When the economy improves, does your hairstyle?
John Paul DeJoria, who knows a little something about making money, recently called beauty salons the best economic indicator. DeJoria, a billionaire thanks to his co-founding of the Paul Mitchell hair care company and the Patron tequila brand, said that during a downturn, customers will stretch their salon visits to eight weeks. When the economy is on the mend, he told Business Insider, customers resume their preferred schedule of every six weeks.
DeJoria might be onto something.
Many customers who tried to save money during the recession by coloring their own hair have returned, according to Barb Sheaffer-Perrigo, co-owner of Studio B!, the salon in the growing northern suburbs of Charlotte, N.C. But some haircut clients are still going five weeks between visits, instead of four, for example, she said.
“Probably in the last year, [business is] not back to normal, but it’s better than it was four years ago,” she said.
Customers haven’t yet resumed buying as many hair care products in the salon, Sheaffer-Perrigo added. “We’re still hurting in that respect,” she said.
Her comments are consistent with what Sageworks, a financial information company, found when it conducted an analysis of financial statements for privately held salons. In general, sales for the U.S. beauty salon industry have increased over the last two years, but growth rates aren’t yet back to pre-recession levels, according to Sageworks’ data.
Beauty salons had an average annual sales growth of 5.37 percent in 2010 and 2011, which is slightly below the two-year average for all of the privately held companies in Sageworks’ database. Still, that’s a faster growth rate than the industry saw in 2009, when sales among the private companies examined by Sageworks increased 2.25 percent.
And profitability for privately owned beauty salons improved throughout the recession and is still climbing, according to Sageworks’ data. Net profit margin averaged 7.77 percent the last two years, higher than any year between 2007 and 2009.
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. Net profit margins are adjusted to exclude taxes and owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.
The federal government is expecting beauty salons to be among growing businesses in the coming years. U.S. News & World Report recently listed hairdresser as the 12th best job for 2012, in part because the Bureau of Labor Statistics projects 15.7 percent growth in the number of hairdressers, hairstylists and cosmetologists expected to be needed by 2020. Facilities for the elderly, for example, should generate increased hiring demand, according to the government data.
Hair salons and barber shops are among the types of businesses that can be good start-ups because of their low upfront costs and good salaries, said A.J. Ware, executive director of Sageworks’ non-profit Inmates to Entrepreneurs program. The program educates inmates on how to start low-capital service businesses upon their release from prison.
“You don’t need to buy a building; you can rent space for $75 to $200 a month in many cases,” Ware said. “And the going pay rate in North Carolina is $17,000 to $50,000 a year, which is good.”
Mary Ellen Biery is a research specialist at Sageworks, Inc., a Raleigh, N.C.-based financial information company that collects and analyzes data on the performance of privately held companies.