The professional beauty services market, which includes hair, skin and nail services and salon product retail, posted a sluggish 2.7% growth to reach $77.4 billion in 2013. The largest geographic component of the global market, the U.S. salon retail and services segment, grew a meager 2.3% to reach $65 billion, according to data from Euromonitor.  Comparatively, the global professional services market posted a growth rate of 4.1% in 2012, while the size of the U.S. salon retail and services segment grew 3.3%. 
In the present article, we take a look at factors driving sales growth in the professional hair care market and L’Oréal’s stance within the market.
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Aging Population Drives Growth In Hair Colorant And Hair Smoothening Agents
Salon retail and services sales were impacted by a reduction in disposable income levels in developed markets, especially the U.S. in 2013. The slow growth in consumer discretionary buys due to low disposable income was accentuated by high real unemployment and uncertain Fed and fiscal policy measures. Hair coloring product retail and services was the only segment that grew on a year-on-year basis, supported by an expansion in aging population base in the U.S. and other Asian economies. Sales in this segment expanded 3.5% globally, fueled by consumer desires to cover graying hair and look fashionable. ((ref:1))
(Source: World Population Ageing: 1950-2050, United Nations Publications)
The infographic shown above indicates the estimated population aged 60 and above at 2025 and 2050 by the United Nations. The UN estimates there will be close to 1.2 billion people aged 60 and above by 2025. This suggests at least 1.2 billion people aged 49 and above are present globally today. Also, the proportion of population aged 49 and above at present is highly skewered towards developed markets and is expected to remain that way, as seen in the infographic. Going forward, we should see strong growth in hair colorant sales and services from these developed markets, in line with the proportion of aging population, while emerging markets’ contribution to hair colorant sales should remain small to the overall market.
In addition to strong growth in hair colorant products, hair straightening/smoothening services have shown growth in recent times. Retail sales from smoothening keratin services expanded 3.5% in 2013 and continued being a major driver for the overall market.  A major driver for strong growth in the hair straightening/smoothening product and service sales is the want for frizz-free, low maintenance hair among young consumers. This segment of the consumer population is increasing sharply in emerging markets and discretionary spending on lifestyle activities among the young is on the rise in these regions. We should see strong support from such hair straightening/smoothening product sales and services from emerging markets going forward, which should bring in additional investment from global beauty players into professional product channels as cities continue to get urbanized at a rapid rate. However, within developed markets, growth rate should remain fairly stable resulting from a well urbanized demography and good penetration of the salon culture.
L’Oréal Likely To Push For Salon Leadership In North America In 2014
L’Oréal makes and markets its professional hair care products under the L’Oréal Professional brand, which are sold through the company’s own salon chain in the U.S., and to various other salon stores globally through third-party distributor relationships. Within the U.S., L’Oréal sells its professional products through SalonCentric as a distributor, which competes with major U.S. distributor company Beauty Systems Group. Both distributor companies have a network of stores and Distributor Sales Consultants selling exclusive professional salon brands to licensed beauty professionals.
The professional salon chain has close to 1,190 CosmoProf and Armstrong McCall stores in the U.S. and over 1,000 distributor sales consultants in North America. Comparatively, SalesCentric has a lower store base of close to 570 stores in the U.S. This smaller base of its distributor retailer channel is hurting sales from professional products for L’Oréal. In 2013, sales for Beauty Systems Group grew 5.1% while sales for SalonCentric declined 2.1%.  We expect L’Oréal to make headway with additional distributor salon relationships as consumer spending confidence increases and disposable income levels begin to rise in North America. The expansion in its distribution network should also cater to an expansion in overall hair care product margins for L’Oréal due to thicker margins for professional products.
Indian Salon Market Presents Significant Opportunity
Compared to developed markets, the salon culture in emerging markets is still at its grassroots stage. In India, where hair colorant sales are expected to see the highest growth rate in the next five years , the present market size for hair colorants stands at approximately $382 million.  Japan leads the Asia-Pacific region for hair colorants, with sales of approximately $1 billion but is still far from the $2.1 billion sales in the U.S., the largest market. 
This gap between emerging and developed markets should decrease going forward, driven by rising disposable income levels in booming emerging markets. The size of professional salon retail and service revenues, which include both organized and franchised chains, stood at $2 billion in 2013 in India, dominated by domestic players such as Jawed Habib, VLCC and Lakme, and is estimated to reach $3.5 billion by 2015.  The market size for franchise salons alone is expected to grow to more than $1 billion by 2015 in India. Changing fashion trends and rapid urbanization across India is supporting this brisk increase in organized and franchise salon chains. We expect L’Oréal to increase its market leadership by expanding its distributor relationships in the nascent Asia-Pacific salon market, especially in India. Over a longer term, we should see an increase in penetration of the salon culture into tier 2/tier 3 cities, supported by rapid urbanization and growing young consumer population.Notes:
- 2013 Professional Salon Industry Haircare Study Shows Slow Growth for the Industry, GCI Magazine, February 2014 [↩] [↩] [↩]
- New 2012 Professional Salon Industry Haircare Study Shows Solid Growth for Salon Services and Retail Sales, PRWeb, March 2013 [↩]
- Hair colourants lighten the global hair care market, posting the fastest growing innovation activity in the hair care sector, Mintel, October 2013 [↩]
- ref:1 [↩] [↩]
- Indian Salon industry to touch $3.5 bn mark by 2015: Report, Economic Times, March 2013 [↩]