Bolstered by solid improvements among the current situation indicators in the first quarter, the Professional Beauty Association’s Salon/Spa Performance Index rose to a new record high.  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 104.0 in the first quarter, up 0.4 percent from the fourth quarter and its second consecutive quarterly gain.

Salon/Spa Performance Index Hit a New Record High in the First Quarter as Current Situation Indicators Posted Broad-Based Gains”

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.

The Current Situation Index, which measures current trends in five industry indicators (service sales, retail sales, customer traffic, employees/hours, and capital expenditures), increased 0.9 percent in the first quarter to a record high of 102.5.  In addition, the Current Situation Index stood above 100 for the fifth consecutive quarter, which represents expansion in the current situation indicators.

Current Situation Index Jumped 0.9 Percent to a Record High of 102.5; Expectations Index Was Unchanged at a Level of 105.4″

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), stood at 105.4 in the first quarter, a level that was essentially unchanged from the third and fourth quarters of 2010.  Overall, the Expectations Index remains well above 100, which signifies that salon/spa owners are solidly optimistic about industry growth in the coming months.

The Current Situation Index posted a broad-based improvement in the first quarter, as four out of the five current situation indicators increased from their fourth quarter levels.  Although service sales were somewhat softer in the first quarter, salon/spa owners reported stronger performances in the retail, customer traffic, labor and capital spending indicators.

Current Situation Indicators Registered Broad-Based Gains in the First Quarter, with Sales and Traffic Levels Remaining Positive”

Salon/spa owners reported somewhat softer service sales in the first quarter.  Fifty-seven percent of salon/spa owners reported an increase in same-store service sales between the first quarters of 2010 and 2011, while 17 percent reported a sales decline.  In the fourth quarter, a stronger 64 percent of salon/spa owners reported higher service sales, while just 13 percent reported lower service sales.

In contrast, salon/spa owners reported stronger retail sales in the first quarter.  Fifty-seven percent of salon/spa owners reported higher retail sales between the first quarters of 2010 and 2011, up from 47 percent who reported a retail sales gain in the fourth quarter.  In comparison, 20 percent of salon/spa owners reported lower retail sales in the first quarter, down from 27 percent in the fourth quarter.

Salon/spa owners reported a net increase in customer traffic for the sixth consecutive quarter.  Forty-nine percent of salon/spa owners reported an increase in customer traffic between the first quarters of 2010 and 2011, while 21 percent reported lower traffic levels.  In the fourth quarter, 45 percent of salon/spa owners reported an increase in customer traffic, while 21 percent reported a decline in customer traffic.

The salon/spa industry’s labor indicators registered their strongest performance in the nine-quarter history of the Salon/Spa Tracking Survey in the first quarter.  A record 34 percent of salon/spa owners said they added employees between the first quarters of 2010 and 2011, while only 13 percent said they cut staffing levels.

In addition to adding staff, salon/spa owners reported increasing employee hours during the first quarter.  Nineteen percent of salon/spa owners said they increased employee hours between the first quarters of 2010 and 2011, while just nine percent said they cut back on employee hours during the four-quarter period.

Salon/spa owners also reported a surge in capital spending during the first quarter of 2011.  Forty-three percent of salon/spa owners said they made a capital expenditure for equipment, expansion or remodeling in the first quarter, up from 32 percent in the fourth quarter and the strongest level in the history of the Salon/Spa Tracking Survey.

The Expectations Index was unchanged in the first quarter of 2011, as salon/spa owners maintained their optimistic outlook for industry growth in the months ahead.  Each of the five expectations indicators stood above well 100 for the eighth consecutive quarter, which points toward broad-based industry growth in the months ahead.

Expectations Indicators Were Generally Unchanged in the First Quarter, with Salon/Spa Owners Remaining Optimistic about Industry and Economic Growth in the Coming Months”

A strong majority of salon/spa owners are optimistic that their service sales will improve in the months ahead.  Seventy-three 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), roughly on par with 74 percent who reported similarly last quarter.  Only 3 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, matching the 3 percent who reported similarly last quarter.

Meanwhile, salon/spa owners are also quite optimistic about retail sales growth in the months ahead.  Sixty-ninepercent of salon/spa owners said they expect to have higher retail sales in six months (compared to the same period in the previous year), compared to 70 percent who reported similarly last quarter.  In comparison, just 3 percent of salon/spa owners expect their retail sales to decline in six months (compared to the same period in the previous year), down from 7 percent who reported similarly last quarter.

Salon/spa owners also remain confident in the direction of the overall economy.  Sixty-four percent of salon/spa owners said they expect economic conditions to improve in six months, up slightly from 62 percent who reported similarly last quarter.  Only 5 percent of salon/spa owners expect economic conditions to worsen in six months, compared to 3 percent last quarter.

Building on their staffing gains in the first quarter, a majority of salon/spa owners said they will continue to expand staffing levels in the months ahead.  Fifty-four 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), up from 49 percent who responded similarly last quarter.  In comparison, only 3 percent of salon/spa owners expect to reduce staffing levels in six months.

Salon/spa owners’ outlook for capital spending activity dropped off slightly in the fourth quarter.  Fifty-three percent of salon/spa owners plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down slightly from 56 percent 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.

The Current Situation Index is a composite index based on five ‘recent-period’ salon/spa industry indicators:

Same-Store Service Sales: Compares same-store service sales volume in the reference quarter versus the same quarter in the previous year

Same-Store Retail Sales: Compares same-store retail sales volume in the reference quarter versus the same quarter in the previous year

Customer Traffic: Compares customer traffic in the reference quarter versus the same quarter in the previous year

Labor: Compares the number of employees and the average employee hours in the reference quarter versus the same quarter in the previous year

Capital Expenditures: Measures capital expenditure activity during the reference quarter

The Expectations Index is a composite index based on five ‘forward-looking’ salon/spa industry indicators:

Same-Store Service Sales: Salon/Spa owners’ outlook for same-store service sales in six months, compared to the same period in the previous year

Same-Store Retail Sales: Salon/Spa owners’ outlook for same-store retail sales in six months, compared to the same period in the previous year

Staffing: Salon/Spa owners’ expectations for their number of employees in six months, compared to the same period in the previous year

Capital Expenditures: Salon/Spa owners’ capital expenditure plans during the next six months

Business Conditions: Salon/Spa owners’ outlook for general business conditions during the next six months

For past SSPI reports and more information about PBA research projects, visit probeauty.org/research.