By  on February 6, 2009

A week after announcing the sale of Trade Secret to Premier Salons Beauty Inc., Regis chairman and chief executive officer Paul Finkelstein is skeptical about the health of the overall salon industry for the coming year.

“Industrywide for 2009 [it] will be flat to 5 percent down,” he projected, noting that 90 percent of the $50 million industry stems from service sales.

Within salon services, he sees some relief for color treatments, which he said eventually catch up since a customer can only go so long without a root touch-up. Haircuts, however, he said, can and will be delayed.

Finkelstein said 2008 saw both service and product sales declines.

“There is no question that these are down,” he said. He noted that while there are a smattering of salons who are experiencing increases, for the most part, overall industry service sales were down an estimated 3 to 4 percent for 2008 and product sales were down 7 to 8 percent. The trouble, he said, is that 60 percent of the industry operates underground, meaning many mom-and-pop shops don’t report their true income or sales so there’s no exact way to tally real figures.

One of the biggest challenges facing the professional salon market, he said, is that it is so “blurred today it almost doesn’t exist,” especially since consumers see brands such as Frédéric Fekkai and other brands being sold in Target and other mass market channels.

Regis has not given its expectations for 2009, but he did share that the firm is slowing new store construction, expansion and acquisition, except for when Wal-Mart stores need a Regis salon.

The sale of Trade Secret, which was a $270 million business and included 721 Trade Secret, Pure Beauty and Beauty First doors, developed as part of a “perfect storm” which Finkelstein described as a confluence of diversion, consumers’ drop in spending and competition. The sale had been under consideration for three months, he said, with discussions taking place with members of Regis’ board and investment banking firm Peter J. Solomon. Trade Secret is estimated to lose $23 million for the fiscal year.

He added that mass lines, such as Pantene, have indeed become more sophisticated, adding to the competitive pressure of salon brands, as well as the infiltration of beauty brands and retailers entering the hair care market. He pointed to the recent entry by Johnson & Johnson’s Aveeno brand into hair care, and how retailers such Victoria Secret, who just a few years ago was not even in the beauty category, now counts beauty as one-sixth of overall sales. “Everyone wanted a piece of this category,” he said. Norma Knudsen, who had overseen the Trade Secret division, remains executive vice president of the company and will continue to oversee Regis’ retail sales.

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