“Hey, I need to get a facial done. But you know what it is like, so I’ll pay you later. Is that fine?”
Beautician Vaishali Patil was not surprised when a patron made this request over a phone call. By the third week of November, 2016, this was a common refrain among several of her regular customers. And she rarely refused. So, she called this customer over to her salon, the Lavanya Beauty Parlour in Dombivli, a suburb around 50 km northeast of Mumbai, India’s financial capital.
After the Rs 1,500 facial, the client thanked Vaishali and was just leaving when she turned around with another strange request. “You must be getting many customers, isn’t it? You must have a lot of loose change. Can you lend me Rs 300? I’m so broke because of this demonetisation.”
The amused beautician obliged. “She is well off and usually splurges nearly Rs 2,000 every month in my parlour,” Vaishali said. “This currency thing had reduced her to this level.”
It turns out that the demonetisation measure in India isn’t pretty.
When Prime Minister Narendra Modi banned the country’s most popular currency notes on November 8, Indians panicked. The sudden cash crunch demanded frugal handling of whatever little was left. Basic needs were the priority, not discretionary spending, and least of all indulging one’s vanity.
So, beauty parlours and salons across the country have been mostly deserted ever since. Some parlours, like Vaishali’s Lavanya, survived on credit; some turned to e-wallets. Others had to turn away even those customers who carried cash, often the new Rs 2,000 notes, because they did not have enough change to return.
India’s booming beauty and wellness industry was suddenly left crawling.
Credit is king
Estimated to reach a size of Rs 26,494 crore in 2017, the industry has been growing at over 18% since 2012. But the beauty parlours that have mushroomed across India in the past few years, especially in the metros, mostly rely only on cash.
Typically serving women alone, standalone parlours cater to their immediate neighbourhoods. And unlike the larger chains, they rely on their regular stream of customers. Services such as eyebrow threading, waxing, and facials are their bread and butter.
The last two months, however, have been tough.
Radiant Beauty Salon in Thane, a suburb of Mumbai, saw a 20% drop in the number of customers walking in. “Even among those who came, half asked for credit. And they are yet to pay,” said owner Ashisha Dhere. She could afford to extend such a benefit to these customers as they were “regulars.”
Besides, relying on credit was the only option left to keep the business going, the 31-year-old said, even if it meant taking a hit. After all, she had to pay her employees and meet other expenses like rent and electricity.
Immediately after the note ban, Dhere said, there were customers who wanted to issue bank cheques for amounts as low as Rs 200. Hard cash was precious. Others had to leave disappointed as she didn’t accept credit or debit cards then. “Now I am planning to start a card facility, but that also means the cost goes up,” Dhere said.
At Jyotsna’s Beauty Hut, tucked away in the basement of a three-storied house in South Delhi’s Lajpat Nagar, footfalls have dropped by a massive 80%. “We were shocked initially and then left bored for days, not having witnessed such an empty parlour ever before,” said Jyotsna Bera, who’s been running the place for 15 years now.
The industry also bore the brunt of demonetisation’s impact on other related sectors.
Consider, for instance, India’s huge wedding industry. With the currency ban knocking the daylights out of the great Indian wedding season, complementary sectors like beauty and grooming were hit, too, according to Ankur Bisen, senior vice-president of retail and consumer products at Technopak, a New Delhi-based consultancy.
And all this came after a period of major growth in the beauty and wellness industry.
The last decade has seen a shift in the way Indian consumers look at themselves. A well-earning, aware, and young population has made the beauty business lucrative. Spending on beauty and wellness “is no longer considered a luxury,” according to a report by India’s ministry of skill development and entrepreneurship.
Will e-payment help?
To encourage e-payments, the Reserve Bank of India in December lowered the merchant discount rate that banks charge retailers for debit card services. It was brought down from 0.75% to 0.25% for transactions of up to Rs 1,000, and capped at 0.5% for those between Rs 1,000 and Rs 2,000. For anything over Rs 2,000, the merchant discount rate is 1%.
But because the beauty industry is heterogeneous, demonetisation will affect each business differently, explained Technopak’s Bisen.
“It all depends on a salon’s customer profile,” he said. “If your customers are middle-aged, then their ability to adapt to digital payments is lower than that of a younger client base. Payments can be a problem in the former scenario.” In tier I and II cities, transitioning to e-payments will be a problem, he added. As of October, India had 615 million debit card users and 23 million credit card users.
Moreover, it isn’t smooth sailing even with digital payments.
For instance, Glam Salon, another Thane venture, opened a Paytm account following demonetisation. “But to my surprise, many of my customers did not know how to operate a digital wallet,” owner Swati Shinde said.
Even before the note ban, Glam used to accept credit and debit cards, but customers usually paid through them only for services that cost more than Rs 1,000. “Now, even for Rs 100 they want to use a card, which isn’t economical for me because there’s a charge I need to pay to the merchant,” Shinde said.
The big chains
For bigger chains, though, the damage hasn’t been much. The footfalls haven’t taken a hit as most of the clientele at these branded salons typically pay by cards. For instance, Vikram Bhat, co-founder of the Enrich Salon chain, said that around 60% of their business is driven by cards.
Others, like Jawed Habib’s salons, continued to accept old notes for a while after the ban was announced and actually saw an increase in business. A Jawed Habib franchise in Khan Market, Delhi, saw a 20% increase in business in the first week of demonetisation because it accepted old notes.
Some big salons even started large-ticket membership programmes that cost as much as Rs 40,000 immediately after demonetisation to get customers to subscribe with the old notes.
While the big chains came out unscathed during the challenging post-demonetisation period, the smaller ones hope that the pain will end soon.
This article first appeared on Quartz.