The rising trend of hair transplantation is creating a niche

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Doctors perform hair transplant surgery at a facility of the Yonghe Medical Group in Beijing. PAN XULIN / CHINA PRESS SERVICE

Frost & Sullivan: Industry Market Size Expected To Exceed $ 5.85 Billion By 2025

The Chinese hair transplant market is developing rapidly as more and more consumers are willing to pay for hair care services, which in the meantime should be given more thought to optimize the trade roadmap and ensure sustainable development of the sector.

In late June, Beijing-based Yonghe Medical Group Co Ltd, mainland China’s largest hair transplant company by sales, filed its first public offering request on the Hong Kong Stock Exchange.

The company has announced plans to raise HK $ 1.9 billion ($ 244.7 million) through the IPO. The money will be used to establish another 50 hair transplant points and 60 non-surgical medical centers in China.

At a time when offline chain stores were primarily affected by COVID-19, the company has ramped up its pace of business and opened 11 new stores last year.

“Hair problems are a major pain point for those who pay great attention to their appearance, generating lucrative hair-related businesses. Hair transplantation is a potential sub-category,” said Dun Yuting, healthcare analyst. health to online technology media platform 36Kr.

US investment bank Morgan Stanley and China’s leading joint venture investment bank China International Capital Corp Ltd were among the firms advising the company. If the IPO and Yonghe Medical’s expansion plan are successful, it will be the first publicly traded hair transplant company in the country, and also the first of its kind to have more than 100 outlets.

Data from the National Health Commission showed that by 2020, the number of people suffering from hair loss in China exceeded 250 million, with men accounting for more than 65%, or 164 million.

U.S. research firm Frost & Sullivan has estimated that by 2025, the Chinese hair transplant market will reach 37.8 billion yuan ($ 5.85 billion) from 13.4 billion yuan in 2020, this which means a compound annual growth rate of 23%.

Yonghe Medical’s prospectus says that in 2020 there were around 516,000 cases of hair transplants in China and the market penetration rate was 0.21%. Market demand has not been met and remains large.

Despite the promising outlook, industry experts have said that hair transplantation is not an easy business. They estimated that the average transaction per customer was between 30,000 yuan and 70,000 yuan. However, marketing costs account for 15-40% of total revenue, while personnel, rent, and utilities account for 20-40% and 10%, respectively. The net profit ratio is less than 10 percent.

Dun said one of the main reasons for the high marketing costs is that hair transplantation is a “once and for all” deal. Consumers will not buy back such services and their desire to share what they experience is low. It is difficult to establish brand recognition, so companies can only keep looking for new customers.

“Additionally, the industry lacks technological advancement, which contributes to poor differentiation between organizations. Companies have to spend a lot to acquire customers,” Dun said.

“To increase the bottom line, companies need to expand their business and services, including daily hair strengthening and maintenance. After all, the best interests of consumers are in solving hair loss. The dual commercial mode combining hair transplantation and daily maintenance should improve the user experience. and bring stable income to industry players. “

“Companies also need to improve their techniques and services to ensure sustainable growth,” Dun added.

By 2030, the daily hair strengthening and maintenance industry will occupy 45.3% of the Chinese hair-related medical services market, said Frost & Sullivan.

In 2017, Yonghe Medical acquired the mainland Chinese business of the UK hair strengthening brand Svenson. It has also initiated scientific research into stem cells in hair follicles to further improve its portfolio of hair loss products.

“In 2020, daily hair strengthening and maintenance only contributed 13% of Yonghe Medical’s revenue. The business exhibited characteristics of low transactions per customer, high redemption rates, and high user adherence. It is believed that daily hair strengthening and maintenance will become a major driver of the hair related medical services industry, ”said Qi Yeqing, healthcare analyst at Beijing-based think tank EqualOcean. .

Industry problems such as fake advertisements and opaque prices hamper the development of the sector.

Data from the Shanghai-based beauty information platform Caomeipai showed that in 2018, 41% of hair transplant clients were not satisfied with unexpected payments, 35% said the services of assistance were inadequate, while others worried about poor postoperative outcomes and poor hair follicle survival.

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