Spas and Recession

This morning I read the sad news that Spa Sydell, with six locations in Atlanta, is filing for Chapter 11 bankruptcy. They have been in business for 25 years. This is just one week after I learned that Iatria spa in North Carolina is closing its three locations and filing Chapter 7. They started their business 10 years ago.

Heartbreaking – yet not particularly surprising given the current economic climate. In fact, I am sure that we will be seeing more spas closing. Frankly, I am surprised that we haven’t seen more already. I think it speaks to the fact that these businesses likely did everything they could to try and weather the recession, but at some point they had to pull the plug. While I know there are many people who will participate in these losses – the landlords because the spas can’t pay their rent, lenders who lent money in good faith, product companies who won’t get paid, as well as some consumers who hold their unused gift certificates – I think it is likely that those who will suffer the most are the proprietors of those businesses. They will probably lose everything personally and professionally and have to start over.

What I don’t think many people understand is how difficult it is to run a day spa business – in the U.S. especially – because the profit margins are razor thin due to high labor costs. Most people who own and run day spas do so because they are passionate about spas. Often, these owners are care givers themselves who love nurturing their clients, and sometimes business skills are secondary.     In addition, expansion is always a slippery slope; running one spa isn’t easy but managing multiple spas doesn’t usually result in economies of scale -in fact, it often makes operations more difficult because the owner can’t be in all locations at the same time.

Industry numbers show that many day spas are barely profitable, some only seeing 5% – 10% profit in a good year and much less than that during negative business climates. It is truly a labor of love for many.  

I thought I would share some of what I have learned over the years about the day spa business and invite you to share your thoughts and knowledge as well. Perhaps together – both consumers and spa industry professionals – we can better understand what is happening, and in some small way make the transition that much easier for those affected.

1. Day spas have the smallest profit margins of all spas and so are more vulnerable to a downturn in the economy than are hotel, resort or medical spas.
2. Labor costs are the main culprit. Most spas find that they need to pay more than 50% of their revenue in labor costs.
3. In my opinion one change that would take costs down is for the entire industry to adopt the European model where all staff are “dually licensed” – that means the therapist can do both massages and facials. The result is much more flexibility in scheduling, more career opportunities for staff, and ultimately lower costs for the spa.
4. Summer is a slow season for spa-going so businesses struggling will have a hard time making it through. Usually business picks up in the fall.
5. Another challenge facing day spas this year is that resort and hotel spas have become more aggressive in building their local clientele thus increasing competition.
6. When a spa closes, other spas sometimes offer to accept outstanding gift certificates from the spa closing in an effort to help the industry through the transition and of course to hopefully gain a new client. When this happens, it is a great plus.
7. Allowing outstanding gift certificates to be used to purchase product at the spa closing is one way to satisfy some of the customers.
8. During a tough economy, consumers would be wise to be careful about purchasing series of treatments where you pay up front (six massages for $500) or gift certificates in large amounts ($1,000, etc.). Purchasing a smaller denomination gift certificate ($100 or so) which the recipient is likely to use soon is less risky.
9. While spas are not “recession-proof” they have done better than many other businesses because one driver that increases demand is stress – and people are more stressed than ever.
10. This is a good time to discourage additional spa openings. (Unless you are in one of the few areas where there is vibrant growth – Brazil for example.)

It is my hope that our industry will do better than most in navigating through this…and at the end we will all be strengthened by the challenges. We may, in fact, end up with some helpful adaptations!