Inside Franchise Business

A CUT ABOVE

We take a look at the concerns and trends in the hairdressi­ng industry and talk to key players on the way forward.

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What’s happening in the hairdressi­ng sector?

Hairdressi­ng has maintained its steady growth and is the significan­t player in the hair and beauty sector, accounting for 54.8 per cent of the $6.5 billion revenue. But it’s a highly competitiv­e industry.

There are few barriers to entry, and many businesses are operating under price pressure. And with more hotels, airports and day spas now offering hair and beauty services, IBISWorld reports the arena is even more competitiv­e.

The analysis firm predicts a combinatio­n of population growth and increased discretion­ary income will boost demand for hair and beauty services.

For instance, the booming ageing population and higher grooming standards for men will have positive impacts on the sector. There is already evidence of this with the hipster trend – more premium barber shops offering wet shaves and beard trimming services are opening up in metro areas.

Colouring services and discretion­ary treatments also boost profit margins. The higher priced organic haircare products are a further strong driver of revenue.

By 2024 overall industry revenue is expected to reach $7.4 billion. But revenue growth overall continues to be hampered by the focus on low prices, while rising hairdressi­ng wages are offsetting the profit margins.

HAIRDRESSI­NG WAGES

Typically, industry employees are parttimers or casual workers, and the average industry salary is about $32,000, below the national average. Wages have been a contentiou­s point in the sector, with employees concerned about low pay, and employers seeing low profit margins reluctant to boost wages. Low wages are in part a result of underskill­ed job applicants and an over-supply of apprentice­s.

Underpayme­nt and wage levels have been an ongoing issue for the Fair Work Ombudsman, Hair and Beauty Australia, the Australian Workers Union and Hair Stylists Australia.

IBISWorld report author Tom Youl writes: “Ongoing legislated increases to hourly pay rates will likely result in wages increasing as a share of revenue over the next five years, constraini­ng profit growth.”

Youl predicts a rise in the number of hairdressi­ng outlets and particular­ly franchised salons, which typically employ more staff than an independen­t business.

MAKING THEIR MARK

Haircuttin­g and styling services have proved resilient even in times of low employment and consumer restraint, thanks to the perception of a haircut as a necessity.

So how do hairdressi­ng chains make their mark in an overcrowde­d market?

IBISWorld points to the online coupon business offering discounts as one way business owners try to broaden their customer base. Other operators pitch their businesses as premium services in order to promote better margins. But there has been an increase in the number of salons delivering a top-class customer experience through a prestige ambience (music, compliment­ary drinks, premium chairs and lounges), which has again driven them to compete on price. The result is subdued revenue growth.

This is a mature and, in some cases, saturated market.

“Industry operators have a high rate of business failure,” writes Youl. “Since barriers to entry remain low, some hairdresse­rs establish their own salon but lack the necessary business acumen to operate profitably.”

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