The hairdressing sector is restructuring. The main features of this restructuring are consolidation and segmentation. Although most salons are small owner-run outlets, those operated by franchises and chains are rapidly increasing their share of sector turnover. For example, in France the mere 5.5% of salons operated by franchises account for 20% of sector turnover. Consolidation is accelerating the polarization of hairdressing services into budget and luxury segments. Indeed the segmentation of personal care services mirrors the much discussed clustering of incomes at the bottom and top ends of the scale and the consequent squeezing of the middle income group.

The restructuring of the hairdressing sector is due to changed consumer behaviour. Far fewer visits are paid than in the past though the rates of decline vary from country to country. In the mature German market the volume of business fell by a dramatic 11% in 1996. The Salon Federation warns that the decline will continue. By the year 2006 the average number of visits could be less than 6 a year down from 8.4 today.

The falling number and frequency of visits is not simply the result of economic choices by consumers. It also reflects the changed lifestyles of the most important consumers of personal care services: women. Many women, particularly those in the labour force, even if they have the money, cannot afford to spend 90-120 minutes in a hair salon every two to three weeks. Further, over the past decade, many women adopted more natural hair styles, both long and short, which require few visits. The continuing fall in demand for perm services in salons illustrates how the new consumer behaviour and hair fashions combined to undercut a major revenue source for hairdressers.

However, the decline in the number of visits contrasts with the slight but steady growth in hairdressing turnover in most developed markets. These trends indicate that though women may visit less often, those who do use more services during the visit. Time pressed women are, in short, maximizing the benefits of time spent in a salon.

Salons which have adapted service delivery to this new consumer behaviour have grown business. This general trend is illustrated by developments in the highly competitive German market. In 1996 despite the general downturn, some 10% of hair salons, mainly up-market outlets, had double digit growth rates (5-10%).

Salons which have grown business focussed on a number of key customer initiatives: mainly diversifying and improving the range of services on offer. Salons invested in staff training to improve the range and quality of specialist hair services (e.g. colouring, perm, scalp treatments, and hair lengthening). Successful outlets also offered beauty services such as nail services, make-up, beauty and thereuptic body treatments (e.g. tanning, massage, depilation, exfoliation, and slimming) and even non-surgical face lifts). Individual hair and beauty counselling was crucial to growing business and boosting client loyalty. Other initiatives taken by successful salons were extending opening hours and remodelling the outlet to make the visit more pleasant and comfortable (e.g. luxurious decor, selection of magazines, drinks and light snacks).

The provision of a range of hair and beauty services under the one roof (the 'one-stop body shop') has been popular with busy clients. Further, these ancilliary services generate a new source of revenue for salons, which compensates for declining use of hair services, such as perms. Prestige, international hair and beauty salon companies are branding the one-stop body shop concept, among them French Jacques Dessange, the Spanish Llongueras and the US Aveda (owned by Estee Lauder). Beauty services now account for 15-20% of income for the Llongueras group, and Dessange group hopes they will account for 40% of turnover in its pilot salons.

Though only a minority of consumers may be able to afford to visit prestige salons, the upper price segment is an important trend setter for the rest of the industry.

Prospects for continued growth in demand for up-market one-stop hair and beauty salons are positive. A crucial client group high income career women will continue to pay for top quality services. Professional women do this because though despite the scarcity of time, a well groomed appearance can be important to a successful career. Futher the ageing of the population will increase the number of consumers willing to pay for services. Currently women over 40 years are the most frequent visitors to and the biggest spenders in salons.

Vol. 2.No. 10. MCMXCIX Copyright 1998 Diagonal Reports Ltd.