Is looking good a necessity or a luxury? Either way, it looks good for franchisees.

Without doubt the beauty sector has expanded over the past five years, driven by a combination of higher discretionary income, new markets and a growing population, according to Brian Lo, analyst and author of the January IbisWorld report Hairdressing and Beauty Services in Australia.

Beauty businesses can charge top dollar for more advanced, results-driven treatments such as skin-refining microdermabrasion and laser hair removal.

While IbisWorld predicted an annualised 2 per cent boost for industry revenue up to this year, reaching $4.8 billion, growth has slowed with expectations of an 0.4 per cent decline this year because of consumer caution.

But it is a diverse industry, from haircutting, styling and colouring (which has maintained stable growth and accounts for most revenue) to strong-performing hair-removal and nail-care services.

Not every sub-sector has proved to have long-term financial sustainability, however; IbisWorld highlights the decline of indoor tanning as a result of regulatory changes and “media coverage on the dangers of solarium tanning”.

Traditionally, the beauty sector is made up of a multitude of small concerns, and is extremely competitive with high entry and exit rates. The battle for customers, says the report, has put downward pressure on prices, forcing inefficient contenders to quit.

There is also increased external competition from day spas, hotels and airports offering hair and beauty services.

IbisWorld expects higher discretionary income and population growth in key markets to drive demand for services, yet warns that revenue may be constrained. Add this to higher wage costs, and beauty service businesses are likely to face trimmed profit margins.

Lo sees further revenue growth, however. “Higher grooming standards for men and an increase in baby boomers trying to slow the ageing process are expected to provide some slight reprieve,” he says.

“IbisWorld forecasts that industry revenue will grow at an annualised 1.4 per cent over the five years through 2021-22, to $5.1 billion.”