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Retail: Show Me the Money

By Carol and Rob Trow April 2008 issue of Skin Inc. magazine

Editor's note: This article is the first part of a two-part series regarding the importance of retail in a spa operation. Part two will appear in the May issue of Skin Inc. magazine.

Numbers don’t lie. Do you want more clients, increased profits and a happier team? Two of the not-so-secret keys to operating a successful spa are retail sales and service upgrades. It can be difficult, however, to learn about realistic, measurable, tangible programs that will accomplish these goals. Simply put, this two-part series will result in increased profits, reduced losses, and a more coherent team reward and recognition program if you follow the suggestions provided. This is not rocket science, but rather a course of action coupled with discipline and persistence.

Numbers speak for themselves
       Spa-ing is the fourth largest leisure industry in North America. Revenues were $13.4 billion in 2006, an increase from $8 billion in 2003, yielding an annual growth rate of more than 18%. Cosmetic surgery adds another $15 billion to the mix. The number of spa visits surpasses theme park attendance.1
       Spa locations are growing at 16% annually, comprising 160 million individual visits.1 It seems that for every spa or medical spa that opens, one will close. The competition is fierce. Many who enter the business have little or no experience in the field and even those who open franchised spas are finding the business to be much more difficult than they imagined.

Common Retail Mistakes and Obstacles

According to Retail Management for Spas from The International SPA Association (ISPA), some of the most common mistakes spa owners and directors make include:

  • The spa is like an assembly line with barely enough time to turn the room.
  • There is no person or team specifically charged to drive retail sales.
  • There is little or no follow-up after clients leave the spa.
  • There is little or no product training.
  • There is little or no sales training.

 Obstacles that must be overcome include:

 

  • Lack of retail knowledge and skills
  • Lack of specific product features and benefits
  • The skin care professionals don’t like the products.
  • The skin care professionals don’t use the products that they are trying to sell themselves.
  • The skin care professionals are attempting to sell products that they themselves feel they cannot afford to buy.
  • Lack of training in how to speak about products effectively
  • Fear of selling
  • Dislike of selling

       Spa employee salaries and wages exceeded $9.3 billion in 2006. Did you know that personnel costs in a traditional spa can equal approximately 70% of all revenue?1 Because of this, you need to create nonlabor-driven sources of revenue and increase the profits derived from the use of hands-on services in order to increase overall profitability. With personnel costs rising, the importance of retail income is vital and essential to a spa’s financial viability. Market at-home products as solutions to clients’ skin care concerns.
  Packaged Facts has compiled a telling set of statistics.2 The organization has found that the skin care market is worth more than
$7 billion and is estimated to grow to $9.2 billion by 2010. This rate exceeds 6% per year. Of specific interest is that the anti-aging portion of the market is expanding at 17.9%, while makeup is increasing 5.9% and hair care is growing at 2.8%. The numbers speak for themselves: Focusing on anti-aging skin care has the greatest potential to help your bottom line. But do not be naive and ignore the other major market segments, because they are also important.
       The number of North Americans between the age of 55–64 will jump 19.3% to 35.4 million by 2010, less than three years from now. Teens and twentysomethings are thinking about their skin, wrinkles and extrinsic aging. Gone for most are their parents’ sun worshipping days of reflectors, and mixtures of iodine and baby oil. The mass-market merchants, infomercials and multilevel marketing companies are flooding into the higher-end skin care market. Major mainstream cosmetic companies are purchasing formally professional-based product lines. Products are finding their way into more retail outlets, Internet sites and television channels. Even several makeup companies are going the route of utilizing a multichannel distribution network comprised of infomercials, branded retail concept stores, the Internet and sales to skin care professionals.

Choose wisely
       An increasing number of skin care brands are becoming less channel-specific. What does this mean to you? Several things—good and bad. The media, through the massive advertising and public relations efforts of these large multinational companies, is increasingly drawing attention to the need to take better care of your skin and the advances in the efficacy of skin care products during the past several years. This can bring clients into your spa. Yet, these very same clients may come in asking for the much-touted products that they have read about or seen on television. But, carrying these products also has the potential to put the skin care professional and spa in price competition with other distribution channels that may be easily accessible to consumers, such as online sales outlets and retail stores. The corollary to this is that if you spend the time and money to orient clients and patients to a brand, you might want that brand to be a destination product with channel-specific distribution only available through professionals, such as yourself, and not on every corner.
       Clients come to spas and medical spas “in search of ways to improve the quality of their lives as they seek methods through which they can sustain the benefits of the professional treatments they receive.”3 When individuals come into your business, they are primed for both a service and the potential to purchase products. This is a sale for you to lose because individuals come to spas seeking improvements. Do not lose this opportunity because 20–40% of a spa’s gross revenues should be attributed to retail sales and treatment upgrades.
       If your spa sees 20 clients a day and half of them spend $75 on products per visit, and purchase four times a year, you will net, after commissions, $300,000 in profit, assuming a one-time mark up. If the average sale increases or the percentage of clients that purchase products increases, the profits skyrocket. If your spa has 40 clients a day, the profit is $600,000. You can do your own math to see the importance of retail sales.

Increasing sales
       Without the appropriate service upgrades and home care product sales, clients’ skin will not reach its full potential. If one home care product is sold to a client, there is a 25% chance she will return; two products 50%; and three or more—more than 75%. The better the treatment, and the more unique and efficacious the products sold, the more your business grows. It is less costly to retain a client than to attract a new one. There is a famous line that world-renowned bank robber Willie Sutton uttered when he was asked why he kept robbing banks: “Because that is where the money is.”
       Pay attention to retail sales because it is a great source of additional profits without significant costs associated with it. The second part of this series will address how to keep your retail investment low and profits high. As important, it will provide specific advice about making your vendor into a strategic partner that shares and invests in your success.

Obstacles to selling
       One of the most common questions asked of consultants in regard to retail goes something like this: “Can you come to my spa and teach my team to sell? I just cannot seem to get my team focused or interested in selling retail products.” In most cases, this proves to be a waste of time. First, you have to look at your internal operation in order to uncover any obstacles that may be present making the process problematic. Without addressing them and removing them, retail sales and upgrades will not reach their revenue and profit potential.
       There is an adaptation of an old adage that is highlighted in the International SPA Association’s (ISPA) book, Retail Management for Spas (Hay House, 2005). It is analogous to facilitating skin care professionals selling retail and upgrades in a spa setting. You can teach your team members to fish but they must have: bait (good products and services); fishing rods (selling tools); time to fish (scheduling that allows time to speak with and educate clients); and incentives to fish (motivation and rewards).
       See Common Retail Mistakes and Obstacles to find out more about the challenges faced by spa owners and skin care professionals when retailing. These obstacles are exacerbated by little or no significant incentives for them to sell. They also feel that when they were hired or were in school, retail selling was never taught and did not believe it would be an integral part of their job responsibilities.

Marketing fuels sales
       Marketing is important to your spa. Initially, focus your marketing efforts on your most profitable current clients. Ask them why they use your services. Learn from them. Market through education. Establish a list of referral sources and consider keeping a list of clients who you would like to see more often and collect their contact information. Reach out to them each evening by offering last-minute specials and incentives for the next day to fill in the appointment book. Don’t be shy—tell them what you are doing and why; they will appreciate the honesty. Reward client brand loyalty and expect your vendors to share in this by providing free products.

Specific solutions
       Part two of this series will focus on specific solutions to the aforementioned problems: how to overcome obstacles; keys to successful retail sales; motivational tips; a product selection guide; several team compensation suggestions; incentive and reward programs; and how to establish an achievable action plan that includes tips on negotiating with and transforming your vendors into strategic partners. 

REFERENCES
1. Spa Management Reports (Jan 15, 2007)
2. Packaged Facts (May 2006)
3. Michelle Barry, The Hartman Group (2005)

Related articles:
Retail: A Successful Retail Philosophy by Jennifer Korfiatis (March 2008)

 

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