Booty salon

Lakme touches up its beauty salon business based on past learnings.

When Lakme Beauty Salon (LBS) set up shop in her south Mumbai neighbourhood, Rachna Sehgal promptly switched loyalties. The high brand equity of Lakme Lever (a division of Hindustan Lever Ltd, or HLL) and Sehgal's previous, positive experiences at other Lakme salons were enough to convince the 30-something housewife that she would get service far superior to what her local salon could provide.

A year later, Sehgal is back where she started, dissatisfied and disenchanted with LBS. "I expected the same quality at any two LBS outlets. But the service varies," she says.

Disparity in service is just one of the problems Lakme is facing in its beauty salon business. Consider this. Three years after it set up its full-service salons, 30 per cent of Lakme Lever's 65 outlets have still not matched the revenues projected.

And although LBS contributes 11 per cent to the company's turnover and about 1 per cent of Lakme product sales are through LBS outlets, that's just a smidgen of the potential.

Lakme estimates the value of the beauty salon market at Rs 1,000 crore, of which the organised sector accounts for just Rs 170 crore. But, while the former is growing at 12 per cent, the latter is shooting ahead at 25 per cent. Clearly, the beauty salons needed a makeover.

The root of Lakme's problems lie in its franchise business model. To be fair, franchises make eminent financial sense.

So far Lakme has had only four company-owned salons "" one each in Mumbai, Delhi, Chennai and Bangalore "" and each outlet required investments of more than Rs 25 lakh (excluding real estate).

So, if Lakme Lever were to own all its outlets, it would have to fork out over Rs 16 crore. And the money would have been blocked for a while, since the average break even period is two years.

But the company has not been too lucky with its franchisees. "Not all franchisees are mentally-oriented towards offering standardised experience and service in the salons," points out Anil Chopra, business head, Lakme Lever. That's critical.

While customers may not ask for standardised service from stand-alone salons, their expectations went up once Lakme started its salon chain. For them, it's a given that a successful product like Lakme will impart consistently superior service. But while a branded product can  ensure consistency in quality, services can't. At LBS, too, customers' experience can vary between outlets since the beauticians are different.  Chopra agrees. "It can come close but not be exactly the same," he says. Despite handing over trained personnel to franchisees, Lakme wasn't able to get the desired results.  This was mainly because some franchisees were delegating work to managers, rather than being involved in running the salon.  But then, Lakme's selection of franchisees was all wrong. Earlier, the sole requirement was that the franchisee should have the necessary funding. Lakme's learnt the hard way that funding is a necessary, but not sufficient criterion.  "In the past, we have gone wrong in selecting franchisees. But now we are strongly focused on proper selection," says Chopra.  Until last year Lakme conducted just two interviews for franchisees, focusing on finance and service areas.  Now, besides filling an evaluation form, potential business partners have to clear four intensive interviews in which the yardstick has been extended to parameters like franchisee's profile, ability to motivate workers, his potential and attitude towards success.  

According to Dinesh Bhat, business manager, Lakme Beauty Services, HLL, the franchisee's profile will be critical from now on.

"He must be in a business that requires one-to-one interaction with customers. That's the only way of ensuring a good customer service," he says.  Checks on franchisees' performance will also be intensified "" Lakme already runs central audits and sends mystery customers to salons for unbiased feedback.  More attention will also be paid to the location of salons. Unlike the earlier anywhere-goes attitude, franchised salons in bylanes and back alleys are now a no-no.  Says Chopra, "We have learnt our lesson. High street frontage location is always good news."  Dealing with franchisees is just one of the challenges ahead of Lakme. The biggest barrier to growth in this business is the dearth of trained manpower.  Agrees fashion consultant Meher Castelino, "It's the personnel who eventually draw in customers. Customers don't care whether the outlet is run by a franchisee or the company. They only expect quality of service."  That's why Lakme is now setting up a training academy in Mumbai, which will be operational by the year-end. Later, training centres will be opened in Delhi, Bangalore and Chennai.  The objectives: standardising service, introducing the concept of internships and enhancing competence in technical knowledge.  Meanwhile, Lakme has been working at standing out in the clutter of beauty salons. That's a tough assignment.  On the one hand, Lakme's "full service" repertoire matches that of neighbourhood salons; but its image is closer to specialist hair and skincare salons like Mumbai's Juice and Nalini & Yasmin, and Marico's Kaya Skin Clinic.  But Lakme is clear that it will remain a "full service" salon. Specialists salons run the risk of losing clients who prefer to visit one place for all their beauty needs.  "We wanted LBS to be a one-stop shop since convenience is critical in this business," says Chopra.  Of course, not everybody agrees. Says Castelino, "Segmentation is increasingly becoming an integral part of this business. LBS must identify itself and decide which direction to take finally."  Bhat defends the Lakme stance. "Segmentation works only when you are addressing an extreme problem and offering a solution for that problem. Lakme is about enhancement."  Still, Lakme is accentuating its presence in hair services. That's because even though brand Lakme offers no products for hair care, 65 per cent of LBS revenues are from hair services.  So, about five months ago, Lakme started a value-added hair styling service with German hair care brand Wella.  Called Hairnext 2004, the service customises hairstyles for customers, based on parameters like hair type, texture, lifestyle, face shape and skin tone. The service is already available at 40 LBS, and will gradually be extended to the remaining salons as well.  Earlier this year, LBS started another service called Corporate Imaging, where it provides makeover and beauty services to employees of companies that want to project a professional image.  Aimed at front-end services such as retail, hospitality and travel, Corporate Imaging has already roped in clients like the Taj group of hotels, Jet Airways and Standard Chartered Bank.  From supermodels to the corporate sector, Lakme has come a long way. But its makeover will be complete only when it appeals to housewives like Sehgal.