III. Industry Analysis
[Company Name] competes against small, individually owned nail salons, spas and against major regional or national chains. There are over 269,000 registered nail salons in the United States, a figure that reflects the needs of 200 million people.
The industry is highly fragmented; operators are spread across many locations to be close to key consumer markets in high-traffic locations. This trend makes it difficult for one company to service a large portion of the entire market. According to the Economic Census, 99.8% of nail salons operatedfrom a single location
The Nail Salons industry is expected to continue revenue gains in the next five years, albeit at a much slower rate, growing at an annualized rate of 0.8% to reach $12.0 billion. Rising per capita disposable income will drive revenue gains, because it will allow more consumers to indulge in the discretionary services this industry offers, instead of relying on home-use products. During the five-year period, industry salons are also expected to increasingly expand into full-service salons, which will allow operators to diversify their customer base and mitigate revenue fluctuations.
Industry Trends
The industry in which [Company Name] will compete is experiencing a number of different trends.
Market-level trends:
- Slow but steady growth. This market is expected to grow consistently at around 2% annually.
- Success drivers. Customer satisfaction is what ultimately makes one salon triumph while another fails. The experience a salon’s client has determines whether or not they return and whether or not they refer others to the same salon.
- Seasonal change.The nail salon industry tends to thrive in the summer and spring. [Company Name] will launch operations during [spring/summer], when the industry is experiencing higher sales. Catching a seasonal upswing in the first quarter of business should help provide a buffer of cash for [Company name].
Firm-level trends:
- Price sensitivity at the bottom. The low-cost segment of the market, which primarily serves men and children, often competes on the basis of price. This reflects the different preferences of these particular consumers, who are often more interested in an affordable nail services than in seeing the same technician on a regular basis.
- Size at the bottom. Larger nail salon chains tend to gravitate toward the bottom of the market. Brand loyalty is not strong here. Many companies in this segment use a franchise model.
- Economies of scale. Larger salons are finding opportunities to succeed, by making effective use of support personnel. Receptionists and assistants at larger establishments can take care of many of the menial tasks. This permits a skilled technician to spend a higher proportion of their time actually performing nail services and generating revenues.
- Premium independent salons. Independent salons also compete in the premium segment of the market. These firms develop loyal customer bases and select their location on the basis of population demographics.
- Specialty salons. Presently, a niche is being carved out for salons that cater to very specific customer segments, most notably adult males from higher income brackets..
Customer-level trends:
- Intense customer loyalty. Many salons develop repeat customers who become a regular client base and represent a significant portion of their revenues. Salons whose employees are able to develop strong relationships with customers can expect to see more long-term success.
- Changing gender patterns. Traditionally, women bring in the lion’s share of revenues for nail salons, using beauty services more often and spending more at each appointment. In recent years, however, the male consumer’s attitude has begun to shift. Men now make up approximately 25% of salon clientele.
- Gender preferences. Women are the most lucrative customers for nail salons, visiting more often and purchasing more special treatments such as coloring.
- Ideal demographics. The baby boom generation generates a very large portion of nail salon revenues. This large segment of the market has reached the peak of its earning power, and they are beginning to need special treatments such as coloring.
