State of the Day Spa Industry Address
the year 2007 closed I felt it important to address the State
of our Industry. It has been a tough year for Day Spas and
it is critical to understand why, and how to overcome recent adversities.
According to ISPA, Day Spa revenues declined 22% from $6.794 billion
in 2005 to $5.294 in 2006. While at the same time the number
of Spas (Day, Resort, and Medical) has grown by 6%. Many
Day Spa Owners have really felt the pinch throughout the US and
not fully understood why. Other Spa Owners have weathered
the storm and though they have not lost ground, they have not
grown at their anticipated rate. I think that it is important
to understand the dynamics at play so that Spa Owners can adjust
their business model and continue to grow despite this “Bear Market”.
US economy and the devaluation of the US dollar has much to do
with the situation but that does not tell the whole story, let
us explore further:
an economic downturn luxury items are the first thing that the
consumer cuts back on, and as much as we would like to consider
our services a “necessity”, not all Spa consumers agree.
Day Spas have increased in number, Medical Spas have doubled
in revenue and grown in number significantly faster than Day
Spas in the same period. They have successfully siphoned
off some of the Day Spa’s best customers, those customers for
who price is not a factor.
are more Day Spas sharing the diminished revenue.
this the end for the Day Spa business? Definitely not,
but we will have to adjust our thinking, and there will probably
be a big shake out within the industry.In order to adapt we must first understand the marketplace
and how to make profit within our operation.
Market has changed!
the last 18 months, and without many of us knowing it at the time,
the market has shifted from an “excess demand” marketplace to
an “excess supply” situation. That is to say we have more
Spas selling to fewer Consumers today than we did in 2006.
economics, when a marketplace shifts from excess demand to excess
supply (and this happens often in many industries) the consumer
looks for market differentiators. Unfortunately the biggest,
easiest, and most important differentiator to the consumer is
PRICE. Electronics is a good example of what I am talking
about. When a new electronic gadget comes to the marketplace
consumers are willing to pay top dollar to be the first to own
such a device. When the several manufactures begin to catch
up with this new demand prices begin to drop, and when the gadget
becomes common place then the prices hit rock bottom. If
a manufacturer wants to continue to charge top dollar then they
must be innovative, and create some other market differentiator
that sets them apart from their competitors, or continue to compete
in a battle of pricing.
principles hold true for the Spa Industry as well! We have
seen the proliferation of Spas on every corner and the consumer
has few ways of distinguishing the value of one from another.
Further, with many competitors they expect to see more discounts
and in fact can sit back and wait for offers to come to them and
cherry pick the Spa or Salon that is giving the discount that
week. For many Spas this “value oriented” customer is not
an ideal Client for their business, but there is a silver lining:
This budget shopping for services shows us that there is another
whole class of Spa Goers that want to come to the Spa but can
not afford to come. In fact studies like “The Marketing
Demographics of a Day Spa Goer” (available through the Day Spa
Association) tell us that the reason 62.58% of respondents “never”
or “rarely” go to Spas is because it is too costly; it
is not that they don’t understand the importance, not that they
don’t have a Spa available to them, not even that they think it
is too indulgent. This is an opportunity knocking at our
industry’s door if we can just get our expenses under control
we can then deliver these services to these budget minded masses.
Must Learn to Adapt!
much as the Spa Industry has grown over the past decade (our Bull
Market period) with record startups and record revenues, if we
are honest with ourselves we must admit that we have never had
“record profits”. Our business model has been broken for
a long time and we have primarily survived by way of the “excess
demand” that we have enjoyed. Well the time to pay the piper
has come, and as an industry we must adapt or perish, as this
is the way of the “free market economy”. The hard facts
are that our compensation system has been upside down, and frankly
just plain wrong for a long time, we have been chasing the high
end consumer while virtually ignoring the middle class consumer,
and we have done a poor job at building brands and loyalty that
are results based (necessity) instead of pampering based (luxury).
purpose of being so blunt in this message is to wake up an industry
that has enjoyed a fruitful “Excess Demand Market”, but is about
to pay the price of “Excess Supply”. While I remain confident
that money can and will be made in the Day Spa world I know that
it will become harder and harder unless we start working smarter
and smarter. Just as on Wall Street, anyone can make money
in a “Bull Market”, but it takes a smart business person to make
money in a “Bear Market”. I know that many of you have struggled
to earn profit while demand was high; you must now be even savvier
if you are to turn things around during this “lower demand” period.
I also know that of the thousands of full service Day Spas in
the US about half of them will go out of business or change hands
to new Owners within the next 24 months. Will you be one
that survives or one that perishes? Do you have the cash
reserves to weather the downturn economy? Can you still
make money doing fewer services next year? Do you have the
marketing muscle to increase your market share in a shrinking
is not my intent to bring “doom and gloom” or to be pessimistic,
rather exactly the opposite, to sound the alarm so that each of
us can adapt our business to be recession proof. To put
into place sound compensation systems that assures prosperity
for your business. To allow you time to adjust your business
model through market differentiators and to adapt to the new “excess
we must throw away an antiquated form of compensation that has
prevented Day Spas from earning healthy margins. We need
a compensation system that allows us to be more efficient and
deliver services more economically and more cost effectively today
than we were able to deliver them yesterday. We need to
adopt a system that attracts a stable workforce that can contribute
to the greater good of the company instead of only building their
own personal clientele or book of business.
we must learn to either create a market differentiator that not
only distinguishes us from our competitors but creates a “need”
instead of a “want” in the consumer’s mind; or learn to make money
at lower price points, and let that be your market differentiator.
we must band together as an industry and stand our ground against
the Doctors and Legislators that would seek to take business away
from our industry. We must band together to educate ourselves
to be better business Owners, giving us greater understanding
of how to compete and operate effectively and efficiently.
Today’s Day Spas should belong to important Trade Organizations
like The Day Spa Association to facilitate this “coming together”,
“standing our ground” and “becoming better business Owners”.
More will be accomplished through collaboration than through competition.
Organizations like the DSA can help each of us accomplish this.
the state of the Day Spa Industry is changing I am ever “bullish”
that the strong will survive and thrive, new Spas will be built
and made successful, and that there is even more opportunity in
this market for those who operate intelligently and creatively.
My pledge is to work more closely with Spas to overcome these
obstacles and effect change throughout our industry through building
better compensation programs and market differentiators.
I know that it is easier to sit here and tell you what needs to
be done than it is for you to implement these changes, therefore
we can work together so that the load becomes lighter. I
invite you to attend industry events and obtain the education,
networking, and interaction that will have a profound effect on
your business. Look for industry business workshops like
those being organized by the DSA at The Day Spa Expo and the IECSC,
and remember that the more we can shift the whole industry toward
success the easier our personal success will manifest itself.
NOTE: Let what is happening to the Day Spa Industry be an early
warning and lesson to the Resort and Destination Spas as they
may be affected by these same economic dynamics! As I write
this message, they should be preparing for a similar downturn
if I am all wrong about the future of our industry, do these things
anyway as they make good business sense and will help your business
skyrocket. But if I am right then they are the things that
will save your business from demise. Those who survive this
economic storm will emerge as the pinnacle of success within their
respective marketplaces, and be poised to take full advantage
of the “Bull Market” that will come once again.
Wishes & Healthy Profits