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Financial Advisory: Planning to open new salons?

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There are several aspects to keep in mind when one is thinking of opening a new salon or spa. After consulting with some of the biggest names in the business, Salon India brings to you expert tips on what to sow and what to reap

The beauty business continues to thrive and till has a tremendous potential for further growth. Apart from the beauty products business, the beauty services industry is also growing at a phenomenal pace. Beauty salons for both men and women are mushrooming and are offering opportunities for careers and entrepreneurship. Says , Chairperson and Managing Director of the Group of Companies, “I believe, the salon business has a varied scope, in terms of the size and kind of
business, one is willing to do.”
On opening a salon, she says, “One can start a salon in a small way, in one’s home or you can have a larger enterprise, depending on the kind of budget you are working with.” Let’s find out what Husain and other big salon brands on their expansion plans in this financial year and their advice to those who are venturing into new territories.

Goals for FY15-16
is a leading player in the hair and beauty segment. It is one the largest unisex salon chains in India with a presence in 92 cities, including metros, Tier I-II-III regions and Dubai and Singapore. At present, the company has 484 salons and 51 salon academies in India and has scaled up operations based on a franchise model and selfoperated salons and academies. The wide coverage of its outlets enables the company to exploit the largely untapped and highly unorganised Indian market, thereby strengthening its visibility. On his financial goals for this year, Jawed Habib says that he expects at least a 20 per cent increase from the last year’s financial triumph. To achieve this target, he is aiming to open 150 salons this year for the Jawed Habib brand pan India. Jean-Claude Biguine Salon and Spa first brought style to the streets of Paris in 1982, with its salon at Avenue Mozart. Since then, it has continued to grow with a presence across 17 countries. Bringing international expertise to India, Jean-Claude Biguine Salon and Spa India, showcases très superior hair styles and techniques, off the global fashionscape. Backed by a strong hairstyling legacy, they offer head to toe beauty and grooming services, coupled with expert global products, all under one roof. Samir Srivastav, CEO, JCB in Mumbai, reveals that in the next financial year, they would be looking to increase the top line by 25 per cent. Says he on the strategy that he is planing to follow, “We would first like to saturate the markets we are present in. Between Mumbai and Bangalore, we hope to add eight more salons.” Naturals Salon, now a household name, was established more than a decade ago with a dream to change not just the way people looked, but to add ample positivity in their attitude to life! Veena K, Founder and her husband, C K Kumaravel, CEO and Co-founder of Naturals, pioneered a new era in the hair and beauty care industry by channelising their knowledge of the international beauty industry to spark a vision of bringing a successful world-class beauty salon brand to India. The realisation of this dream saw the birth of Naturals. C K Kumaravel, Co-Founder & CEO, Naturals Hair & Beauty Salon opines, “We have successfully launched our 450th salon recently and our target is to open another 150 salons to reach our target of 600 salons for this financial year. Our primary focus in the FY is to reach out to the Tier II and Tier III cities around Northern India.”

With 500 salons spread throughout more than 45 countries, exerts its  influence and knowhow across the globe. They came to India about three years ago and are doing rather well. On the financials, Levan Ramishvilli, Director, in Mumbai shares, “The clear focus for FY15-16 would be expansion. We are looking to launch our third salon at Palladium in Mumbai in March ’15. Post which we would start focusing our energies on launching our auxiliary brands, Camille Albane and Fantastic Sams, in India, as well. Financially, we are aiming for a growth of 10 to 15 per cent annually overall and are looking to break even this year. As of now, the focus is only on our Palladium outlet. We do plan on expanding to cities like Pune, Hyderabad and Bangalore, but at a later date. upholds the highest standards for quality and expertise making high-volume expansion diffi cult. We focus on each and every aspect of our salon to make sure it is on par with the global standards so that they are exactly like the Dessange salons in Paris, London, Beirut or anywhere else. Even little things like switchboards and lights are looked into. We do not believe in blindly opening salons, while compromising on quality for our customer base.”

Aspects to keep in mind Jawed Habib has salons that are company owned and some that are run and managed by franchise partners. Says Habib, “The company has scaled up operations based on a franchise model and self-operated salons and academies. So, for us, it differs from brand to brand.” Srivastav feels that the two most important aspects to keep in mind is the catchment area and the cost of rental. For any new salons, we do a thorough catchment analysis to understand the consumer. Also rentals should be within our internal threshold percentage. If both are equal, then only do we go ahead with the location.”

CKK says, “Location, catchment area and rent are the major factors that need to be considered before setting up a salon. At the initial stage, we always make it a point to fi rst scrutinise the prospective area and try to understand the market and people around. Once we get a feel of what they want, we decide if a Unisex salon or a Lounge will work the best. One more factor we keep in mind is the rent, which is extremely important. Getting the minded franchise partners who are willing to invest both financially and emotionally is very crucial. Someone who shares a similar vision with us and who is not only capable, but also not scared to commit, makes for an ideal franchise.” Says Ramishvili, “As a mandate, every Dessange salon in the world has to adhere to strict codes of standards and conduct. For this reason every little detail such as switch boards, lighting, staff rooms and more are very important details. We take our clients very seriously and do not leave any stone unturned while setting up our salons.” Budget allocation for new venture Habib says, “If it’s a new brand like Hair Yoga or Bevels, the budget allocated is Rs 50 lakhs or Rs1 crore, which is spend on research, technical, marketing (cross-promotional tie-ups, institutional tie-ups, in-store promotions, in mall events, college) and more. If it’s a franchisee unit for one of the Jawed Habib brands, then it will range from Rs 12 lakhs to Rs 45 lakhs, depending on the brand a franchisor is investing on.”  Srivastav says, “Every year 80 per cent of our investment goes in new ventures. All these costs should be within 75 per cent of net sales and the salon should deliver EBITDA of 25 per cent, else the salon model becomes unviable.” CKK feels, “For any new venture, a major hurdle every entrepreneur is likely to face is of fi nancial assistance, especially if the entrepreneur is a new one. To achieve our goals, we have associated ourselves with various banks, such as, Axis Bank, IOB Bank and Bharatiya Mahila Bank, where women can get financial assistance to open a Naturals Salon.” Hence, when finances are taken care of, opening a new salon, doesn’t appear to be such a major challenge. Ramishvili says, “Every new venture is carefully thought out and planned. Each salon requires a deep pocket because of our international tools and services. The approximate break up is rent of about Rs 7 to Rs 10 lakh; Somehow the industry grew up and one worked around getting rid of the stigma. When Naturals launched the Unisex concept, it was relatively new to people and he anticipated some hesitation in the minds of the public. Elaborating on the current concerns, he says, “Our initial challenges were in getting people to associate with Naturals and arranging fi nances for new salons. Now while there is no lack of fi nancing options or identifying franchise partners, finding and retaining trained manpower in technical and soft skills is one of the biggest challenges that we face today.

Together with our franchise partners and support from our customers, Naturals has become a name synonymous with hair and beauty care in India.” The issues, however, still persist. Ramishvili says, “The biggest challenge is manpower. Hiring the right staff as service is the backbone of the grooming industry. We have to ensure each stylist has prolific experience, has been trained according to international standards and is aware of the global fashions. While setting up our salons, we train our staff extensively on delivery and creation of each and every service technique offered at Dessange. We even bring down our international stylists and send ours to the global salons for intensive training. This is not only expensive, but also time consuming.” Assessing own growth as a salon chain Habib says, “Our business had grown faster than our back-end systems could support. We always found a gap between quality haircuts and affordable pricing. Our price points cater to a wider audience, and hence, our salons create their own footfalls. Our franchise model is a proven scale-up model,
wherein most of our franchisees have put up multiple Jawed Habib salons after earning profit from the first store. Thus, the chain keeps on growing.”

JCB Salon works like a corporate and are methodical in their approach. Says Srivastav,  “We look at YOY customer retention, YOY same store new customer addition and, of course, customer satisfaction.” CKK says, “From a single salon in 2000, Naturals opened its 50th salon in 2009 and the 75th in 2010. Expansion continued rapidly with 150 salons up and running in 2012; the brand crossed the 250 mark in 2013. Currently at 450, Naturals hopes to have 3,000 salons dotting the landscape of India by the year 2017.” Ramishvili says, “Recurring clientele and brands wanting to associate with you to leverage your customers and to get noticed is a great sign that your salon is doing well. We have experienced this and hence, know. The grooming industry is very cut-throat, but the demand is high and hence, as a standardfor evaluation, there are no hard and fast rules about profi ts and revenue. In less than two years of our establishment, we have partnered with several brands and associated with some of the biggest properties, such as, Miss Diva, Indian Resort Fashion Week, Falguni & Shane Peacock, to name a few.”  Overall anticipated growth for FY15-16 On how will JH salons fare in this financial year, Habib is clear that they plan to have at least 150 salon outlets across India. The strategy employed by JCB is elaborated by Srivastav when he says, “We look at YOY customer retention, YOY same store new customer addition and of course, customer satisfaction. We are looking to grow top line by 25 per cent and improve profi tability by 5 per cent.”

CKK says that their target is to reach 600 salons and to take the brand overseas. Says he, “We are planning to launch Naturals in Dubai and other GCC countries and talks are on to identify a master franchise in the US, as well.” Ramishvili says, “As of now, we think a growth of 15 to 20 per cent should work well for us for the coming financial year.”

Investment and returns
Salons for kids has immense potential for growth. There is more awareness among people in terms of hygiene and quality and with growing exposure among children, there is only one way in this sector, which is forward. Starfi sh and Kidzappy are children’s salons in Mumbai and they both made initial investments in the vicinity of Rs 25 lakhs each. Divas & Dudes in Bangalore, seems to be far ahead, courtesy the size of their premises and the nature of services offered. The salon and party lounge is sprawled over a massive 3000 sq ft and the initial investment made was equally high. Out of Rs 1 cr that Anu Basavaraju, Owner, Divas & Dudes spent, she seems to be pretty happy with the returns. She adds, “The returns have been excellent. We’re not just a kids’ salon, but also a party lounge and a fully functional adult’s salon, too. We were breaking even operationally within the fi rst six months of starting business. Parties bring in a lot more money than salon, but as we are gaining popularity, we’ve started doing better. For a salon that is a year and a half old, staying busy with theme parties, four days a week is pretty decent.”

As for breaking even, for Starfish, it is too early to say, as they are just three months old. Says Marya Lanewala of Starfish Kids Salon in Mumbai, “As both Preeti Harkare and I are not from the industry, a major part of our investment went into hiring a consultant to help establish us find our ground. The second biggest chunk of the money went into the design, conceptualisation and layout of the salon. On a running basis, rent is our biggest spend, along with the salaries”.

Kidzappy’s Melissa Patheria, like Basavaraju, says she has broken even and “things are looking up”. A Green Trends Salon requires an initial investment of Rs 35 lakhs to open a franchised outlet. It takes s brand fee, project cost, rental advance and other relevant costs. Operational breakeven happens within the sixth month of operations making this a very good investment option,” says R. Gopalakrishnan.

Spas
Sri Lanka’s popular luxury spa brand, Spa Ceylon, started its India operations by launching a range of luxury Ayurveda products in Mumbai. Shalin Balasuriya, Director Marketing, Spa Ceylon says, “Spa Ceylon is a luxury Ayurveda brand. We have given Ayurveda a luxury platform with a focus on pampering, relaxation and rejuvenation. We’re coming out of Sri Lanka and are in the process of being available in more locations. We’re already in Turkey – our spa and store concept. In the next few months, we are scheduled to be in Singapore, Malaysia and Pakistan. A little later in the year, we’re looking at Russia and the Middle East. There is also a lot of interest from Europe and we’re currently in the process of doing registrations in Europe. Spa Ceylon has two main branches – one is the spa and one is the boutique. We have
started with the boutique, but we’re constantly looking for new spaces. This is a high-end brand and finding the right space, especially in India, is very, very difficult. The rentals are quite high here, but if we find the right space, we have confidence in the brand and we wouldn’t mind investing. The initial investment for setting up the Indian operations and the first flagship store has been Rs 2 cr. In the future, we are looking at a minimum of 10 stores in the next 12 months across the metros first. So, even if we can get a second space within Mumbai, it would be great. We would want to move to Delhi. The idea is to have a minimum of two stores in every metro to start with.”

Private equity players

In this business, private equity players and venture capitalists hold special signifi cance both in terms of granting funds as well expertise required to create large and high-growth companies. Anand Lumia, Co-Founder & Partner at India Quotient shares tips on what a
PE looks out for. I want to see whether lot of people would use this brand or not. For example, if you are talking about blow dryers here. What we will look at is that how many people will use blow dryers. Do you use a blow dryer while going to the offi ce in the morning or before going to a party in the evening? It’s not that you go in the afternoon, get your hair blow-dyed and come back. So, we do consider will that have a lot of potential or not. Is there really a big market, is it viable, is the chain viable? Thus, viability of the unit economics is very important part in terms of whether there is a big market or not.

Investment needed to Set Up a Salon by Shahnaz Husain To set up a salon, either you canopen your own or take up the franchise of an established brand name. Whether you start a salon in a small or big way, you need an idea of what it involves in terms of investment, expenditure, equipment and furniture required, maintenance of stocks and more. But, first things first. Today, a professional qualifi cation and vocational training are the order of the day. In order to open a salon, you would need expertise and an understanding of your field of business. So, the first thing to consider would be your investment on your training in beauty. Having a professional qualifi cation in your field is a great advantage. You will need to fi nd out the courses that are available and the ones that are most suitable for setting up your own enterprise. Those who wish to take up the Shahnaz Husain franchise and start a Shahnaz salon, have to complete the Shahnaz Husain Diploma and Post Graduate courses in beauty and in the specialised Shahnaz treatments. Since, the franchise also offers the right to use the Shahnaz Husain products, the training includes knowledge on products and the external care of the skin, hair and body. Business and Clinic Management are also a part of the course. The student learns how to make the business profi table. The first aspect to consider is the capital that is needed and the capital that is available to you. This will depend on the size and nature of your enterprise. In other words, you will have to consider if you are starting your clinic in your own home, or you have a partner to share in the investment and profits, or you have the capital to open in a big way. In case you need to take a bank loan for your enterprise, details of interest at which the bank will forward a loan will have to be taken into account. There are concessions for women entrepreneurs. So, if you are a woman, you will need to find out the
incentives.

In order to consider the investment needed, you will need to take many aspects into account. The location and space required are important. Will it be your own home, or in a commercial area? Do you own the place, or will you be paying rent? Depending on the size of the business, you will need about 500 sq ft to 2000 sq ft of space. There will be the initial expenditure and the operational costs. So, take into consideration, the salon décor, the exterior décor and the equipment / furniture needed – like clinic beds, reclining chairs, trolleys, cupboards, shelves, chairs, sofa, mirrors, wash basins, supply trolleys, styling chair, manicure sets, air conditioner, etc. Treatment equipment will also be needed, like various gadgets, hair dryers, steamers, etc. You will also need to spend on telephones, music system, signboards, advertisements / publicity, inauguration, etc.

The cost of operations is a recurring cost. It will involve replenishing of stocks of products (creams, shampoos, etc), maintenance of linen, payment of salaries, taxes, electricity, rent and telephone bills, hospitality (cold drinks, coffee, etc), insurance and so on. Another important aspect is building up and maintaining a good clientele. This needs a great deal of attention, likemaintaining cleanliness, client reception, handling complaints and so on.

No enterprise can be a success without proper planning. You must have an idea in your mind of what you wish and how you wish to go about it. It is necessary to keep the gadgets in running order, get them repaired in good time and keep an eye on the wear and tear of equipment and furniture. Funds have to be kept aside for repairs and to keep things in working order. We have extended our salons on a franchise system. To give an idea of the investment needed to open a Shahnaz Husain franchise salon, approximately Rs 25 lacs to Rs 35 lacs are needed, depending on the city or town and size of business.