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Glut in beauty industry just starting to shake out
By Doug Young

A NEW scandal involving the sudden closure of Marie France Bodyline beauty salons in Shanghai didn’t surprise me much, leaving its hundreds of members holding cards with thousands of yuan in worthless credit.

This kind of rapid shutdown made headlines because it involved such a high-profile name, but frankly I’m most surprised we haven’t seen a lot more similar closures.

More broadly speaking, the demise of Marie France Bodyline in Shanghai reflects the ridiculous explosion in spas, massage shops and beauty parlors and other centers of hedonism in China over the last decade. My own daily walk around my neighborhood takes me past at least a dozen such shops, and the density is even higher in more commercial areas of Shanghai.

I often marvel at how so many of these stores can stay in business, especially in a country where incomes are still relatively modest and such shops were almost non-existent 15 years ago.

This Marie France case shows that many of the stores are indeed struggling as this beauty explosion mushrooms out of control, and we’re likely to see at least one or two more major casualties and many smaller ones before the sector settles into a more sustainable state.

The sudden closure of Marie France Bodyline reads like a textbook case of a fly-by-night store operator that probably struggled for at least a year before finally calling it quits. The exit was carefully planned, with the operator initially shutting down many stores for “renovation” over the last couple of weeks.

The end finally came when the few remaining shops abruptly closed down one weekend, and the chain’s local top executive disappeared.

One report I saw interviewed a woman whose sister had purchased 7,000 yuan (US$1,129) of membership credit a year ago, and still had seven spa visits left. Another said consumers would most likely lose all remaining money on their cards, since Chinese law allows for fines of only up to 30,000 yuan in such situations.

I could personally sympathize with the victims, as I’ve also lost money from similar experiences. In one case a Hong Kong massage place I often visited suddenly closed, leaving me with a worthless membership card with HK$500 (US$64.5) in credit. More recently, the hair salon I used here in Shanghai suddenly disappeared one day, leaving me with another worthless card and 500 yuan in losses.

This beauty boom is quite remarkable when compared with what China looked like just two decades ago. When I lived here in the late 1980s and early 1990s, such salons simply didn’t exist. The only places to get massages were upscale hotels, and even those weren’t very good.

I had to visit the Friendship Hotel in Beijing to get my hair cut, since the only alternative was barber shops that were little more than a man with a street-side barber chair and pair of scissors. Salons where women could get their nails manicured and enjoy other beauty treatments were equally non-existent.

Fast forward two decades to the present, where the exact opposite is the case and beauty shops in all shapes and sizes are everywhere in a big city like Shanghai. Such stores are now far more common here than in the US, even though Chinese living standards are far lower.

I realized just how out-of-control the trend had become when one of my 30-something friends recently opened up a beauty salon in his home, even though he had no experience in the business. Not surprisingly, his salon stayed open for just a few months before he decided to cut his losses and try something else.

So, where will it all end? Truth be told, this rapid boom has probably taken place over the last decade, and it will probably be another decade before the industry reaches a new sustainable equilibrium. I suspect the main catalyst driving consolidation will be rising costs, since the low shop rents and cheap wages that fueled the boom are rapidly disappearing with China’s growing wealth.

In the meantime, my advice to anyone considering a new spa, hair salon or massage center membership would be to choose wisely when buying your card, and be wary of large discounts with big pre-payments.

Chain stores are always the safest bets, as they are run by professionals and have more resources to cope with financial problems. But as the Marie France case shows, even the chains can run into problems and at the end of the day the risk of sudden closures lurks just about everywhere.

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