Things just got ugly for Denton-based Sally Beauty supply. The international retailer and distributor of professional beauty supplies saw its stock plummet after Amazon announced its own professional beauty store. This is not exactly great news for one of Denton’s largest businesses. Amazon is a virtually unregulated monopoly on multiple fronts with huge tax advantages to many of its competitors. Amazon Beauty customers will still need a license to purchase professional use products, but Amazon is playing by a different set of rules as regulators continue to turn a blind eye to Amazon’s monopolistic business practices and its entanglement with the government in general.
Sally Beauty hasn’t done itself any favors this year. Sally Beauty’s second quarter results this year showed a 7.1% decline on sales that were 3 percent lower than a year ago. Sally Beauty’s store count decreased 5 percent in the second quarter of 2019 to 1388 stores, and the company reported total distributor sales consultants of 798 compared to 859 in the second quarter of 2018. Sally Beauty reported a provision for income taxes of roughly $23 million or an effective tax rate of 25.9%.
It takes a significant amount of money to keep the lights on at its corporate headquarters at 3001 Colorado Blvd in Denton. Last year Sally cut staff as part of a broader restructuring to shave costs. Earlier this year Sally Beauty closed its Denton distribution facility on Morse Street. It remains to be seen if Sally Beauty will seek further headcount reductions. With Amazon’s recent foray into the business, the situation just became a lot more complicated.
Amazon enjoys a host of government and tax subsidies which put Sally Beauty at a competitive disadvantage. Local, state and federal officials are eager to court Amazon’s continued growth, and thereby its anti-competitive behavior. Despite posting record profits of over $11 billion in 2018 Amazon paid zero (aka zilch, squat) in federal taxes for the second year in a row. Flouting regulations and traditional business norms is a big reason why Jeff Bezos is the richest person on the planet. You don’t get to the top by playing nice, and Amazon continues to exert oversized influence on government at virtually every level due to its size and scale.
To put things in perspective, Amazon has an effective tax below that of the poorest 20 percent of U.S. households, or less than 2 percent. Now you understand the dilemma of Sally Beauty, or any company trying to compete against the internet retailing giant.
Shares of Denton-based Sally Beauty Holdings (SBH) are trading near a 9-year low this morning.