- Introduction
Stylish is a hairdressing business that currently owns and operates two hairdressing salons in inner Melbourne: Carlton and South Melbourne. The owners of the business (hereon the client) are interested in expanding their operations, and have identified the Prahran area as a possible location for the establishing of a third salon. The purpose of this report is to provide preliminary information to the client about: i) the overall viability of establishing a salon in the Prahran area; and ii) key management and marketing issues that need to be considered in ensuring the success and profitability of any proposed new outlet. Note that the study considers the viability of the business in broad management and marketing terms only; it does not provide a comprehensive financial analysis of the proposed expansion. In the investigation of these issues, two analytical concepts were used, namely Mega Environment and Task Environment. The Mega Environment is concerned with the external environment in which a business operates; the Task Environment considers conditions that a business faces in its immediate environment. Data for the study came from a range of sources related to both these environments including: industry research reports, local government reports, and census data. The report is divided into two main sections: a Findings section, which presents information about both environments as they relate to Stylish; and a Recommendations section which provides specific suggestions for the running of the proposed business.
- Findings
The viability of establishing a new salon was considered in relation to two broad areas the mega environment and the task environment. Each of these areas is discussed below.
2.1 Mega Environment The mega environment refers to the larger external environment in which an organisation operates, that is to say, broad societal conditions and trends. Significantly, the elements of the mega environment are ones that an organisation has little or no influence over. The mega environment can be divided into five main components: i) economic; ii) legal/political; iii) technological; iv) socio-cultural/demographic; and v) international/global. The relevance of each of these areas is discussed in relation to Stylish.
2.1.1 Economic element. The economic element refers to “systems of producing, distributing and consuming wealth”. In considering the economic factors relating to the proposed business, it is not possible to overlook the impact of the Global Financial Crisis (GFC), and its continuing aftermath. While Australia has so far resisted falling into recession, the Australian Bureau of Statistics (2011) records that household incomes were significantly lower in 2009/10 than they were over 2007/08. In such an environment, consumers have remained highly cautious in their spending. IBIS World Report states that: “movements in real household disposable income do affect the hairdressing and beauty industry”, although as a ‘necessity of life’ service, hairdressing is less generally affected than other consumer areas. It is noted that while recent conditions in the industry have been poor, the outlook over the period 2012 – 2015 is expected to be more positive with a projected average annual rate of growth of 3.6%. These economic factors suggest that investment in the hairdressing industry, at least in the foreseeable future, is likely to be worthwhile.
2.1.2 Legal/Political element. The legal/political element refers to the “legal and governmental systems within which an organisation must function”. The two major legal areas that need to be complied with in the hairdressing and beauty industry are occupational health and safety (OHS) and employment law. Occupational health and safety laws exist to ensure a hairdressing salon is safe for both employees and the public. Various employment laws prescribe minimum wages and training requirements for businesses in the industry. The client will already be compliant with these two areas, and so it is not expected that they would impose any additional burdens in the establishing of a new outlet. It is noted that the imminent introduction of the Federal Government’s Carbon Tax could result in additional costs e.g. higher electricity bills, as a result of energy companies passing on the costs of the carbon price. In any proposed new outlet, the client can offset any potential additional energy costs through the use of energy-saving appliances and amenities.
2.1.3 Technological element. The technology element refers to “the current state of knowledge regarding production of products & services. According to IBIS; “technology in the hairdressing industry has not changed dramatically in recent times”. The more significant technological developments have occurred in the beauty components of the industry (eg. laser treatments), though it is noted that these often require substantial economic investment, and may not be affordable for smaller scale operations. One area that is worth investing in is not technology concerned with the actual delivery of hairdressing and beauty services, but with ancillary technologies that support customer queries and bookings. Customers typically expect products and services to be delivered in a shorter time frame, and so salons need to invest in up-to-date IT facilities that will enable them to provide appropriate levels of customer service. Another important technology in the industry is social media (Facebook and Twitter) and its potential as a marketing tool. As Baltzan and Phillips explain: “social networks help forge community with, and among, would-be customers”.
2.1.4 Socio-cultural/demographic element. The sociocultural/demographic element refers to the “attitudes, values, norms, beliefs, behaviours and associated demographic trends characteristic of a given geographic area”. Victoria is currently experiencing high population growth, lead only by NSW. It is interesting to note that while population growth is high in the state, the rate of growth in the hair and beauty industry in Victoria is relatively low. This data also points to relatively low volatility in the industry, suggesting that investment in the industry in Victoria is generally a sound proposition. More specifically in the Prahran area (the location of the proposed new outlet), the notable demographic trend is the relatively low average age of the populace, with the most populous group being in the 25-29 year segment. Population forecasts suggest that the area’s youthful character will continue into the future with the same segment expected to dominate in 2021. Other significant demographic features are the ethnic diversity of the populace, along with its relative affluence. A significant trend in this younger inner urban demographic is the increasing interest shown by young men in grooming and appearance, sometimes associated with the so-called ‘metrosexual’ lifestyle. Such a trend has seen the decline of demand for traditional barbershop services, and dominance in inner urban areas of the unisex salon. While the hairdressing and beauty market continues to be dominated by the female customer base, major opportunities exist to expand product and service offerings for males.
2.1.5 International/global element. The international/global element refers to “developments in countries outside of an organization’s home country with potential to influence the organization. The hairdressing industry in Australia is almost an entirely domestically-based industry, currently having virtually no import or export profile. The international element is thus not a relevant one to the proposed business plan. It is noted however that over the coming years, the door may become open for foreign franchises to establish themselves, and so this may have some impact on competition in the industry into the future
