As a result of softer sales and traffic levels and a less optimistic outlook among salon/spa owners, the Professional Beauty Association’s Salon/Spa Performance Index fell sharply in the second quarter.  The Salon/Spa Performance Index – a quarterly composite index that tracks the health of and outlook for the U.S. salon/spa industry – stood at 103.0 in the second quarter, down 1.0 percent from the first quarter level.  Despite the decline, the SSPI remained above 100, which represents expansion in the salon/spa industry.

The Salon/Spa Performance Index is based on the responses to the Professional Beauty Association’s Salon/Spa Tracking Survey, which is fielded quarterly among salon/spa owners nationwide.

The Salon/Spa Performance Index is constructed so that the health of the salon/spa industry is measured in relation to a steady-state level of 100.  Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction for key industry indicators.  The index consists of two components – the Current Situation Index and the Expectations Index.

Current Situation Index Fell 1.0 Percent to a Level of 101.5; Expectations Index Declined 0.9 Percent to a Level of 104.4

The Current Situation Index, which measures current trends in five industry indicators (service sales, retail sales, customer traffic, employees/hours, and capital expenditures), stood at 101.5 in the second quarter, down 1.0 percent from its first quarter level.  Despite the decline, the Current Situation Index remained above 100 for the sixth consecutive quarter, which represents expansion in the current situation indicators.

The Expectations Index, which measures salon/spa owners’ six-month outlook for five industry indicators (service sales, retail sales, employees, capital expenditures and business conditions), fell 0.9 percent to a level of 104.4 in the second quarter.  Despite the drop, the Expectations Index remained well above 100, which indicates that salon/spa owners are optimistic about industry growth in the months ahead.

Current Situation Indicators Softened in the Second Quarter, Although Sales and Traffic Levels Remained Positive

The Current Situation Index registered a record decline of 1.0 percent in the second quarter, as each of the five current situation indicators fell from their first quarter levels.  However, sales and customer traffic levels remained positive overall in the second quarter, and salon/spa owners reported a net increase in staffing levels.

Salon/spa owners reported similar service sales performances in the first and second quarters.  Fifty-seven percent of salon/spa owners reported an increase in same-store service sales between the second quarters of 2010 and 2011, while 20 percent reported a sales decline.  In the first quarter, 57 percent of salon/spa owners reported higher service sales, while 17 percent reported lower service sales.

In contrast, salon/spa owners reported softer retail sales in the second quarter.  Forty-seven percent of salon/spa owners reported higher retail sales between the second quarters of 2010 and 2011, down from 57 percent of salon/spa owners who reported a retail sales gain in the first quarter.  Meanwhile, 25 percent of salon/spa owners reported lower retail sales in the second quarter, up from 20 percent in the first quarter.

Salon/spa owners reported a net increase in customer traffic for the seventh consecutive quarter.  Fifty percent of salon/spa owners reported an increase in customer traffic between the second quarters of 2010 and 2011, while 23 percent reported lower traffic levels.  In the first quarter, 49 percent of salon/spa owners reported an increase in customer traffic, while 21 percent reported a decline in customer traffic.

On the labor side, salon/spa owners reported a net increase in staffing levels for the sixth consecutive quarter.  Thirty percent of salon/spa owners said they added employees between the second quarters of 2010 and 2011, while 20 percent said they reduced staffing levels.

Although salon/spa owners reported a net increase in staffing levels in the second quarter, employee hours remained relatively steady.  Twenty percent of salon/spa owners said they increased employee hours between the second quarters of 2010 and 2011, while 20 percent said they cut employee hours during the four-quarter period.

Salon/spa owners pulled back on capital spending in the second quarter, after the first quarter’s record results.  Thirty-one percent of salon/spa owners said they made a capital expenditure for equipment, expansion or remodeling in the second quarter, down from 43 percent in the first quarter which represented the strongest level in the 10-quarter history of the Salon/Spa Performance Index.

Expectations Indicators Declined in the Second Quarter, as Salon/Spa Owners are Less Optimistic about Industry Growth and the Economy in the Months Ahead

Although salon/spa owners remain generally optimistic about industry and economic growth in the months ahead, the strength of their optimism softened, particularly with regard to the direction of the overall economy.

Salon/spa owners remain optimistic about stronger service sales in the coming months.  Seventy-one percent of salon/spa owners said they expect to have higher service sales in six months (compared to the same period in the previous year), down slightly from 73 percent who reported similarly last quarter.  Only 7 percent of salon/spa owners expect their service sales volume in six months to be lower than it was during the same period in the previous year, up slightly from 3 percent who reported similarly last quarter.

In comparison, salon/spa owners are somewhat less optimistic about retail sales growth in the months ahead.  Sixty-three percent of salon/spa owners said they expect to have higher retail sales in six months (compared to the same period in the previous year), down from 69 percent who reported similarly last quarter.  In comparison, 10 percent of salon/spa owners expect their retail sales to decline in six months (compared to the same period in the previous year), up from 3 percent who reported similarly last quarter.

Although salon/spa owners’ sales expectations remain positive, they are less optimistic about the direction of the overall economy.  Fifty percent of salon/spa owners said they expect economic conditions to improve in six months, down significantly from 64 percent who reported similarly last quarter and the lowest level in the 10-quarter history of the Salon/Spa Performance Index.  Seven percent of salon/spa owners expect economic conditions to worsen in six months, up slightly from 5 percent last quarter.

For the second consecutive quarter, a majority of salon/spa owners said they plan to expand staffing levels in the months ahead.  Fifty-two percent of salon/spa owners said they plan to have higher staffing levels in six months (compared to the same period in the previous year), compared to 54 percent who responded similarly last quarter.  Meanwhile, only 4 percent of salon/spa owners expect to reduce staffing levels in six months, compared to 3 percent who responded similarly last quarter.

Salon/spa owners’ outlook for capital spending activity softened in the second quarter.  Forty-seven percent of salon/spa owners plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down from 53 percent of salon/spa owners who reported similarly last quarter.

Methodology

The Professional Beauty Association’s Salon/Spa Performance Index is a statistical barometer that measures the overall health of the U.S. Salon/Spa Industry.  This quarterly composite index is based on the responses to the Professional Beauty Association’s quarterly Salon/Spa Tracking Survey, which is fielded among salon/spa owners nationwide on a variety of indicators including service sales, retail sales, customer traffic, employees and hours, and capital expenditures.  The Salon/Spa Performance Index is composed of two equally-weighted components: the Current Situation Index and the Expectations Index. For each of the Indices and Indicators, a value above 100 signals a period of expansion while a value below 100 signals a period of contraction, and the distance from 100 signifies the magnitude of the expansion or contraction.For more information and research reports, visit probeauty.org/research.