2014 State of the Industry Report

The Nail Sector

Expert: Stephanie Yaggy, executive editor of NAILPRO

What will the nail salon of the future look like?
Current salons are 45% full-service, 33% nails only, and 22% nails and esthetics (facials, waxing, etc.). According to NAILPRO’s 2014 survey*, nail professionals believe that the next phase of nail salons will:

• Become more nail art intensive (29%)
• Look more like nail bars (18%)
• Incorporate additional services like blowouts and lash extensions (16%)
• Become part of salon suites (10%)

What is driving consumer behaviors in the nail sector?
The nail sector has seen a recent explosion in popularity thanks in part to new innovations such as soakable gel polishes and one-step nail art in a bottle (think: crackle, matte and feathered lacquers). Greater attention to nails has fueled consumer excitement about nail art and burgeoning trends, and drawn women back into the salon. That attention, combined with the rise in popularity among consumers and celebrities, has not only brought nails to the forefront, but has also given this segment of the beauty industry similar weight to that of the hair category.

With more consumer awareness of nail designs, trends and products, nail professionals are seeing a wave of savvier clients. Nail professionals can take advantage of moneymaking opportunities by adopting gel polish (our survey indicates that 75% of clients are requesting gels) and complex nail art (requested by 25% of clients).

Who is the typical nail client?
The largest percentage of nail clients are women in their 40s (41%), with women in their 30s a close second (38%) and women in their 20s coming in at 21%. A majority are professional women who are trend-conscious and not likely to be conservative in style.

What is the nail industry’s current regulatory/legislative climate?
In such a popular industry, it’s a wonder that there isn’t stronger and more consistent regulation across the board. Professionals agree: 85% believe that nationwide, standardized licensing and regulations are very important and that, without them, the industry as a whole suffers.

Practitioners are eager to be compliant—91% of nail professionals regularly follow their state’s legislation as it relates to their nail businesses. Unfortunately, many need to learn where to turn for resources, advocacy and education on the matter. Only 14% visit the Professional Beauty Association (PBA) website (probeauty.org) regularly, and 52% have never even heard of it.

The key to the long-term success of the nail industry is to continue to improve upon products and services, and remain flexible in order to change with the times. In addition, education and wide-range industry support is needed to maintain consistency, legitimacy and quality.

What are the top nail product/service trends?
Nail technicians are increasingly adopting nail art into their services. Clients still love accent nails, but are getting more adventurous with designs on two or three nails instead of just one. Glitter and rhinestone additions remain a favorite, along with hand-painted designs, such as polka dots, chevrons and geometric shapes. Even clients who don’t want art, per se, are asking to play with color, as in gradient/ombré and accent nails in a different hue.

What’s more, most of these designs are being created using gel polish—because, ultimately, whether artfully designed or not, clients want nails that are going to last.

Additional trends being adopted in nail services: new nail shapes; foils; 3-D art (charms, studs, stones and sculpted designs); and stamping.

The service products that nail technicians simply can’t live without are gel polish, cuticle oil, top coat and bonder/dehydrator. For retail, however (and 62% of nail technicians offer retail in their salons), the list of offerings reads differently:

• Hand/body lotion (66%)
• Cuticle treatments (60%)
• Nail polish (59%)
• Nail strengthener (44%)
• Top/base coat (41%)

By far, the best-selling retail items are cuticle oil (52%), nail polish (41%) and hand/body lotion (36%).

*All statistics in this report determined by the NAILPRO 2014 reader survey.

The Salon Sector

Expert: Amy Dodds, executive editor of Beauty Launchpad

What will the salon business of the future look like?
If there is one word to describe the future of the hair salon industry, it’s specialization. Just look to the recent runaway success of blowout bars as an example. To remain competitive, the successful salon will either create its own version of a blowout bar (or makeup bar, braiding bar, etc.) within the salon, or actively promote all that it does specialize in, whether technique or service.

What is driving consumer behavior in the salon sector?
Consumers are becoming increasingly aware of and well informed about salon products, ingredients and services. They are also more guided by their beliefs and ethos when seeking out salons and product lines.

Technology has made a big impact here, with today’s consumers regularly utilizing social media in their decision-making, and turning to YouTube tutorials to quench their interest in learning professional techniques. A salon that capitalizes on educating its clientele—such as by holding a class on how to recreate the perfect blowout at home—will not only increase loyalty, but expand its digital footprint via social network channels.

Who is the typical salon client?
The majority of clients are women, but the men’s sector continues to grow—7% in 2013, according to Professional Consultants & Resources, a leading salon industry source. Although the typical salon client has increased the frequency with which she visits the salon, the time that elapses between appointments is still greater than pre-2008 numbers. The typical client is much more knowledgeable than in years past and is up-to-date on trends.

What regulations/legislation are likely to affect this industry in the coming years?
Currently there is ongoing debate about licensing in the beauty/hair sector. In some states it can take more than a year for a beauty school graduate to receive a license. Another problem is that many states are in favor of deregulation, despite the fact that 94% of voters support cosmetology licensing, according to a 2012 Professional Beauty Association study. We have concerns that deregulation will lead to a decline in quality and safety and will denigrate the beauty industry as a whole.

What are the top salon product/service trends?
Coloring continues to dominate salon revenue streams, thanks in part to an aging population, but also in part to the recent fashion hair color trend sported by celebrities such as Katy Perry. Ombré continues to be the most-requested hair coloring technique, although there are now many variations on the theme. Smoothing services are still popular, though more modestly than several years ago.

Beauty Retail & Salon/Spa-Products Distribution Sector

Expert: Marc Birenbaum, executive editor of Beauty Store Business

What will the beauty retail and salon/spa product distribution businesses of the future look like?
Currently, the best business models in today’s bifurcated beauty-products market are 1) boutique/apothecary-type salon stores; and 2) stores that offer a one-stop shopping/beauty destination. As for future models, today’s rapidly evolving retail landscape precludes making an exact prediction. Certainly Sephora will continue to push the envelope, and ULTA Beauty will remain a nationwide incubator of many smaller beauty brands. Whatever models emerge, they will be the result of multi-channel retailing with an increasing use of mobile technologies and marketing to Millennials.
Also, with their smaller footprints and ability to continually reinvent themselves, upscale regional salon-store chains could become the next great retail model.

SALON/SPA-PRODUCTS DISTRIBUTION: Beauty Systems Group’s CosmoProf and SalonCentric professional-only stores will likely continue to do well after years of consolidating smaller players. Currently, their vast networks dominate an industry fragmented by: 1) distinct product categories (hair, skin, nails); 2) old-world perceptions (general vs. multicultural markets); 3) exclusive geography versus open lines; 4) pro-distribution bottlenecks for emerging brands; and 5) identifying what constitutes a salon/spa brand today.

The highly successful store system services ever-increasing numbers of independent beauty professionals, giving distributors the opportunity to monetize the explosive growth of salon suites and offer more of such fruitful product categories as luxury haircare, skin care and makeup. There is also the possibility of expanding store inventory to include nonprofessional beauty products and non-beauty merchandise to beauty-pro customers.

What are the trends you’re seeing that affect your business model?
The economy continues to make value-driven beauty products popular. We’ve seen an increase in private labeling of beauty products among smaller chains as well.

For indie beauty retailers, effective handling of customer information will require making better use of “big data”, and customer relationship management and email marketing strategies.

Some beauty retailers offer “drive-through” pickup, but have not yet made the step to an “order online, pick up in the brick-and-mortar store” option. There’s an increase in consumer beauty shows and events, leading some to ponder the potential of indie retailers banding together to produce such events in their locales.

Who are your model’s typical customers?
For retailers, it’s consumers of all kinds, but it could also be beauty professionals. For distributors, it’s any type of beauty professional.

What regulations/legislation are likely to affect the industry in the coming years?
For the entire beauty industry, the biggest issue is passing much needed, modernized and comprehensive federal legislation, and the Personal Care Products Council, the Independent Cosmetic Manufacturers and Distributors, and the Professional Beauty Association have been working with the FDA to that end.

In 2014, more regulatory/compliance issues affecting beauty are increasingly being handled by states. For example, on June 8, Illinois became the first state to ban the manufacture and sale of personal-care products containing synthetic plastic microbeads. And, on May 16, Minnesota became the first state to prohibit the use of triclosan in many retail products.

What are the top salon product/service trends?
Beauty, health and wellness products—particularly those with scientifically backed claims—are huge today. Highly specialized niches, from swimmers’ shampoos to lice-prevention SKUs to ingredient-driven lines (such as vitamin C, sea buckthorn berry, etc.), are also big hits. Other at-home product categories to watch include skincare devices, indie/artisan fragrances, hair fragrances, beauty ingestibles, and tastefully packaged and marketed feminine-care products.

The Spa Sector

Expert: Linda Kossoff, executive editor of DAYSPA

How is the spa business structure of the future likely to look?
As consumers, especially baby boomers, continue to focus on preventive health and achieving age-defying appearances, more spa businesses will partner with health and medical practitioners and facilities to provide appropriate treatments.

The industry will see an increase in environmentally responsible operations and practices within spa businesses, driven by dwindling global resources, a growing industry-wide commitment and raised consumer awareness.

As standards elevate and competition toughens, there will be a greater emphasis on training/education and the establishment of best practices.

What is driving consumer behaviors in the spa sector?
The desire to remain vibrant into old age leads clients to view spa visits as investments in themselves—and they want high ROI. The majority of spa-goers now say they visit spas for “stress reduction”, a sharp contrast to the early perception of spa visits as mere indulgences. Although price is still a factor, consumers are more concerned with value (results). This means that now is the perfect time for spas to market themselves as wellness facilities.

Time-pressed consumers are still opting for the convenience, appeal and simplicity of spa gift cards—in big numbers. According to results of the ISPA 2013 Spa Consumer Snapshot Initiative, gifts cards are responsible for about one-fifth of spa visits in the United States.

Underscoring the broad appeal of a bargain, online discount deals, such as Groupon and Living Social, continue to thrive, with almost a third of spa-goers having used them at one time or another, according to the ISPA survey.

Who is the typical spa client?
Although the image of the average spa client has evolved over the past 20 years and continues to evolve, studies indicate that the “typical spa client” is female, between the ages of 25 and 34 and has an average household income of between $75,000 and $150,000. However, spa loyalty, reflected in repeat visits by the individual client, skews toward males.

What current regulatory/legislative issues are likely to affect this industry in the coming years?
Defining “organic”: Although the USDA regulates the term “organic” as it applies to agricultural products, the FDA does not do the same for cosmetics, bodycare or personal-care products under its jurisdiction. Beauty product manufacturers who wish to legitimize their claims of “organic” must seek certification from another body such as ECOCERT, which conducts inspections in 80 countries. Activists continue to call for U.S. governmental regulation over what products can be deemed “organic.”

Nanotechnology: The same technology that can increase the ability of personal care product ingredients to penetrate the skin is raising safety questions from organizations like The Campaign for Safe Cosmetics. The industry can expect that the debate, and possibly legislation, regarding the use of nanotechnology will garner more attention in the coming years.

Rights to practice: Based on patterns of the past 15 years, spa practitioners’ rights to practice specific treatments will likely be challenged by groups in various health sectors, in individual states. The sector has seen this occur with estheticians’ rights to perform services such as microdermabrasion and Brazilian waxing, both of which were challenged by dermatological groups, and massage therapists’ rights to perform craniosacral therapy, which was challenged by chiropractors.

What are the top spa product/service trends?
For services, clients are increasingly requesting: stress-reducing massage; antiaging facials; body shaping (anti-cellulite) services; detoxification services and programs; group/social services, such as hammams; and ancient/culturally driven treatments.

Top product categories surround antiaging skin care and contain any combination of the following: peptides, plant-based stem cells, anti-glycation technology, skin brighteners, SPFs and retinols.

The Medical Spa Sector

Expert: Inga Hansen, executive editor of MedEsthetics

What will the medical spa business of the future be like?
This sector is comprised of cosmetic dermatologists, aesthetic plastic surgeons, nurse practitioners, physician assistants and a range of ancillary providers, such as master estheticians and laser technicians. Thus, this sector has blurred the lines between the beauty and healthcare industries. Some spas have morphed into medical spas, while a number of medical practices—once sterile and quiet—now emulate spas in both décor and customer service.

Physicians have adopted strategies such as loyalty programs, the use of patient concierges and robust marketing programs to attract new patients.

Many physicians have launched spas that are co-located with medical offices to offer patients a “one-stop shop” for all of their aesthetic needs.

According to MedEsthetics’s own reader survey, more than 90% of cosmetic practitioners have hired or are partnering with estheticians to offer their patients skincare services. In addition, cross promotions with local spas and high-end hair salons are popular marketing tools for these facilities.

What is driving consumer behaviors in the medical spa sector?
Like most of the beauty industry, medical aesthetic providers took a hit from 2008 to 2010. A huge dip in buyers combined with increased competition slowed some of the rapid growth that occurred in early- to mid-2000. Last year, there was small growth in overall demand, but anecdotal reports from our readers signal a significant uptick in interest and bookings in 2014. The challenge providers face is how to get these patients into their facilities and keep them there.

Internet marketing has become an essential tool to attract patients who go online first to learn about these procedures. Doctors are using blogs and educational content as a tool to answer patient questions and solicit calls. Other popular marketing avenues include local open house events and professional networking.

Loyalty and V.I.P. programs that reward patients with discounted services, free gifts or an inside track to the newest products are effective and still fairly new to this industry.

Medical aesthetic patients expect to be pampered and remembered. Thus, practices that pay special attention to not only treatment technique and outcomes, but also front desk interactions, post-procedure follow-ups and personalized communications, such as thank-you notes, birthday cards with special offers and open-house invitations, will be rewarded with a more loyal clientele.

Who is the typical medical spa client?
Women account for 90% of cosmetic patients, but they are tending to seek medical cosmetic procedures at a younger age. Once the domain of baby boomers and traditionalists, medical cosmetic practices now regularly serve women in their 20s, 30s and 40s for laser hair removal, physician-dispensed skincare lines and surgical procedures, such as breast augmentation and rhinoplasty. Men and women in their 30s are the fastest-growing group of patients seeking botulinum toxin treatments.

What current regulatory/legislative issues are likely to affect this industry?
State legislatures and medical boards have struggled to keep up with changes brought on by the sudden demand for medical aesthetic treatments. Their goals are to protect patients from untrained and unlicensed providers while allowing for fair competition and competitive price points. States, such as California and Connecticut, have increased criminal and civil penalties for non-physician-owned medical spas offering medical aesthetic treatments. More than a dozen states have passed or are considering “truth-in-advertising” laws that require medical spas to publicly list the name and board certification of their medical directors. At the same time, more than 30 states are offering advanced certification for estheticians that allow them to perform some laser and light-based treatments.

What are the top medical spa product/service trends?
In the coming years, the demand for botulinum toxins will remain high. In addition to Botox Cosmetic, Xeomin and Dysport, there are several new toxins in the FDA pipeline. Physicians are hoping that the increased competition will finally bring prices down and open the procedures to a wider consumer base. In addition, topical botulinum toxin and injectable fat reduction products—both in clinical trials—may attract a new group of consumers. Noninvasive body contouring devices are among the latest innovations that are driving a younger group of consumers to these facilities.