Hair and beauty businesses “acutely vulnerable” to failure in 2021 report warns

The year ahead is threatening to place even greater financial strain on the UK’s hair and beauty sector, with 60% of businesses having entered 2021 with no cash reserves, new research from the National Hair & Beauty Federation (NHBF) has revealed.

On average, hair and beauty businesses lost £17,000 in 2020, with those over the VAT threshold taking an even bigger hit and 1 in 10 businesses not having returned any income or dividend to their owners or managers, the Hair, Beauty and the Pandemic report, compiled by independent analysts Pragmatix Advisory, found.

With over 140 days of lockdown closure in 2020, hair and beauty businesses saw an average loss in turnover of 45% in 2020 and as much as 57% in some regions.

Out of lockdown, social distancing measures meant that even when open, many businesses were operating at around 70% pre-pandemic capacity.

Many businesses in the industry were now “acutely vulnerable to failure,” with 2021 set to be even tougher and businesses likely to be £41,000 out-of-pocket on average by the end of the year, should various pandemic control measures remain in place, the report said.

The smallest enterprises faced losing the equivalent of 29% of 2019 turnover, while the cash position of the largest could be down by 42% of pre-pandemic annual revenues, without more targeted support, it added.

“Nobody can predict this year with any confidence, but a reasonable central scenario – of three months of national lockdown followed by six of tiered local social distancing measures, before restrictions are lifted for the last quarter of the year – places further strain on already stretched hair and beauty firms,” the report said.

“We estimate that 14% of businesses over the VAT threshold will be acutely vulnerable to failure, rising to a quarter when considering a more pessimistic downside scenario, where various pandemic control measures remain in place for the full year.

“VAT parity with the hospitality sector will substantially reduce hair and beauty businesses’ vulnerability,” it added.

According to the report, reducing VAT to 5% would add £16,000 to the average VAT registered business, closing the cash gap by one-third and reducing the proportion of businesses not returning anything to their owners or managers to 6%.

Commenting on the findings and re-iterating the call for a specific grant, NHBF chief executive Richard Lambert said:

“Whilst the future could be bleak for the personal care sector, intervention now and immediately following re-opening will have a life-changing positive effect.

There’s nothing coming in, but the overheads still have to be paid. When we are closed, we are closed.  We can’t diversify into takeaways and online sales. 

“The Personal Care sector is calling for a specific grant to support businesses through the immediate cash-flow crisis, in line with similar funds that have been afforded to many other sectors, including the arts, hospitality and leisure, and the aeronautical industry, among others.”

“Right now, it feels like we are last in line for support, flippantly disregarded within Parliament and overlooked by government, despite the billions of pounds we contribute to the economy each year.”

The NHBF, working together with the British Beauty Council, British Association of Beauty Therapists and Cosmetologists and UK Spa Association, has been lobbying the Department for Business , the Treasury and the Cabinet Office for an urgent Personal Care crisis fund and a reduction in VAT.