The buzz on the beauty industry

IBISWorld estimates the hairdressing and beauty salon industry revenue will contract at an average annual rate of 0.03% over the five years to 2009-10. Despite the fact that beauty therapy is increasingly being perceived as a necessity, the industry is sensitive to changes in household disposable income.

As such, from the middle of the period assessed, as unemployment and general interest rates spiked, and as expenditure slowed, industry revenue decreased dramatically.

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In general, the industry suffers from significant financial problems caused by a lack of working capital, general lack of management and marketing skills, competition being based mainly on price, cost pressures due to over-staffing of salons, low productivity and lack of profitability.

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Consequently, over the period, employment and establishment numbers are expected to increase only marginally. High rates of casual and part-time employment and rationalisation of operators are still required to ensure the future stability and financial viability of the whole industry.

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Industry revenue over the outlook five years to the conclusion of the 2014-15 financial year will fare much stronger than that of the current performance period, growing at an average annual rate of 3.6%.

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The stronger performance projected over this period will be due to support by relatively strong economic growth commencing in 2011 and high population growth generated by increasing migration and births. Household disposable income growth is also expected to be stronger, driving expenditure on hair and beauty services.

Further restructuring of hairdressers towards the establishment of unisex salons is expected, with the number of traditional barber shops becoming insignificant. The hairdressing industry will continue to operate in an environment of significant price competition, primarily led by the misconception of salon owners that price is the deciding factor for clients.

Over the coming five years, the door is open for foreign franchises to establish themselves, and further, rationalisation among operators is anticipated.

Meanwhile, beauty therapists are sitting pretty as the popularity of day spas increases, as does the average age of the population. It will become necessary over the outlook period for hairdressers to reduce wage costs and increase productivity by hiring more, appropriately skilled, casual or permanent part-time employees instead of full-time staff.

An opportunity also exists for operators who have a professional approach to hairdressing, especially with regards to management and understanding clients’ needs, to successfully operate in this industry.

Key success factors for operators in the industry:

Having links with local health professionals. Beauty salons can benefit from client referrals from local doctors and dermatologists.
Use of specialist equipment or facilities. Having specialist equipment enables salons to provide value-added, higher-priced services.
Proximity to key markets. It is an advantage to be located in a high profile, preferably wealthy area with significant passing pedestrian traffic and easy parking.
Having a loyal customer base. It is important for a salon to build up a base of satisfied clients, to ensure repeat visits and attract new customers through good word-of-mouth.
Ability to control stock on hand. Controlling stock levels, particularly hair-care and beauty products, is important to maintain the liquidity and cashflow of the business.
Superior financial management and debt management. Financial and business management skills are vital to ensure cashflow and the survival of the salon.
Access to highly-skilled workforce. A salon depends on the skill of its hairdressers and/or beauticians. Maintaining and updating skills is important to stay abreast of new hair styles and beauty treatments.
Marketing of differentiated services. Salons can move away from price based only competition by offering quality, value-added and higher priced services.