Just as traditional gyms have lost ground to studios specializing in yoga, spinning or CrossFit, and general bakeries have given way to specialized concepts for cookies, donuts and cupcakes, the beauty industry is undergoing a makeover of its own, toward deeper specialization at the salon level.
These specialty salons are growing quickly because they can offer lower prices and more accessibility and convenience, making them attractive opportunities for a potential investor looking to give their portfolios a makeover.
Historically, beauty services were primarily delivered via a full-service model, in which salons offered a range of services, including primary services like haircuts and coloring and secondary services like waxing, nails and massages.
Over time, the industry has become more specialized, with these formerly secondary services becoming primary revenue drivers in their own salons or studios.
This shift has become profound: A Kurt Salmon survey of nearly 1,000 women who currently pay for beauty services found that nearly all of them visit a specialty salon for at least one beauty service.
Specialization Comes to Salons
Why the transition to specialty concepts?
First, consumers tend to trust specialty concepts more, since staff can specialize and become experts in one particular area. In fact, consumers say these specialty studios are higher quality, as shown in Exhibit 1.
Even more importantly, these specialty concepts are more accessible because their services take less time, meaning the vast majority let consumers walk in or easily schedule same-day appointments instead of scheduling days or weeks in advance, and get consumers in and out more quickly. Specialty salons also win because they’re able to offer lower prices thanks to economies of scale and a lower opportunity cost stemming from faster overall service.
Nail salons led this shift to specialization. Traditionally, manicure and pedicure services were offered in beauty salons along with other services such as haircuts and coloring, but in the 1970s, nail services shifted toward specialized salons. Today, 87% of women are paying for manicures and pedicures, as shown in Exhibit 2, and 93% of these women go to specialty nail salons.
Which other beauty services are set to become the next breakout salon specialty?
Waxing studios are well on their way. Historically, consumers would get waxed at full-service spas, but that started to change in the 1990s with the emergence of waxing-only centers such as Uni K Wax, a regional chain in Florida, New York and New Jersey.
These specialty chains made frequent waxing more affordable with package deals and rewards programs.
Yet even though the transition to specialized waxing started decades ago, there’s still significant room to grow the space: Only 45% of women who get waxed do so at a specialty salon, as shown in Exhibit 3.
Some leading concepts are aiming to change that. Among them: European Wax Center, the largest waxing-only chain, founded just eight years ago and now 766 stores strong—up 100 from just two years ago. The brand offers perks like year-long memberships that get consumers lower per-service prices, easy online booking, same-day appointments, and, perhaps most importantly, its trusted brand helps consumers feel comfortable going to any technician instead of waiting for the same person every time.
Another studio in the waxing space is Stript Wax Bar, a regional chain founded in 2009 that has since grown to nine stores. Stript also offers easy online booking and discounted services for return customers.
Benefit Brow Bar is also growing quickly since it opened in 2003 in Macy’s. It has since expanded to Ulta Beauty, Bloomingdale’s and Belk stores across the United States. Between 2012 and 2015, Benefit added Brow Bars at a combined annual growth rate of 25% and had 775 bars in 2015.
Blowout Bars Blow Up
Blowout bars are also continuing to capitalize on the specialty salon trend. Consumers head to blowout bars to get their hair washed, blown dry and styled—no cuts or coloring. Blowouts used to be another seldom-used service at hair salons, and, as a result, they were more expensive and harder to schedule. But today, 34% of women who pay for beauty services are receiving blowouts, as shown in Exhibit 2, and 83% of those are getting them from a specialty salon. (See Exhibit 3.)
What’s driving this growth? Single-service concepts like Drybar have helped bring down costs and have increased availability for customers, including same-day bookings and walk-ins vs. scheduling weeks in advance at typical salons.
Drybar is reaping the rewards of this new consumer craze—it was founded in 2010 and has since grown to 65 locations across the United States and Canada.
We expect this growth will continue, as 35% of women who get blowouts say they’re spending more on blowouts now than five years ago because it’s easier to make an appointment, get in and out quickly, and find a studio close to them.
Attractive Investment Targets
What are the next potential breakout salon concepts that will cash in on this trend?
The hair extension market, which for decades has been an essential service at many salons catering to African American women, is beginning to attract a broader audience driven by the emergence of targeted specialty salons. While today only 7% of women get hair extensions, as shown in Exhibit 2, 79% of women who have gotten a hair extension in the past year had the service done at a specialty salon, as shown in Exhibit 3. As hair extensions continue to become more and more popular, specialty stores will be poised to capture the lion’s share of growth.
To meet this emerging demand, single-service concepts are starting to open on both the luxury and mainstream sides of the spectrum. One example is RPZL—an independent hair extension salon that recently opened in New York City. RPZL is hoping to make extensions even more mainstream and accessible. Customers can walk in and get extensions on the spot, and the salon makes its own hair extensions to keep prices low and improve hair health.
Eyelash extensions—silk, mink or synthetic hair applied to eyelashes to temporarily enhance length and fullness—are also poised to grow in popularity via specialized salons.
They’re currently offered mostly by individuals and sole proprietorships or as a secondary service in skin or makeup centers, but single-service concepts are starting to pop up.
Today, only 8% of women pay for eyelash extensions, as shown in Exhibit 2, but 69% of women who have gotten eyelash extensions in the past year had them done at a specialty salon, as shown in Exhibit 3. Concepts like Lashfully are positioned especially well to capture any growth in specialty salon-centric eyelash extension services. Lashfully is a specialty salon in San Francisco that offers a full set of customized lash extensions for $150, considerably cheaper than sole proprietorships in the same market.
Not to be outdone, New York City is also getting in on the eyelash extension trend with Lash Forever, a two-location salon that offers a full set of lashes starting at $140 and is known for its relaxing eyelash application experience.
The specialty salon space is certainly attractive to investors looking to accelerate specialty concepts’ growth.
Two potential paths to market entry are building a brand from the bottom up or growing an existing local chain. In contrast, consolidating a number of local chains might be more difficult for a number of reasons, including different banners serving different consumer segments, fragmented leadership and risk of placing too much importance on the salon owner—the fear that if they leave, they can take their clients with them.
If one of these specialty concepts looks good, get a jump on it before someone else makes it over before your very eyes.