Kline & Company pegs the total market for professional salon hair care product sales at $2.2 billion at the manufacturers' level in 2003. This represents an average annual increase of only 2.8 per cent between 2001 and 2003 - the lowest rate in two decades - and illustrates a change in consumer spending habits.
"Customers are showing their budget constraints with their pocketbooks," said Carrie Bonner, industry manager for Kline's Consumer Products practice.
"In difficult economic times, they tend to increase the amount of time between visits to salons, and this results in a slower market for product sales."
While the general outlook for healthy growth may be dim, at least for the short term, some categories have performed better than the overall market.
Sales of specialty hair care products and hair styling products have demonstrated above-average growth. In fact, most of the new salon product entrants from 2001 to 2003 have come from these categories, according to Bonner. In the first half of 2004, 45 per cent of all new launches were also from these two categories.
Still, these few bright spots have not contributed enough sales to combat the low market growth, and the US economic climate is not the only major problem affecting the industry, shows the report titled 'Salon Hair Care USA 2003' .
Some of the stagnant growth can be attributed to diversion of salon-only brands to mass-market channels, which violates the agreement between salons, distributors, and manufacturers. The mass marketers are then able to sell the high-value salon brands at a lower price, undercutting the salons' sales and creating a potential hazard if recalls are necessary.
"Diversion has been happening for quite some time, and we're seeing its effects as sales of products through salons have slowed, while salon product sales at mass channels have increased," said Bonner.
Sales of salon-only shampoos and conditioners through mass-retail channels have experienced a 20.4 per cent average annual jump from 2001 to 2003, while sales of those products through traditional salon channels have increased only 2.4 per cent in the same period, according to Kline's data.
Overall, diverted salon brands account for 15 per cent of the salon segment, making a strong case for diversion's impact on the industry.
"The increasing availability of salon-only products in mass-retail channels may boost sales for a particular product initially, but the lower price and widespread exposure can damage the brand's reputation as a quality product," said Bonner. "It will only hurt the industry in the long run."