Splitting Hairs

It’s no secret that hair care is an important component in Americans’ beauty and grooming regimen. In fact, revenue from the hair salons, hair product and wig manufacturing industries exceeded the GDP of 110 other countries. In 2011, the hair products and services sector generated $48.6 billion. Although the sector’s revenue is prodigious, heightened unemployment and reduced consumer spending have left their mark on these industries. These three industries all recorded revenue declines during the recession, with only slow growth expected through 2011.

Over the past five years, IBISWorld estimates revenue for the Hair Salons industry has fallen at an

Consumers want gorgeous hair for less money.

average annual rate of 0.3% to $34.9 billion in 2011. The recession altered purchasing patterns for consumers, with people stretching out the time between trims and foregoing professional highlighting, coloring and other costly hair treatments. Instead, consumers turned to low-cost kits sold in drugstores and performed their own haircuts or enlisted the help of friends and family. The biggest decline for the industry, however, was in the area of merchandise sales, given the availability of close substitute hair products at local drugstores. As such, revenue dipped 1.6% and 0.9% in 2009 and 2010, respectively.

Revenue might have declined, but new salons continued to open their doors. Over the five years to 2011, IBISWorld estimates that the number of hair salons increased at an average annual rate of 4.6% to 846,300. The height of the recession actually proved the greatest growth for the industry, with a 6.9% jump in hair salons during 2009, according to data from the US Census Bureau. This growth hasn’t come from employer salons, though, but rather has come from nonemploying salons. With low start-up costs and record unemployment, individuals were increasingly likely to try their hand at haircutting.

The current year has been slightly better, with expected revenue growth of 1.6% by year-end 2011, due to a projected 0.5% rise in per capita disposable income and modest employment gains during the year. Over the next five years, industry revenue is forecast to increase at an average annual rate of 3.0% to $40.5 billion by 2016. The industry will benefit from improving economic conditions that will enable consumers to splurge on higher-end services. Moreover, the Hair Salons industry is expected to continue expanding into day-spa services, specifically anti-aging remedies, to target its key market of women older than 35 and diversify its revenue base.

The Wig and Hairpiece Manufacturing industry represents a niche spot in the hair-care sector. Industry

Consumers have turned to low-cost kits sold in drugstores and do their own hairstyling and coloring.

manufacturers target two distinct types of end users: consumers who purchase hairpieces for aesthetic purposes and consumers who require them for a medical condition or procedure. As disposable income fell during the recession, consumers shifted spending toward necessary purchases and demand for discretionary hairpieces and wigs dwindled. The result was a 0.4% and 1.0% revenue contraction in 2008 and 2009, respectively. While that product category declined, demand for medical-use hairpieces grew, due in part to the increasing number of insurance providers that are covering cranial hair prosthesis for patients undergoing cancer treatment. Consequently, despite recessionary setbacks, industry revenue maintained average annual growth of 0.8% to $810.0 million in the five years to 2011.

During the five years to 2016, revenue for the Wig and Hairpiece Manufacturing industry is expected to increase 2.9% per year on average to $936.4 million. The market for discretionary wigs and hairpieces will benefit from rising per capita disposable income during the period; per capita disposable income is projected to expand at an average annual rate of 1.5%. Demand for medical hairpieces is also expected to strengthen in line with the rising average age of Americans. January 2011 marked an important year, as the first baby boomers celebrated their 65th birthdays.

A key staple in shopping baskets, hair-care products enjoy stable demand from consumers. Between 2006 and 2011, revenue from this segment grew an estimated 1.5% per year on average to $12.9 billion. Still, the industry was not immune from the effects of the recession: With record unemployment eating into wallets, consumers were increasingly likely to pick up discounted hair products available at their local drugstores rather than high-end products at specialty beauty stores. This shift slowed revenue growth and then finally forced it down 0.1% during 2009. During 2011, revenue is expected to slowly grow, gaining 1.3% during the year.

Hair product manufacturing is a mature segment, saturated with product varieties targeted at niche markets, such as fine hair, color-treated hair, curly hair and other specific types. With penetration rates so high, manufacturers have continued to diversify their product options to remain competitive. One area of growth over the past five years has been dry shampoo offerings, which have been increasingly popular among time-strapped consumers. In-home hair dyes and coloring kits were another growth segment for the industry as consumers began foregoing salon visits during the recession.
Over the five years to 2016, industry manufacturers will benefit from rising per capita disposable income, particularly toward the end of the five-year period. Greater disposable income will enable individuals to shift their spending back toward lucrative higher-quality items, a trend that will favorably affect industry revenue. Over the next five years, hair product manufacturing is projected to yield 3.1% average annual gains and reach the $15.0-billion mark.

Caitlin Moldvay is an analyst with IBISWorld.