who owns Salon Ink in San Diego. “The package gave us at least a month of free supplies.” Adds her business partner and husband, Henry Monreal, “It delivered more than $7,000 to our bottom line, and that was a tremendous spark to get the fire rolling again.”

In an interview on July 9, the Monreals said social distancing measures had been a tough adjustment, but revenue bounced back to about 75% of pre-Covid levels. The situation is tenuous—on July 13, California again ordered closed indoor business, including hair salons, in counties that account for 80% the state’s nearly 40 million population.

Before the recent reclosures, DeJoria said that his sales are up about 70% from their May bottom—down around 30% from pre-coronavirus times. On hearing of the latest California closures, he said: “Salons did everything right to open, and we have not heard of one violation. Let’s hope that this closure is very short-lived.”

Despite the setbacks, DeJoria says he and Angus Mitchell will continue to invest in the brand through the rough patches. “With what salons have experienced this last month, we know they will be ready to bounce right back again,” says DeJoria. ”This is not easy, but we were prepared to do whatever was necessary and didn’t have to overthink it. Let’s get it done.”