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Beauty & Wellness Industry: Buoyant and Bullish or Slowed Down by Fiscal Policies?

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In November 2016, the Government of India announced demonitization of some of its bank notes. Hot on its heels came another blow, the implementation of GST as a tax reform. While the beauty and wellness industry is grappling with the aftermath of these two whirlwinds, the Union Budget for FY2018-19 has induced positive momentum. Salon India spoke to a few stakeholders to know which way the industry is going – is it still bullish or has it slowed down considerably?

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11 , General Manager, Sales, Streax Professional Division

View on the Budget for FY2018-19: This year’s union budget does not carry goodies for SMEs or the mid-level service class. There are many areas which should have ideally been kept out of the GST ambit or included with a lower slab option for a common household to have some disposable income left in their kitty to have better retail (service/goods) consumption which is not the case in this budget. In my opinion, a good budget is meant for every one and should be achievable. If India has to match the global standard, in terms of quality of life irrespective of class, we will have to start investing beyond metros. Big corporations are growing by leaps and bounds amassing huge wealth. The rich are becoming richer and poor sliding further down. However, we can minimise disparity by providing every citizen with an equal opportunity to learn and grow. India’s semi rural and semi urban population can contribute to service sectors, manufacturing and some of the core sectors, if we start investing now. The future market is beyond metros and every sector must start contributing towards creating it through their contribution.

Impact on the business: We are working with the lower mid and upper bottom of the pyramid set of customers and the impact is not as significant yet. Moreover, we will continue to grow faster for we have more customers to reach out to. We managed to outpace the industry’s growth and intend to continue with aggressive growth till 2021, but there is a fear that the industry may have a slower growth. In today’s scenario the earning per service for the salon has fallen drastically. Our target is to create at least 20,000 skilled stylists till 2021 to fill the vacuum and deliver higher value to the stakeholders.

Positive outcomes: For us, there is nothing great in this particular budget. I see it as more burden on individuals who will be paying mandatory taxes for every service/product they consume which means less disposable income. It is good to see some initiatives like medical health cover of Rs 5 lakhs for a particular income group and protecting farmers’ interest, but again this only safeguards the interest for a year or so.

View on GST: GST is one of the best things which happened to India with so much of ease from both upper and lower houses as we have severe political complexities. There are a few lacunas which are still haunting the small and medium enterprises, such as the taxation ambit, slab and compliances are not well thought out. Better preparations like adequate IT infrastructure, longer gestation period and easy compliances could have been a better modus operandi to make the shift smooth. GST on essential commodities and services should have been nominal to ensure that it does not put additional burden on an average household. This is the first generation GST and it will require massive transformation and consideration as we move forward. The current GST is putting additional load on the consumer which will result in restrictive spending leading to slower growth.

Impact of GST on the business: GST has had an impact across consumer goods sector, no one was spared but to be honest we did far better than what we had planned and anticipated. We were very much in control of our business and we grew by 45 per cent in the same quarter over last year in sales and minimised receivables. The mantra was to keep key stake holder engaged with various activities. Having a small business and small team helped us change our strategy overnight and allocate resources in the right direction was core reason we succeeded and overcame the wrath of GST and turned it into a powerful performance.

Challenges still being faced: The industry forecast is that it will still take time to overcome the sluggish trend that has set in post GST. As a company, we are not facing challenges except that we cannot bill the customers who do not have GST number. Typically billing it to the small distributors/wholesalers against advance payments has stopped and this is not impacting our business, as the larger set of distributors are doing far better than before. Hence, it annuls the business losses. Our end salon customers are still far from coming into the GST range.

Overcoming them: We over performed in the worst time, hence going forward would be better for us as the industry would start settling down with better government system and processes. We will continue delivering value for money proposition to our customer with world class education exposure leading to better draw at the end.

Plans for the business in this fiscal year: There is a lot in our bucket list and we hope to achieve them all in phases. We are reviewing all aspects of our business including current product basket, images, and marketing collaterals. We are looking at making our product’s value proposition more interesting for its users. Training would be the heart of all engagements with our clients. We are investing heavily in designing educational modules and setting up technical centres in select cities and are open to collaborations for quality education in professional hair care segment. Based on last three year’s performance and a new investment planned for current year and the future, Streax Professional is bound to be a game changer in its space.

1.
View on the Budget for FY2018-19: It is focused on rural areas, specially those engaged in agriculture. It is a good move by the government. Farming is still one of the biggest contributors of our GDP and a major source of direct and indirect employment. This is also a major allied sector for the production industry. It is like strengthening the bottom of the pyramid which will ultimately fortify the related sectors. The government missed an opportunity to increase employment in the formal sectors, but there is always a next time.

View on GST for FY2018-19: GST is a milestone tax reform in India. It is a great transformation to build a single tax nation. The introduction of GST was marred by operational and technology issues which were subsequently addressed. We look forward to more simplification of the rules to make it more business-friendly and hence, result in a higher tax mop-up.

Impact of GST on the business: The first few months of the roll-out were really tough as would be with any significant change. I think the trade was not well prepared. Nevertheless, things are better now, trade is again bullish and back to normal business. We expect good business in the hinterlands in the coming year.

Challenges still facing: IT backend which needs to be streamlined further.

Overcoming them: We have raised the issue with various government agencies and they are looking into it.

2.
View on the Budget for FY2018-19: I feel the Union Budget is growth oriented and finely balanced where the Finance Minister has focused on reviving the rural economy, while maintaining fiscal considerations. This budget should stimulate the economy and help arrest the slow down experienced after demonetization and GST.

Impact on the business: With a balanced budget and waning of the initial GST hiccups, we expect positive momentum across the industry. There are a couple of changes which directly impact us considering our current supply chain, but we are addressing them to ensure we benefit from the tail winds.

Positive outcomes: We expect recovery of the business sentiment and buoyant consumption patterns. With these structural changes, stakeholders in the value chain have upgraded and are more integrated. We expect the consumer to be the key beneficiary of these positive outcomes.

View on GST: Structural tax reforms were long overdue and GST is a game changer. It will accelerate digitisation of the economy in a big way. Apart from efficiencies in logistics, GST will also lead to a more integrated value chain and an increased tax base for the economy.

Impact of GST on the business: With a mammoth change like GST, teething troubles were expected. We realised very early that the biggest impact on our business will be different levels of readiness and understanding of GST by different participants in the business value chain. Growth momentum did get impacted in the first quarter, with the focus largely being on compliance and successful cutover versus solely on business fundamentals.

Challenges still being faced: After two quarters in the new regime, we are still seeing that the stakeholders in the value chain are not at ease with GST. There have been couple of major changes in terms of the rates which need to be absorbed by the entire value chain.

Overcoming them: We are constantly engaging with our partners, vendors, customers and industry forums to understand, educate and clarify different point of views and interpretations.

Plans for FY2018-19: We share a positive outlook for this fiscal and remain committed to serve more and more consumers with our best in the class offerings.

3. Sheshadri Savalgi, Chief Financial Officer,
View on the Budget for FY2018-19: It is a very comprehensive budget that would have a positive impact on farmers,10 crore poor families and senior citizens among others. The focus on rural housing, rural roads and rural infrastructure spending will not only improve the lives of people living in rural areas, but also boost the cement and construction sector which in turn would help the bank credit off take. Over 10 crore poor families will be the beneficiary of the National Health Protection Scheme. Exemption on interest from bank FD’s of senior citizens to Rs 50,000 will reduce their tax burden and increase their income. Reduction of the tax rate to 25 percent for MSMe’s who have a reported turnover of upto Rs 250 crore will not only create job prospects, but also help in expanding their businesses by additional investment, which in turn will increase the demand for credit. In addition, there is a big focus on affordable housing, education, cleanliness and creating employment.

View on GST: GST reform will be good for the country in the long run as multiple taxes on goods and services are abolished. It aims to remove tax barriers between states thus creating a single market. It would plug the tax leakages thus increasing revenue for the government which will be used for nation building.

Impact of GST on the business: The businesses of some of our target clients have gone southwards. This, in turn, has impacted our business to some extent. New projects pipeline are shrinking and looking less robust.

Challenges still being faced: We initially faced challenges related to the GST portal, but it has improved with time.

Plans for the business in this fiscal year: One, we are going to strengthen our strategic business partnerships. Two, we are going to improve our online visibility, and three, we are planning to diversify our project portfolio and reduce our dependence on a few sectors.

4.
View on the Budget for FY2018-19: The Indian government is promoting ‘Make in India’, plan, which is good for us. We hope it will help us generate more business.
Impact on the business: The impact has been beneficial. Foreign marketing companies may now get their products manufactured by Indian companies. This will definitely help us garner more business.

View on GST: It is a very good move. I am very glad that finally it has happened, in fact I was waiting for it.

Impact of GST on the business: The impact has only been positive in the sense it has helped us to stabilise our costs. Taxes are now calculated on the selling price unlike excise duty which was earlier calculated on the MRP.

Challenges still being faced: No challenge as such. Hopefully the E-way bill will be implemented in an equally smooth manner.

Plans for the business in this fiscal year: We plan to expand the market, add a couple of new products and hope for the best.

5.

66 , Business Head, Natural Indulgence (OGX)

View on the Budget for FY2018-19: A lot more was expected from the budget in terms of giving tax breaks to encourage capital expenditure and to kick start the investment cycle. Instead, more stringent tax laws have been introduced which will put more pressure on the businesses that are recovering from the twin disruptions of demonetisation and GST.

Impact on the business: A lower tax rate will have a positive impact on the business, but stringent laws and an aggressive taxman will be a dampener. A smoother flow of credit under GST has improved cash flow and reduced working capital requirement. A lower tax rate will help in improving the ploughing back rate of the business.

View on GST: GST is a well drafted indirect tax law, but issues remain. IT-infrastructure readiness of the government needs urgent attention.

Impact of GST on the business: When it comes to the FMCG industry, there is a smoother flow of credit under GST, whereas service tax and excise credit that was unavailable to traders earlier, are there now. It has ensured seemless flow of credit, better cash flow and a more efficient working capital cycle. Further, the most important aspect is that it has made India a single market, wherein there is a single tax rate all across India instead of the differential rate of VAT prevailing in the previous regime. This has helped make India a more competitive market.

Challenges still being faced: IT-related issues on the part of the government is hampering our complying to GST and the documentation is lengthy and laborious. Moreover, the blocked credit and exempt supplies should be rationalised to allow an efficient flow of credit to make it seemless.

Overcoming them: Consultations with professionals has to be done to iron out issues related to GST implementation.

Plans for the business in this fiscal year: We plan to expand our business and introduce new brands.

6.

88 , Chairperson & Managing Director,

View on the Budget for FY2018-19: The primary focus of the Budget is on agriculture, rural development and infrastructure, as well as health care incentives for the rural sector and the economically backward. The health care programme is expected to benefit 40 per cent of India’s population, and I believe, it will take health care to a new level. The emphasis on improving the quality of education and skill development is also very welcome. Additionally, tax relief for MSMEs is encouraging and should generate employment. The Provident Fund Contribution is reduced only for first three years for salaried women employees. This means that women, who are already working for more than three years, will not get any benefit. Some relief is there for senior citizens, by the raising of tax exemptions on their health insurance premium.

Impact on the business: The government’s stress on ‘Make in India’ continues, which is encouraging for enterprises like mine, as it is totally based on Indian heritage and indigenous ingredients. Imported cosmetics will cost more, giving a further boost to cosmetics manufactured in India. The emphasis on skill development is welcome. The beauty business is growing and so is the demand for qualified personnel who will need vocational training. Reducing the contribution to Employees Provident Fund for working women will mean more disposable income in their hands, which they may spend on beauty products and services.

View on GST: GST is a unified or single taxation system that has replaced a number of taxes levied on goods and services by the Central and State Governments. It replaces many indirect taxes and removes tax barriers; to that extent the system is simpler and more transparent. Also, economists say it is good for the country’s economy and that is what matters.

Impact of GST on the business: As far as our business is concerned, we have to take into consideration both manufacture, retail of products, as well as beauty as a service industry, since we manufacture and sell beauty products, and also have our beauty salon business. Earlier we paid 15 per cent Service Tax on salon services, now branded salons like ours are paying 18 per cent GST. It will take a little time to know the actual impact in terms of challenges. GST rate of maximum items of beauty products on sale has been slashed to 18 per cent from 28 per cent. The impact of this on prices is being calculated. It will also take time to get the details of how the service industry is impacted by tax relaxations. Hopefully, the retail sector will improve by becoming more transparent and efficient with fewer taxes.

Challenges still being faced: Some of the challenges we are still facing is the lack of information on the collection of data for calculations that are needed. Another challenge salons have is the fact that with increase of GST on cosmetic items, their costs are increased, as they need to buy products for salon services. This throws up different challenges for us, as we use our own products for salon services, which require further calculation. However, experts say that Input Tax Credit will help salons to claim tax relaxation on the products they have purchased.

Overcoming them: As far as salon services are concerned, we may need to rethink in terms of providing promotional discounts or schemes. Actually, even before GST, we had a system of courses for treatments, where the client pays for a certain number of treatments, while some treatments are free of charge in the programme of courses.

Plans for the business in this fiscal year: Further innovation of organic products is on the cards. We have already launched a special organic brand, along with several new products. Increasing export and opening more franchise salons and retail outlets are also among our plans. We plan to expand our presence in countries like USA, UK, Canada, Middle East, Australia, Singapore, Malaysia, South East Asia, New Zealand, Russia and CIS countries. Our future plans include concentrated international branding, strengthening and widening our global chain of franchise ventures and appointing distributors in unrepresented new markets