Beauty Salons
Sales of retail products contribute significantly to the
bottom line at most salons, with most products providing
profit margins of around 45%. Almost three-fourths of
the retail products sold at salons are hair care products,
as illustrated in the following chart:
Industry Overview
$2.4 Billion Annual Hair Care Product Sales
The beauty salon industry in the U.S. is comprised of an
estimated 350,000 salons and barber shops, including
around 70,000 that are home-based operations. The
industry generates an estimated $55 billion to $60 billion
in annual revenue (13th Annual Bear Stearns Retail,
Restaurants & Consumer Conference, February 28,
2007; Modern Salon, “State of the Industry,” June 2006).
In addition to traditional salon services like hair cutting,
coloring, and styling, many full-service salons also offer
a variety of other services for both men and women,
including but not limited to the following:

Manicures and pedicures

Scalp and facial treatments

Makeup analysis and application

Wig cleaning and styling

Massages

Hair weaving or replacement

Electrolysis
A depiction of the industry’s major segments follows,
showing that cutting and styling represents 41% of industry
revenue, double the revenue generated by hair coloring:
$60.0 Billion in Salon Services
(% of Dollar Volume, By Type of Service)
All others* ($1.3 B), 2.2%
Body care ($0.72 B), 1.2%
Skin care ($2.0 B), 3.4%
Cutting, styling
($25.2 B) - 41.3%
Nail care ($5.2 B), 8.5%
Retailing ($6.0 B), 9.2%
Perming/relaxing ($8.6 B), 14.1%
Hair coloring
($11.9 B) - 19.5%
Source: Modern Salon, “State of the Industry,” June 2006.
* Includes cosmetic make-up, makeovers, permanent eye/lip liners,
ear/nose piercing, etc.
In Maufacturers’ Dollars (Millions), by Category
Hair color ($579 M), 24.1%
Perms ($175 M), 7.3%
Hair styling ($198 M), 8.2%
Shampoos
($379 M)
15.8%
Hair sprays ($202 M), 8.4%
Specialty products
($225 M), 9.4%
Conditioners ($271 M) - 11.3%
Ethnic products
($373 M), 15.5%
Source: Modern Salon, “State of the Industry,” June 2006.
Many salons offer a full range of services -- including
spa services and nail and skin care -- but others are
heading in the opposite direction and are specializing as
“hair-only” salons. These include franchise operations
such as Supercuts. Top chain locations and franchise
operations are listed below:
Top 10 Franchises in the U.S.
Franchise
HQ Location
# Locations*
2005/2006
Supercuts**
Minneapolis, Minn
1,934 / 2,017
Fantastic Sam’s
Beverly, Mass.
2,390 / 2,541
Great Clips, Inc.
Minneapolis, Minn.
1,374 / 1,383
Sport Clips
Georgetown, Mass.
273 / 353
Cost Cutters**
Minneapolis, Minn.
863 / 866
Pro-Cuts**
Minneapolis, Minn.
186 / 177
Hair Cuttery
Vienna, Virginia
793 / 848
60 / 61
The Lemon Tree
Levittown, N.Y.
Pigtails & Crewcuts
Roswell, Georgia
Snip-Its
Natick, Mass.
3/6
25 / 44
Source: Entrepreneur, January 2007.
* Includes both company-owned and franchised locations.
** Owned by Regis Corporation of Minneapolis, Minnesota; see Page 2 for a
summary of Regis Corporation’s operations.
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Industry giant Regis Corporation (which owns Supercuts
and Cost Cutters, among others) has experienced
explosive growth over the past decade:
Industry Leader Regis Corporation
•
Headquartered in Minneapolis, Minnesota, Regis is
the world’s largest owner, operator and franchisor
of salons in the industry -- with approximately
11,500 salons around the world (including 9,500 in
North America).
•
In 2006, Regis reported over $2.4 billion in
revenue, up 11% from $2.2 billion in 2005.
•
Regis operates 1,700 SmartStyle salons in WalMart stores and is the largest Wal-Mart tenant
(followed by McDonald’s). It has been adding 230
SmartStyle salons annually.
•
It entered the beauty school business through its
acquisition of Blaine Beauty Careers in June 2004.
•
With the purchase of Hair Club for Men and
Women (90 locations) in 2005, it entered the hair
restoration business.
•
In addition to Supercuts, Cost-Cutters and Pro
Cuts, Regis Corporation’s other brands include
Best Cuts, City Looks, Coiff & Co., First Choice,
Hair Express, Hairmasters, Holiday Hair, Magicuts,
Mia & Maxx, Mastercuts, Style America, TGF,
Trade Secret and Vidal Sassoon.
•
Regis holds an estimated 4% of total industry
revenue and contends that its nearest competitor
is one-tenth its size. It states that 50,000 salon
operations are attractive acquisition targets, and it
acquires just one out of thirty salons or chains that
are presented to it for consideration.
Source: 13th Annual Bear Stearns Retail, Restaurant and Consumer Conference, February 28, 2007.
Despite the presence of large national players like Regis
Corporation and other franchise operations, the industry
is comprised primarily of small salons. An estimated
80% have four or fewer employees, according to
zapdata.com, a unit of D & B Sales and Marketing, Inc.*
Issues and Trends
Most salon owners experience small to moderate
year-to-year increases in revenue, with 3% to 4% the
norm (Modern Salon, June 2006). While most industry
participants do not see double-digit gains in revenue
from one year to the next, they enjoy stability and
modest growth if they give clients what they want, for a
fair price, in an appealing setting.
Salons are in the “replenishment business” -- offering
clients a regular lift, makeover or transformation in their
* It may appear that more people are employed by salons than is the case. It is
customary in the industry to see a salon with 10 stylists at work, but many (or
sometimes all) of them are independent contractors who rent “stations” at salons
and are not actual employees.
look and their attitude, generally for a fair price. There
is no technological obsolescence to worry about, and
competition from China or other offshore providers is not
an issue, so volatility is rarely a problem for salons.
The challenges include growing competition from niche
players; a shrinking middle class; increased costs of
doing business; and clients’ tendency to stretch out visits
to save money. According to one industry distributor
of salon products, salons that find a high-quality niche
and concentrate on marketing directly to their target
market can expect to see higher-than-average revenue
increases (Modern Salon, June 2006; Salon Today,
February 2007). Among the niches mentioned as
showing high growth potential are the following:
•
Products and services for thinning hair
•
Hair-color only salons
•
Sophisticated men’s salons (or specialized men’s
departments within full-service salons)**
•
Hair extensions (and/or wigs for people who’ve
undergone chemotherapy or extreme hair loss)
Once considered a “niche” but now mainstream, spa
services are offered at 14,000 beauty salon-day spa
combination shops. According to the International
Spa Association press release (February 5, 2007), an
estimated $9.7 billion is spent at spas annually, up from
$5.4 billion in 2003. The ISA press release also notes
that almost one-third of all men have visited a spa, and
two of the fastest growing spa services are “traveling
spas” (for in-home wedding parties and the like), and
”medical spas,” offering facial peels, microdermabrasion,
and other dermatological procedures.
Many salons continue to struggle and are being forced
to cut expenses to maintain profitability, but others have
enjoyed impressive growth. Profiled in the 2007 “SALON
TODAY 200” issue (January 2007), the fastest-growing
salons in the U.S. averaged 29% revenue growth in
2006. Average revenue at these 200 fast-growing salons
is around $1.6 million; average operating costs follow:
Salon Today 200 - Average Salon Expenditures
Other - 4%
Telecom/utilities/insurance - 5%
Professional services - 2%
Education/training - 2%
Employee benefits - 2%
Marketing/advertising - 3%
Owner compensation - 5%
Rent/mortgage - 6%
Taxes - 6%
Labor costs
48%
Profit - 7%
Supply costs - 12%
Source: Salon Today, January 2007.
Totals more than 100% due to rounding.
** Barbershops are coming back into focus in some markets, since bottoming out
in the 1980s. There are an estimated 220,000 licensed barbers in the U.S., up
from 185,000 in 1989, according to the National Association of Barber Boards in
America. A trend that may gain momentum is franchise operations like Roosters,
which has around 20 locations in operation and 20 planned. Based on the
concept of men-only camaraderie and atmosphere, the chain also hopes to bring
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back the art of the facial shave (Wall Street Journal, May 2, 2006).
Salons featured in the “Salon Today 200” report
share many of the same characteristics, including an
emphasis on customer-retention programs, moneyback guarantees, in-house employee training programs,
fully-stocked retail departments (rather than just a few
shelves of items), community outreach programs, and
clean, comfortable surroundings.
Another characteristic shared by most of the 200
high-growth salons is that almost all have websites to
showcase their stylists and services. Some are even
able to let clients book appointments, and employees
are often given password-protected access to areas
of the site for education and training, to view their
schedules, and to make notes and leave feedback for
salon managers (Salon Today, January 2007).
Factors mentioned in the advertising placed by the
owners or managers of beauty salons are intended
to encourage consumers to call or visit the salon.
“Confidence factors” and “convenience factors” are
designed to appeal to consumers’ desire for reliable
products and services. Examples of each follow:
Conference (February 28, 2007). Among the “Salon
Today 200,” average spending jumps to $47 (including
shampoo, cut, and style). Upscale salons typically
do more than shampoo, cut and style hair; in many
cases, additional services are performed (all-over color,
highlights, extensions, flat-iron process, or chemical
treatments to straighten hair or give it more body).
Multiple services and treatments can easily push
average per-visit salon spending to $300 or more.
Average household spending can be calculated
to determine market size and share of the market.
Spending on salon services for men and women in the
U.S. reached around $60 billion in 2006, or $535 per
household. In an area of 45,000 households, it is fair
to assume that around $24 million is spent on salon
products and services. If a salon generates $750,000
annually, its market share would be around 3.1%, a
baseline for comparison with future results.
Critical Success Factors
•
Listen to what clients want -- especially first-timers.
Set aside 10 minutes on the first visit to ask about
their prior salon experiences and what they expect
out of their experiences with a new salon. And
never assume clients will be happy with someone
else’s recommendation of what should be done
with their hair; it’s up to the client to decide.
•
Start and finish with client on time. This requires
that front-desk staff be efficient and that if a stylist
is running late or cannot start on time, a complimentary mini-service (nail polish change or deep
conditioning treatment) be offered.
•
Answer every technical question that clients may
have. Educational programs are offered at most
successful salons, which stylists are often required
to attend. This helps build trust and confidence in
all stylists at a salon, so if one stylist is out for an
extended period, clients can be referred to another
stylist.
•
Guarantee the work done by stylists. If clients are
not 100% satisfied, agree to remedy the problem
fully and immediately.
Confidence Factors Mentioned in Ads
Photos / Illustrations
Before and After Photos
Training -- Sassoon, etc.
Years in Business
Specialty - Fine Hair, Curly, etc.
“Problem Hair Experts”
Advanced Cutting Techniques
Satisfaction Guaranteed
European Skin Care / Full-Day
Pampering
Awards Won /
Professional Staff
Owner’s Name(s)
Smoke-Free Environment
Source: 2006 Comparative Ad Analysis Survey, Norbert J. Kuk & Associates
Convenience Factors Mentioned in Ads
Location Data / Maps
Multiple Locations
Walk-Ins Welcome
Invitation to Visit Website
One-Stop / Full-Service Salon
Private Booths
In-Home Service - Weddings
Gift Certificates
Virtual Tour of Day Spa
Phone Consultation
Current Specials on Website
Same-Day Appointments
Source: 2006 Comparative Ad Analysis Survey, Norbert J. Kuk & Associates
Value of Products and
Services in the Industry
Average per-client spending for a haircut in hair-only
salons owned and operated by the Top 10 players (like
Supercuts or Cost Cutters) is around $16, according
to Regis Corporation’s CEO, in a presentation made
at the Bear Stearns Retail, Restaurant and Consumer
Source: Modern Salon, December 2006.
Industry Resources
Salon Today, www.salontoday.com
Modern Salon, www.modernsalon.com
American Salon, www.americansalonmag.com
American Spa, www.americanspamag.com
International Spa Association, www.experienceispa.com
National Cosmetology Association, www.ncacares.org
Professional Beauty Association / The Salon Association,
www.probeauty.org
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