Beauty Franchises

Beauty Industry Overview and Trends

• Demographics

  Demographics

  Americans value looking good and are willing to spend the time and money to do so. In fact, Americans invest more time grooming than average citizens in most other countries. In a 22-country survey, the market research firm GfK found that men and women spend an average of 4 hours per week on personal grooming, while Americans typically spend 5.3 hours, or about 30 percent more time doing so. Of U.S. participants, 62 percent said that feeling good about themselves was the main reason they spent time trying to look their best. The findings supported what beauty industry insiders already knew -- people purchase beauty services to feel good about themselves.

  These findings were supported in "The Dove Global Beauty and Confidence Report." The 2016 report, which interviewed 10,500 females across 13 countries, found that almost 89 percent of women and 79 percent of girls said they skipped relevant life activities because they didn't like their appearance at the time. In the U.S., only 50 percent of women said they were confident in their beauty. While the report found universal "beauty and appearance anxiety" among women, 70 percent of women and 80 percent of girls reported feeling more confident or positive when they took the time to care for their minds, bodies and appearances.

  Consumer research indicates that some demographics are more likely to purchase services such as haircuts, massages, manicures and facials. People between the ages of 35 and 64 years spend 8 to 14 percent above average on beauty services, according to a report by New Strategist, a market research firm. Some more narrowly defined groups account for even higher spending. Empty nesters and other married adults without children at home spend 25 percent above average on beauty services, while married couples with school-aged or older children typically spend 31 to 37 percent above the norm, according to the New Strategist report.

• Growth Potential

  Growth Potential

  The fact that beauty services provide an emotional benefit, as well as a physical one, adds to their value. It's one of the reasons the industry remains consistently solid and virtually "recession proof." Even in the most recent economic downturn, beauty businesses remained stronger than the national average, according to the Professional Beauty Association (PBA), an industry trade group. Between the fourth quarters of 2008 and 2009, 92,000 private–sector businesses closed. This represented a decline of 1 percent. However, between the fourth quarters of 2008 and 2009, the salon and spa industry reported a loss of only 130 businesses, a decrease of just 0.1 percent.

  As the United States emerged from the recession, the salon and spa industry also fared above average in comparison to the general economy. Between the fourth quarter of 2009 and 2010, the salon and spa industry grew by 1.7 percent, adding 1,600 locations across the United States. At the same time, the overall economy posted a gain of just 0.3 percent with the addition of 26,500 private businesses, according to the PBA report. Moving forward, the salon and spa industry has sustained more than average gains for years. Between 2012 and 2014, the beauty industry posted a 4.2 percent gain, while the overall U.S. economy grew 3.3 percent.

  In a September 2015 report by IBISWorld, analysts forecast that increases in per capita disposable income combined with declining unemployment would give people more discretionary income to increase spending for beauty services. Even without those gains, industry experts agree that the beauty business has staying power since most people consider basic haircuts part of their usual expenses. While they may purchase services less frequently when budgets are tight, both men and women continue to get their hair cut. It's one of the few services that most people can't do themselves at home. The fact that it can't be outsourced or automated adds to its long-term investment value.

• Industry Characteristics

  Industry Characteristics

  Geographically, the distribution of hair salons reflects the national population, according to a September 2015 report by IBISWorld. The largest concentrations of businesses are in the Mid-Atlantic, Southeast, West and Great Lakes regions. However, while the Mid-Atlantic region is home to 15.4 percent of the U.S. population, it has a higher percentage, with 23 percent of total U.S. hair salons located there.

  If you plan to start a beauty franchise in an area saturated with local salon services, you'll have to work hard to make your business stand out from the crowd. Franchises that offer new and specialized services may be more successful in attracting clients. Some of the newest industry trends cater to the changing lifestyles and expectations of U.S. consumers. These include:

  • Speed – Franchises that refuse to lose clients to their busy lifestyles incorporate speed and efficiency into their offerings. Services that can be booked online and done in less than 60 minutes, a typical lunch hour, allow time-crunched clients to fit in treatments without compromising other commitments. Clients seeking quick services often are willing to forego the luxury aspects of an experience to reduce the time they spend in the salon. Lunchbox Wax and 10 Minute Manicure each succeeds with a combination of efficiency and skill.
  • Specialization – Franchises that specialize in a demographic or service may narrow their client base, but can establish themselves as market leaders in their specialization. Businesses that get it right on services such as children's haircuts, hair blowouts or even lice removal can position their businesses as "the place" to go for a specific service versus multi-purpose or general service salons. Franchises such as LiceLifters and Blo Blow Dry Bar each offer just one service in which they specialize.
  • Innovations – New and innovative techniques and products are constantly being introduced in the beauty industry. While some treatments may offer improved results, others provide traditional services with a creative or novelty twist. Both offerings can intrigue current clients or attract clients who want to try something new. Eyebrow threading at Brow Art 23 and "gourmet" body waxing at Cocktail Wax are novel approaches to services.
  • Men's grooming – Changes in attitudes have made it more acceptable for men to purchase beauty services once reserved for women. Franchises that cater to men's preferences offer services in a comfortable environment, often with complimentary beverages, wide screen televisions, leather seating and a sophisticated vibe. Clients can take advantage of add-on services such as hair coloring, manicures and other spa treatments in one session. The Grooming Lounge and Rooster's Men's Grooming Centers use these strategies to attract men.
• Hair and Nail Services

  Hair and Nail Services

  Annual revenue from hair salons was valued at $43 billion, according to a September 2015 report by IBISWorld. Between 2011 and 2016, the industry was expected to maintain an annual growth rate of 2.2 percent, according to the report. Increases in industry growth and revenues were expected from the introduction of new products and services. Increasing profits were promising for beauty salon owners, with profits having increased from 1.9 percent in 2009 to 5.7 percent in 2014, according to the report.

  IBISWorld analysts forecast that continued profit gains were possible with the sale of higher-value products, a revenue booster for any type of beauty franchise. According to a hair care industry report by First Research, profit margins are higher for hair care products than for services. In many salons, they can contribute between 5 and 15 percent of total revenue.

  According to a 2016 industry report by NAILS magazine, U.S. consumers spent $8.51 billion on nail services in 2015. Nearly 50 percent of nail techs surveyed reported that they were 80 to 100 percent booked regularly. A consumer survey conducted by itandi group ltd., a digital media company, reported that 69 percent of female respondents utilized nail salons as well as hair salons, with 40 percent of women patronizing nail salons at least twice a month. A report on consumer spending in the nail industry by market research firm The NPD Group reported that women over age 55 spent the most money on nail care services.

• Cosmetic Industry and Spa Services

  Cosmetic Industry and Spa Services

  In addition to offering traditional hair and nail treatments, beauty franchises include businesses that provide facials, hair removal, permanent make-up application, therapeutic massage and weight management. Analysts at the market research firm Technavio predict that the U.S. spa market will grow at a compound annual growth rate of 5 percent by 2020. Growth is most likely for services that cater to the health, beauty and relaxation demands of clients.

  Changing consumer attitudes toward spa services also are likely to result in continued growth. According to a June 2016 report by IBISWorld, the massage franchise industry earned average annual revenue of $1 billion. Between 2011 and 2015, U.S. massage franchises experienced an annual growth rate of 26 percent as consumers became more comfortable with these services.

  Anticipated spa growth also will be assisted by tie-ins with cosmetics companies, according to Technavio analysts. The U.S. cosmetics industry, considered the largest in the world, was expected to exceed more than $62 billion in annual revenue for 2016, according to an industry report by MarketResearch.com. The good news for both cosmetic and spa franchises is that specialty beauty shops brought in more than 50 percent of total cosmetics dollars, according to a report by research firm TABS Analytics. Consumers shopping at these businesses were more likely to spend more in one transaction than at other outlets.

  Franchises that provide hair removal also can expect gains due to innovations that have helped make the process more popular. Waxing remains an efficient and affordable option, with new formulations and approaches. In a February 2015 industry analysis, IBISWorld reported that the waxing industry was positioned to grow at an average annualized rate of 5.9 percent between 2010 and 2020. In 2015, laser and pulsed light hair removal ranked as the third most common non-surgical cosmetic procedure in the United States, according to a report by the American Society for Aesthetic Plastic Surgery. That year, 1.1 million procedures were performed at a value of $289 million, a 37.2 percent increase over 2014. Only injectables, such as Botox and Juvederm were performed more often.

• Financial Matters

  Financial Matters

  Franchises in the beauty industry attract investors with a wide range of financial resources. Some beauty industry franchises can be started for investments as low as $50,000. However, since many beauty franchises require specialized equipment and supplies, initial investments are more typically in the range of $100,000 or more. significant variable is your location and the amount of development and modifications necessary to accommodate your physical space. These requirements include both regulatory and franchise-required features. As a result, the lowest costs are associated with franchises that offer mobile or in-home services to clients, though transportation costs pose additional considerations.

  One of the biggest financial variables to consider in a beauty franchise is employee compensation. While your employee payroll terms likely will be determined by your franchisor, consider its consequences when planning profitability. Stylists and other operators in the beauty industry often are paid by commission supplemented by client tips. This arrangement can result in complex and variable rates of employee earnings, salon income and tax obligations for you as the owner. important to understand how your compensation system affects your monthly earnings in planning business expenses.

• Benefits

  Benefits

  Most employees in the beauty industry need a cosmetology license for employment. However, the majority of states do not mandate that business owners, franchisees or managers have these same credentials. This opens up franchise ownership to franchisees with a wide range of backgrounds and expertise. The fact that many beauty franchisors allow absentee ownership increases the degree of flexibility franchisees have in managing their beauty businesses.

  With a franchise in the beauty industry, you gain the right to use the franchise name. Clients who recognize the name get the reassurance of a familiar experience from their first visit. They'll select your services because they know what to expect regarding factors such as pricing, services and atmosphere. Whether they're looking for an in-and-out treatment or a full-blown makeover, they'll choose your business based on their needs and expectations.

  As a franchisee, you're also paying for access to the franchisor's proven formula for success. You can expect support from your franchisor to ensure you're positioned to maintain the reputation and profile of the franchise brand. As a franchisee, you'll likely receive assistance and advice in areas related to location, physical space, equipment, supplies, operating procedures and hiring. You likely can take advantage of economies of scale in purchasing supplies. Even if your franchise doesn't have name recognition in your area, having proven systems in place from day one allows you to spend your time working toward that goal.

• Important Considerations

  Important Considerations

  While the beauty industry can be categorized as "recession proof," it's up to you as a franchisee to ensure that you make the most of the business that's available to you. If you select a location that fits your target client base, you're off to a good start. The direct mail company, Welcomemat Services, reports that hair salons are the third most locally patronized businesses, only following pizza restaurants and car washes.

  While location and a trusted franchise name can get customers in the door. It's your employees, particularly those who administer services, who are likely to play the biggest role in customer satisfaction and retention. In a consumer survey by Pivot Point International, Inc., a provider of educational products for hairstylists, 81 percent of respondents rated their relationship with their stylists as one of the most important reasons they chose their salon. Almost 80 percent of these people used the same stylist every time they visited, with up to 50 percent of respondents having seen the same stylist for three or more years.

  If you're fortunate enough to secure reliable, productive employees who attract repeat business, you'll be challenged to retain them. The beauty business is traditionally plagued by high employee turnover rates. Competition for experienced providers can be cutthroat in competitive markets where demand for services surpasses the availability of experienced providers. Even the most loyal employees can be enticed by pay raises and other perks. When an employee leaves for another local business, you're likely to lose a major portion of their clients with them as well.

  In addition to working to retain both employees and clients, you'll have to stay current on the newest trends and technologies as a franchisee. Even if you can't offer specific trends because of your franchise limitations, it's important that you and your staff stay informed so that you can suggest alternatives before losing business. It's also important to keep your staff current so they can meet license renewal requirements that may include continuing education credits. Typically, this group includes hair stylists, nail technicians, cosmetologists, massage therapists and estheticians.

• Characteristics for Success: Who Should Consider a Beauty Franchise?

  Characteristics for Success: Who Should Consider a Beauty Franchise?

  You can find lucrative opportunities with a beauty franchise as either a hands-on owner/operator or an absentee owner. You'll increase your chances of success if you prepare for the challenges you're likely to encounter in this industry. With the right research, preparation and support, you can establish a business that offers a solid return on your investment, allows employees to make competitive wages and helps clients look and feel their best. You'll start from the most powerful position if you have some specific strengths and skills:

  • You can identify the job candidates that will keep your clients satisfied and engaged. These types of employees will be your most important assets in client retention, repeat business and long-term profits.
  • You have education or experience in the beauty industry. Knowing the tools and techniques of the trade will be useful in understanding how your business works, the supplies it needs and the challenges employees face.
  • You're organized or are willing to hire someone who can handle administrative tasks related to scheduling, business and employee licenses and continuing education requirements. Otherwise, expired licenses can result in fines, lost work time or even closure.
  • You can put your employees first. By making employee satisfaction a priority, you'll be committed to doing your best to increase employee retention.
  • You're knowledgeable about your segment of the beauty industry. Keeping current on new styles, treatments, tools and products will be easier if you can see the potential applications for industry innovations in your franchise.
  • You have education or experience in business management, marketing and operations. Even if you're an absentee owner, you'll still need to keep an eye on your investment and recognize when you need to take a bigger role in day-to-day operations.