Beauty Industry Research

SERV 724; April 6, 2012 Rebecca Horton

Icons: Noun Project

Beauty Salons NAICS 812112 Image: kk+ via flickr

Industry Overview

$19.3 B Image: EJP Photo via flickr

2010 Revenue estimate, Dun & Bradstreet

California

31,745 salons

Texas

19,869 salons

Florida

16,414 salons

New York

15,426 salons

Top Locations

Data: 2010 Dun and Bradstreet estimates

Major Players

Market leaders according to 2011 report by High Beam Business; revenue data from High Beam Business (2009) and Private Equity Wire (Dessange). For Dessange, revenues were converted from euros to dollars to enable comparison. No revenue data was available for Ratner Companies, LC (privately held)

Dessange- $69M

Ulta- $1.2B Ratner

Regis- $2.3B

Regis Corporation § Market leader

§ $2.3 B in revenues (2009)

§ Manages several franchises like Supercuts, Sassoon, Hair Club for Men and Women

§ Stores typically found in shopping and strip malls

§ Ubiquitous

Image: Supercuts Coupon SupercutsCoupons.org Data: High Beam Business, franchise websites

Dessange International § Major international market

player

§  Important to US discussion because of its recent acquisition of Fantastic Sams, a value-priced chain

§ Present in over 45 countries

§ Segmented markets (high and low end consumers)

Images: Dessange International via Merchant Circle; Fantastic Sams

Data: High Beam Business; franchise websites; company press release, 18 Jan. 2012

Key distinction

Ratner Companies, LC § Virginia-based company

with over 10,000 employees

§ Owns the popular franchises Bubbles, Salon Cielo, and Hair Cuttery

§  Its salons tend to have niche foci, e.g. Bubbles caters to “cutting edge” trendsetters

§ For the purposes of this report, I researched Ratner’s Bubbles concept salon

Image: Bubbles Hair Wars, via Bubbles website Data: High Beam Business, franchise websites

Ulta Salon § Salon arm of the Ulta

brand, a company that maintains beauty and hair product outlets around the US

§ Mass-market approach

§ Uses wide array of products from a variety of suppliers to differentiate itself

§ Salons typically operate alongside the company’s retail chains

Image: Ulta Facebook page Data: High Beam Business, Ulta website

Common Business Models*

*Business models developed using the Business Model Canvas: Business Model Generation, Osterwalder & Pigneur, 2010

Supercuts: Operations-Driven Partners Neighboring retailers Universities/ athletic departments Retail outlets, e.g. Walmart Up and coming music artists

Processes Attract and maintain Get customers in and out quickly Train and retain stylists

Offerings Basic services Limited number of add-on services Parent-company products Male-focused options

Relationships Dedicated customer assistance Athletics team-sponsorship

Customers Family-focused Little customization One size fits most Some focus on “greying” customers Male clientele

Resources Local talent pool Inter-franchise network Parent company product lines

Channels Shopping mall outlets Strip malls “No matter where you are, we’re pretty confident there’s a Supercuts nearby”

Benefits Self-image Peace of mind

Cost structure Retailing cost Site and materials cleaning and maintenance Product inventory Economies of scale 10% of profits typically go to parent company

Revenue Streams Usage fee +tips Bargain pricing High volume, low margins

Data: Supercuts website

Dessange: Multi-epicenter driven Partners Off-brand franchise owners Parent-brand franchise owners Celebrity advocates Fashion Industry Film festivals Tennis Opens

Processes Attracting customers Maintaining existing customer relationships Extending svcs. into niche arenas

Offerings High tech offerings Bespoke solutions Franchise-brand products Concept of global beauty Add-on services Customer understanding

Relationships Personalized 1:1

Customers “Women in every country” “Those who travel” Brand loyals Brides Aging women Segmented offerings within each salon Segmented via franchises targeted at specific user groups

Resources Customer base Corporate infrastructure for franchise opportunities

Channels Retail outlets/ “Club” concept Partner stores Partner events Own events

Benefits Self-image Personalization Serenity

Cost structure Fixtures, furniture, equipment Maintenance and cleaning High branding and Marcom costs Specialty add-ons Product inventory

Revenue Streams Usage fees Large contracts with major players (fashion, tennis, etc.) Consultations Weddings

Data: Dessange website

Fantastic Sams: Operations-Driven Partners Parent corporation, Dessange Neighboring retailers

Processes Attract Quick-service Check-out

Offerings Own-brand products Range of services Add-on services (e.g. reconstructive treatment)

Relationships Intimate 1:1

Customers Mens product line Regional focus-not nationwide “Haircuts for the entire family”

Resources Own product range Infrastructure (once business is up and running)

Channels Retail outlets

Benefits “Looking good, feeling good” Cost-friendly

Cost structure Product inventory Low branding and Marcom costs Retailing costs Economies of scale Fixtures, furniture, equipment Cleaning and upkeep of property

Revenue Streams “products at a fraction of” what they cost elsewhere “9.99 special” returns during low volume times High volume, low margins

Data: Fantastic Sams website

Bubbles: Resource/Partner Driven Partners Pageants Project Runway winners Local radio stations Night clubs Artists Stylists

Processes Attract Engage Retouch Appeal

Offerings Basic hair services Package deals Styling events vs. other parent-company salons Parent company products Modern image

Relationships 1:1 Entertainment-driven (at events)

Customers Niche-rocker hair, lots of color Ethnic diversity The “next generation” “It didn’t deal with every type of hair” –Ann of Bubbles, re: the CIBU product line

Resources Close ties to other parent-company chains Strong parent brand involvement

Channels Retail outlets Urban “Hair Wars” events Photoshoots

Benefits Cutting edge looks Youthfulness Trendsetting

Cost structure Retailing costs Relatively high marcom costs Upkeep, cleaning Fixtures, furniture, equipment Product inventory

Revenue Streams High volume, high margins Product sales Usage fees + tips

Data: Bubbles website

Ulta: Outside-In Partners Retail product outlets Customers (referrals) Cosmetics and hair product companies

Processes Set appointments Attract and maintain Sell Expand

Offerings Own-brand products Free samples Package deals Other-brand products Add-on treatments Undifferentiated core service

Relationships 1:1 with customers

Customers Mass-market, undifferentiated Rewards members Female-focused Ulta store shoppers

Resources Retail product outlets Parent brand is the outlet

Channels Retail outlets Retail salons Website

Benefits Convenience Repeatable styles Accessible products

Cost structure Money spent on free consultations (staffing) Low Marcom Costs Upkeep, cleaning Leasing costs Fixtures, furniture and equipment

Revenue Streams Set-price services Product sales

Data: Ulta website

Key Innovations

Strategic Platform

Service Concept

Service Delivery System

Service Branding and

Marketing

Radical

Incremental

Bubbles “Hair Wars” concept

“Quality, service, hygiene, understanding” -Dessange

Bubbles’ Next-Gen focus

Dessange at US Open

Images: Hair Wars via LA Times, US Open via Tennis Forum

Localized product supply, Ulta

Service Innovation Matrix

Ansoff’s Growth Matrix

New

Existing

Existing New

Bubbles “Hair Wars” concept

Mall, retail outlet focus Dessange,

US Open partnership

Ethnic diversity (Bubbles)

Supercuts’ male-specific service offerings

Images: Hair Wars via LA Times, US Open via Tennis Forum

SWOT Analysis*

*Highlighted items in the pages that follow are shared by all and represent spaces for service innovation through a new business model

Partners

Processes

Offerings

Relationships

Customers

Resources

Channels

Benefits

Cost structure

Revenue Streams

Key Trends

Market Forces

Macro- Economic

Forces

Industry Forces

Youth digital culture

Individualism

Apps and mobile culture

Not many regulations

Coworking/ work from home

Living on less

Gender divides

Old channels being replaced by technology

Decrease in production costs

Shift to mixed-use development

DIY/Maker communities

Influx of start-up culture

Instability of global markets Growth of developing

nations

China as a major global player

Lots of substitute products and services

Lots of competitors

Lots of new entrants

Strengths Cost efficient operations Competitive pricing Lower than average fixed costs Economies of scale Accessibility and ubiquity

Weaknesses Resources easily replicated No network effects of value proposition Lack of customization Low margins Place-dependency High Start-up costs Product inventory=costly High facility and maintenance costs Cost structure/infrastructure hasn’t changed much

Opportunities Personalization Baby Boomers Maker culture IT support and analytics Huge opportunity for facilitating services Opportunity to differentiate distribution channels Social media partnerships Start-up culture

reats Pricing mechanisms leave money on the table Low execution quality The death of the strip mall Weak brand Competitors threaten market share Move to personalization by other brands Revenues are transactional with few repeat purchases Resource needs somewhat unpredictable Market saturation threat Customer switching costs are low Long-term impact of recession Fragmented market Unstable capital markets

SWOT: Bargain Salons*

*For the purposes of the SWOT analysis, I grouped Supercuts and Fantastic Sams together due to similarities in their business models

Strengths Very high margins Synergies between products and services Resources not easily replicated Diversified revenue streams Value propositions well-aligned with customer needs Loyal customer base Recurring revenue streams Charge for what customers are really willing to pay Strong brand Own-brand products and bespoke solutions Good working relationships with key partners Fashion and beauty industry partnerships

Weaknesses White, affluent focus Revenues difficult to predict High fixed costs High start-up costs Product inventory=costly High facility and maintenance costs Cost structure/infrastructure hasn’t changed much

Opportunities Standardization The global jetsetter Coworking Opportunity to use less costly resources Global shift to cities Maker culture IT support and analytics Huge opportunity for facilitating services Opportunity to differentiate distribution channels Social media partnerships Start-up culture

reats Cost inefficient operations Threat to activities and partnerships by other luxury brands Customer switching costs are low Long-term impact of recession Fragmented market Unstable capital markets Lots of substitute products and services

SWOT: Dessange (premier salons)

Strengths Synergies between products and services High margins Resource needs = predictable Channels provide economies of scope Ethnic diversity Strong relationships with brand franchises

Weaknesses Female focus Tired, outdated feel of mall salons High Start-up costs Product inventory=costly High facility and maintenance costs Cost structure/infrastructure hasn’t changed much

Opportunities Blogger culture Maker culture IT support and analytics Huge opportunity for facilitating services Opportunity to differentiate distribution channels Social media partnerships Start-up culture

reats Channel reach among prospects is weak Rising costs for leasing in cities Fail to charge for things customers are willing to pay for Customer switching costs are low Long-term impact of recession Fragmented market Unstable capital markets Lots of substitute products and services

SWOT: Bubbles

Strengths Partnerships with other brands Outsourced product allows for focus on service Cost-efficient operations Diversified revenue streams Retail product outlets offer alternate revenue stream

Weaknesses Undifferentiated core product Revenues are transactional Too many partner relationships to maintain quality Lack of synergies between products and services High Start-up costs Product inventory=costly High facility and maintenance costs Cost structure/infrastructure hasn’t changed much

Opportunities Global shift to cities Opportunity to convert product lines into services Personalization Maker culture IT support and analytics Huge opportunity for facilitating services Opportunity to differentiate distribution channels Social media partnerships Start-up culture

reats Weak brand Constant danger of losing partners Customer switching costs are low Long-term impact of recession Fragmented market Unstable capital markets Lots of substitute products and services

SWOT: Ulta

*For the purposes of the SWOT analysis, I grouped Supercuts and Fantastic Sams together due to similarities in their business models

Re- Work Innovation Opportunities

Place dependency Product inventory Waste

Customer service Customization Brand loyalty Employee loyalty Social media presence Retail partnerships (why not put a stylist in a retail store like Gap or H&M?) Corporate partnerships

High retailing costs Cleaning and maintenance costs Mass-market feel Lack of customization High start-up costs

Charge for enhancing services (snacks, drinks, clothing press, etc.) Offer more facilitating services (e.g. home styling consultations, nutrition) New customer segments (kids, men) Build innovative Marcom concepts Blogger partnerships Customers as co-producers Technology-enhanced services

Four Action Framework

What-Ifs

Insights + opptys.

Strategic platform

Service concept

Service delivery system

Service branding & mktg.

What if we partnered with outside events to promote and sell our services?

Enhancing services

Insights + opptys.

Strategic platform

Core service

Service delivery system

Service branding & mktg.

Facilitating Services

What-Ifs

What if our customers were co-producers?

What if we focused on beautifying other aspects of life, like party decor and fashion?

What if we made our customers’ lives easier by helping them do other things (dry cleaning, personal shopping)?

What if we offered a full service coffee bar akin to Illy (French coffee brand) in our salon?

What-Ifs

Insights + opptys.

Strategic platform

Service concept

Service delivery system

Service branding & mktg.

What if we served the same customers more frequently?

What if the salon were placeless (i.e. we offered a mobile salon)?

What if we did in-office consults for large businesses?

What-Ifs

Insights + opptys.

Strategic platform

Service concept

Service delivery system

Service branding & mktg.

What if we viewed our employees as brand ambassadors and sent them out to other avenues?

What if we put our stylists in retail stores like Gap or H&M?

ank-You!