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Hair Industry Overview

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    EXECUTIVE SUMMARY This is a report on hair service industry. Salons and shops in this industry can be privately owned, franchised, or a chain. According to HOOVERS, In the US, about 70,000 hair care salons (65,000 beauty salons; 5,000 barber shops) generate combined annual sales of about $19 billion. The top major companies are Premier Salons, Ratner Companies, Regis Corporation, and Sport Clips. The industry is highly fragmented: the 50 largest companies generate about 15 percent of revenue.

    The beauty salon industry performs basic services such as haircuts, coloring, and styling; but many are expanding to include spa like services like facials, tanning, and nails. INDUSTRY OVERVIEW The service industry for hair has long been made up of mostly small privately owned shops. The SIC Code for Beauty Shops/Salons is 7231 and the NAICS Code is 812112. In the later part of the twentieth century this industry started to see the growth of chain salons. These chain salons often operate on a franchise basis and are usually located in shopping malls.

    According to Hoover’s, there are 70,000 hair salons in the United States that generate combined annual sales of about $19 billion and employ 760,958 people. Most of these shops were considered small and employed less than 5 people. This industry is highly labor intensive. The average revenue per employee is less than $45,000. In a beauty salon that is privately owned, the owner is most likely a female and an active hairdresser in the salon. These salons are usually geared towards women and offer services such as manicures, facials, and massages, in addition to traditional hair services.

    The other services are important to generate additional income to the salons. Hair salon chains and franchises usually market their services towards families, instead of women only. Because of this they also have a clientele of men and children. These salons usually staff a large number of stylists and only offer basic services such as cutting, coloring, and perming. The stylists working in these chain salons generally receive only salary with no commission. The major companies in this industry are Premier Salons, Ratner Companies, Regis Corporation, and Sport Clips.

    The industry is highly fragmented because the largest 50 companies only generate 15 percent of the revenue. Regis Corporation of Minneapolis, Minnesota, was the world’s largest owner and franchiser of hair salons in 2010, with about 12,000 salons in the U. S. , Canada, Puerto Rico, and the United Kingdom. They operate the chains Supercuts, Sasoon, MasterCuts, Hair Club for Men and Women, and others. Even though it is the industry leader, they only held a 2 percent share of the highly fragmented US salon market. Regis has 56,000 employees and exceeded $2. 3 billion in revenue in 2009.

    Ratner Companies LC based in Vienna, Virginia in another leader in the industry. They operate the chains BUBBLES, Hair Cuttery, Salon Cielo, ColorWorks, and Salon Plaza. In 2010 the company employed about 10,000 people. According to the Bureau of Labor Statistics, the salon and cosmetology industry will increase as fast as the national average for all professions through 2018. Manicurists are expected to experience the fastest growth in the industry, as are other specialists such as estheticians, who provide skin treatments, and electrologists, who remove unwanted hair through electrolysis (Business Company and Resource Center).

    MAJOR INDUSTRY PRODUCTS Major products are hair cutting, hair coloring, nail care, skin care, and hair care product sales. A typical salon offers haircutting and styling, coloring, shampooing, and perms. Some salons also offer nail care, facials, makeup, waxing, massages, tanning, and other spa treatments. There is a low demand for these types of specialty services so is in uneconomical for small salons to offer them. Merchandise sales are an important revenue source and provide about 5 to 15 percent of revenue.

    Gross margins are higher for hair care products than for services. A typical chain or franchise salon is located in a mall and occupies about 1,000 to 1,500 square feet. A typical salon employs hairstylists who cut hair, colorists who specialize in coloring, and assistants who wash and dry hair. Average operating expenses, such as rent and labor, can be as high as 80% of revenue. In most privately owned salons, the owner or owners are part of the work force. The average hourly pay for workers is low and tips are an important source of income for workers.

    Stylists often develop their own customers and frequently work on commission. A hair cut and wash usually takes about 45 minutes, but if coloring is involved it can take as long as two hours. Many women have their hair cut every six to eight weeks and color done once a month. Customers often develop long-term relationships with their hair care professional and are extremely loyal (HOOVERS). US personal consumption expenditures at barbershops and beauty salons are forecast to grow at an annual compounded rate of 2 percent between 2011 and 2016 (See graph). PRIMARY INDUSTRY IMPUTS

    In the salon industry the basic raw materials needed are hairstyling supplies such as shampoo, conditioner, hair products, hairdryers, flat iron, curling irons, scissors and brushes. They also need basic materials like foils for hair, chemicals, and hair color and bleach. If you have a full service salon you need to have all the materials needed to perform that service. IMPACT OF HUMAN RESOURCES Because the work is physically demanding, many stylists work fewer than 40 hours per week. Stylists can receive relatively high pay, but other workers need no special skills and receive moderately lower pay than the national average.

    Customers often follow if their stylist moves from one salon to another. The hair care industry’s safety record is much better than average (First Research). All states require that a cosmetologist be licensed which entails graduation from an accredited cosmetology school and successful completion of written and practical examinations. Licensed cosmetologists are often required to attend additional classes to keep up to date with new styles and techniques ( Business and Company Resource Center). There are no labor unions in the hair care industry. OWNERSHIP TRENDS There is no current news for future mergers or acquisitions in the industry.

    Regis Corp. has announced that it with eliminate half of its 50 brands and close about 7,500 company-owned stores in the United States. The changes will be made to cut costs and simplify the business model. Over the years, Regis has acquired dozens of regional brands, but the mergers failed to achieve cost benefits. IMPACT OF TECHNOLOGY There is not much technology involved in the hair industry. Many salons are involving the internet in their business so customers are able to buy merchandise through the website, instead of the store. All stylists need to be certified and experienced in all techniques and styles.

    A future trend involves enhancement for thinning hair on women. IMPACT OF GOVERNMENT REGULATIONS Many states require hairstylists to be licensed. Companies with franchisees must also conform to state franchise laws. Because sprays and other kinds of chemicals are often used, and because of the presence of hair fibers, salons must ensure that they comply with workplace air quality standards (HOOVERS). Industry Employment Growth – Bureau of Labor Statistics (HOOVERS) Consumer Spending Growth on Beauty & Barber Shops Fluctuates (HOOVERS) Works Cited “Beauty Shops. “Encyclopedia of American Industries, Online Edition. Gale, 2011.

    Reproduced in Business and Company Resource Center. Farmington Hills, Mich. :Gale Group. 2012. http://galenet. galegroup. com. libproxy. temple. edu/servlet/BCRC Hoover’s Inc. Beauty Salons. Hoover’s Company Records – In – Depth Records. Retrieved February 24, 2012 from Lexis Nexis Academic database. http://subscriber. hoovers. com/H/industry360/description. html? industryId=1213 Stych, Ed. “Regis to Close Hair Salons, Eliminate Half of Its 50 Brands. ” – Dallas Business Journal. 20 Feb. 2012. Web. 27 Feb. 2012. <http://www. bizjournals. com/dallas/news/2012/02/20/regis-to-close-hair-salons-eliminate. html? ana=RSS

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