The Salon Index: Why economists need to study hair-cutting salons’ performance to judge the economy of a country.

The Salon Index: Why economists need to study hair-cutting salons’ performance to judge the economy of a country.

In finance, a haircut is a percentage that is subtracted from the market value of an asset that is being used as collateral. The size of the haircut reflects the perceived risk associated with holding the asset. However, the lender has a lien for the entirety of the asset. The lower the haircut, the safer the loan is for a lender.

Try as much, I could never understand the hypotheses propounded by economists and other so-called arm-chair financial experts on why the economy of  a country was not in good health.GDP,PMI,WI,SI,MI, were abbreviations that only boggled my mind.

I decided to do something about it.How could I find out the health of an economy by simpler parameters that I could actually see before my eyes?

I was having a haircut at a salon that I was frequenting for over 12 years.There were several empty chairs.Over the years I had seen the waiting area overflowing even on week-days.In fact,the owner,Ramakrishna would change the furniture every two years.But I observed that of late some of the upholstery was running ragged.The shelves had fewer cosmetics;the barbers were wearing rather tacky and faded aprons.That got me thinking and I had a chat with the owner.

I visited several other salons and found similarities.It was time for me to put on my thinking cap.

I caught hold of two MBA graduates from a well-known Australian University to assist me in the analyses(my sons). The idea was to  draw a correlation between a country’s economy and the spend at hair-cutting salons. We studied the financial performance of several salon chains and also standalone hair-cutting outlets. The results are startling and more credible as they are on-the-ground figures that are more compelling than any extrapolation of conventional research parameters.

                       (My younger son and grandson having a haircut in London)

Higher end salons that provide luxury services tend to experience greater volatility.  Lower end salons may also experience some sales decline due to clients going longer between services.  During economic downturns, some salons provide their stylists with additional training and education and draw upon the personal relationships between stylists and their clients to avoid losing customers.

In the wake of the recession, many salons have observed customers getting their hair cut less frequently, performing services on their own at home. In response, salons have increased price promotions and begun offering incentives on services and products.

Mainline findings throw up several figures that are extremely thought provoking:

1)    During a slowdown all salon chains had reduced income, falling between  3% to 10%.Income reduces by over 40% where value added services like hair restoration are offered.

2)     When the economy shows a positive trend, customers are inclined to ask for additional services like a shave, head massage, foot massage, facials, and manicure/pedicure.

3)     As the economy slows down customers tend to look for less expensive salons and cut down on the ‘extra’ services.

4)     With a lethargic economy, salon chains have cut down on their outlets and also reduced specialized staff.The gap between haircuts increases in correlation to the declining economic trends.

The findings are an eye opener as market researchers have a more reliable parameter to study the spending patterns of citizens, both during boom times and also in the downturn. In fact, the easiest method is to station surveyors at street corners and study the length of hair on a male head to understand whether it is boom time or bust!