New Opportunities For investing In Spas Right Now

Skip Williams

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Water boils at 212°F. At 211°F all you have is hot water, and so it is with about 50% of the more than 12,000 Spas in the country. At a certain dollar amount they begin to make money and anything less is simply an expensive, time consuming, hobby.

Many Spas have won awards, have accolades from copious Clients about how wonderful their experience was, have amazing decor, and many have substantial Client lists; yet hot water is all they are.

These Owners have worked more hours in one week than 6 of their employees combined and still they wish that they could just make minimum wages for their toil. Instead they have gambled their life savings, and many teeter on bankruptcy, and the evolution of business dictates that many of them will.

Would any sane financial institution or investor lend them even more money? Frankly that Spa owner has a better chance to become the next CEO of Bear Stearns than to obtain financing themselves.

My good friend and fellow DSA member Dan Hussey often says, “A business should only borrow money to increase sales or decrease costs’, and I could not agree more. Borrowing money to stay in business is the definition of insanity unless you are somehow going to use that money to do things radically different. Otherwise Spa Owners are only digging a deeper hole of debt that will insure failure instead of happiness. Believe me when I tell you I speak from personal experience on this topic.

“But Skip”, you say, “they are so close to boiling, they have done 90% of the work, surely all they need is a little longer in the pot”. To which I reply, ” A little longer at what cost?” Extra time comes at an extra price! The goal of success is then burdened with a heavier load. If a business is ever to turn itself around and get on the profit side of the equation then it must make a paradigm shift, it can no longer afford to continue to do the same things, operate the same way, and expect a new, better, or different result.

This equation does ,however, provide opportunity for investors; investors that are savvy enough to analyze what is broken inside a business, or savvy enough to hire the right professional to analyze and get the job done.

For not a lot of money an investor can buy into or take over complete operations that are already at over 200°F. Spas that are so close to breaking even, or have the capacity to make great money, are for sale at rock bottom prices. If that investor can turn around this broken Spa (or hire a management company that is capable) then the return on investment can be phenomenal.

The timing is one that all Wall Street investors would envy, and i.e., stepping into a business after someone else has taken all the losses and then putting the gasoline on the fire and working the upside.

Tricky? YES absolutely, but one that reduces much of the downside that opening a Spa from scratch would have been burdened with. In fact, that is what Resources & Development® is doing right now, for an investment group. We find the Spa Purchase candidates facilitate the valuation, due diligence, and offer process, and then manage and turn these properties around. Never before in the short history of the Spa Industry have I seen the ROI (Return On Investment) potential as I do right now. (If you are interested in joining this investment group please contact me directly for more information.)

Is this being opportunistic? Of course it is, such is the way of American business, but more importantly when you invest in a failing Spa you are saving someone from possible bankruptcy, foreclosure, and financial ruin, and providing employment for the community. Frankly you are the White Knight in this scenario saving Camelot from its own demise, or so it seems to me…

Best Wishes & Healthy Profits,

Skip Williams


Opening A Spa During A Shaky Economy

Skip Williams

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Why would anyone want to open a Spa in this shaky economy? Because “there’s gold in them thar hills”, and fortune favors the bold.

Clichés aside, traditionally Spas have been expensive to open, are unweildy to manage, and have been known to have low profit margins. They don’t have to be that way and this down economy presents new opportunities for savvy Owners when they unzip the silver lining of the bad financial cloud.

With housing stats down, you have more leverage to get favorable construction quotes for your facility. Likewise, if you are looking to buy a building or property, prices are down and oddly enough financing, while more difficult to obtain, is less expensive.

Staff is, and will be, more easily found and less likely to jump from employer to employer. And as I mentioned in the past post, as competitors close, poaching of their Clients becomes easier.

While on the subject of closing Spas, “want to be” Spa Owners should consider purchasing existing facilities. While problems are inherited with a failed Spa, the amount of time and money more than compensate for its pitfalls. You can find real bargains out there right now to purchase operating facilities for less than the value of the depreciated assets. One good source for finding Spas for sale is another is the Day Spa Association‘s own website. Rarely will you find a Spa for sale that precisely reflects your original vision, therefore, you must evaluate whether you can compromise your concept or would you rather build from scratch one that does match your dreams.

When assessing whether a Spa is a good candidate and a good value one must look at the value of those assets, outstanding accounts, outstanding gift certificates, and much more. Resources & Development does this and is an expert in helping potential owners perform their due diligence, and we will talk more about that in next week’s post. If you are considering the purchase or the opening of a spa please refer to these two pages for important information:

Spa Development

Spa Valuation

Closing competitors provide other opportunities as well, like purchasing some used equipment, client lists, software and computer systems, retail inventory, etc..

Keep in mind that great management and great marketing will be more important than ever in this economy, no matter which route you take towards opening your Spa. However, for those of you coming from another industry, this is an industry that is easy to get passionate about. Having said that, it is not a 9 – 5 job; be prepared to spend copious time in management and growing your business.

Much of the advice from the last post will eventually apply to you as well. Having the right compensation system, market differentiators, and creating high value for your Clienst all need to be developed in your vision and concept as well as belonging to important trade, educational, and networking organizations like the Day Spa Association.

Fortune does favor the bold, but being bold is never enough, hard work, savvy and professional business practices, tenacity, and a little luck are just as important.

When done right, a Spa can become an oasis for your Clientele that provides relief from the mad world that awaits outside. Loyalty can be earned in such a way that what you provide becomes looked at as a necessity and a respite, so that much of your business can become recession proof. Done wrong, the consumer will look at your offerings as a luxury and utilize only on occasion.

The Spa business may look simple from the lay person’s point of view, however, it has intricacies and complexities that make it important to obtain help in any area that you do not feel well versed. Be careful my friends, be cautious, but there is gold out there and more opportunity now than ever. Go find it, go develop it, be bold and savvy at the same time, okay?

I look forward to your feedback and questions and stand at the ready to assist in the navigation of the minefield.

Best Wishes & Healthy Profits,

Skip Williams

Nails in the Economic Coffin

Brooklyn -Manicurists are biting their nails over the current economic downturn.

It may not be your ordinary economic indicator but spending at spas is down, according to customers and owners in Williamsburg.

SPA-RTAN TIMES: Spa owners are seeing a downturn in business as the economy falters.

 Video: Pampering Down Expectations

Finding the Opportunity For Existing Spa Operations

Skip Williams

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Have you done your homework since our last post? If you have, hopefully you have some clarity of purpose, better insight into what makes your Spa special, and are prepared to see opportunity in this cloudy economy.

When I consult with Spas to help “turn around” their profitability, I always look at fixing three things and in this order:

  1. How can we reduce our cost to deliver our services?
  2. How can we get more customers through our door?
  3. How can we reduce our overhead?

Our natural inclination is to look at overhead expenses first, but if we think about it, there is little we can do to reduce rent, utilities, insurance, our own salary, etc. . That is why this is last on the list. You may be able to play with the hours for front desk staff, but most of you have done almost all that can be done in controlling your overhead. Nonetheless, it is not unusual for overhead to be $15,000 – $30,000.

Your overhead is what I call your “personal Mt. Everest”. This is the mountain you must climb every month, and unfortunately most Spas and Salons have to start at the bottom of the mountain each month as we start each month with zero sales.

The reason so many Spas (even during good times) find it so hard to climb their mountain is because their feet are tied and they are only allowed to make little baby steps up the mountain. Let me explain:

Most Spa Owners have known for a long time that Provider compensation has been eating them alive, here is why:

After we subtract 40% – 60% commissions from each dollars worth of revenue and then subtract workers compensation, employers share of taxes, the supplies and laundry it takes to deliver each service we are lucky to be left with 20 – 30 cents out of that dollar to pay for all that overhead (your mountain).

So the reality is that we have very tall mountains (overhead) and are only allowed to climb that mountain with 20 – 30 cent baby steps (contribution margin). So a Spa with $20,000 worth of overhead will have to perform $65,000 – $100,000 of services just to break even! This is why my number one job is to reduce the cost to deliver services. That way we can take 40 – 50 cent steps reducing our break even to $40,000 – $50,000.

Also when we work on number two, “more customers through the door” , those dollars will be of greater value. You see if we are not making much on each revenue dollar then more dollars only means more baby steps. Instead we want to un- shackle our feet and take nice big strides up the mountain. This gets us to “profitable” much more quickly, and allows us to make money even if we happen to have less revenue this year.

So what does all this have to do with the economy? Our compensation system in this industry has been broken for a long time. Most owners know this but have been too scared to fix their system for fear of a “walkout” or losing Providers to competitors. However, in a cold economy not only does this become a greater necessity but it also becomes easier to fix when Providers have fewer options as to where to go and they learn that if the business doesn’t tighten its belt then there will be jobs for no one.

NOTE: Please see one of my articles on Compensation or attend one of my lectures on the subject for more information. Better yet, the Day Spa Association has some of these lectures recorded, call them and find out how to get one.

Market Differentiators:

During your “field trip” (homework assignment from last post) you learned about your competitors. If you were honest with yourself, and took an analytical approach you now see what attracts customers to your Spa as well as your competitors.

You also probably noticed things that they do not do nearly as well as you do, or perhaps charge a lot more for. These are great candidates for your “Market Differentiators”. These are the things that the public has to know about you, these are the things you should be shouting in all of your marketing material.

It is better to do one thing GREAT than several things mediocre! Find your specialty, tell me not what service you have, instead convince me what it is that you can do for me as a customer. How will I look, how will I feel, appeal to my vanity, my pocketbook, and my inhibitions, not what new equipment you have or service you can provide.

In a down market our Clients will be more careful with the money they spend. If you wish to compete on price alone then the world will go out of its way to do business with you. This presents a new set of opportunities if you can control your expenses to such a point that you can cater to a more “value oriented” customer then you will have more business than you know what to do with.

If on the other hand you cannot be the cheapest in town then you must become the best. So what is your specialty, what is your “unique marketing position”, what is your “market differentiator”?

Other Opportunities:

In economically difficult times many of your competitors will be going out of business. Such is the evolution of business, only the strong will survive! You are the strong, you are the fighter, and now you must be the hunter as well.

During your field trip you noticed competitors out of business. Where do you think their customers have gone (or will go)? Did they evaporate? How can you win those Clients? It is time to poach those Clients! Here are some ideas as to how to poach (perhaps you can think of more):

  1. If you know the “going out of business” Owner, then ask them if they will sell you their customer list. You may think of this as kicking them when thy are down, but believe me, they are desperate and they need to get their hands on some cash. So be careful not to overpay.
  2. Take a look at what equipment they may have (that you need) that you can buy on the cheap.
  3. Recruit Providers from the closing business, make sure you instill some humility into these new Providers and make sure they know that you will be doing things differently than they may be used to.
  4. Send a mailing to the neighborhood in and around these businesses inviting them to give you a try. Never, repeat never, say anything negative about the closing competition, and always empathize with the situation.
  5. Flyer the cars in the parking lot (if legal) again inviting them to try you out.

The point is, if you look hard enough and think differently than you have in the past, you will see great opportunity out there. This industry is about to consolidate (big time) and you want to be part of that consolidation, not a victim of it.

Next week we will talk about opening a Spa in this economy and how to leverage it to your advantage! So if you are thinking about opening a Spa you will want to tune in for that, in the mean time I invite DSA members to provide feedback as to how you are weathering the storm, and members feel free to post questions as well.

Best Wishes & Healthy Profits,

Skip Williams

How Can Your Spa Make Money In A “Down” Economy?

Skip Williams

Join the Discussion At the DSA Forum!!!

Dateline March 2008: Bear Sterns collapses, oil hits $120 a barrel, housing stats and housing values are at a 16 – 17 year low, the Dow Jones swings wildly often 200 – 300 points per day, and the credit industry threatens to take our economy deeper into debt.

What is a Spa Owner to do?

First we must keep our eye on the ball; despite how unsettling the economic news is these days, each of us must realize that we personally can not do anything about these events. In fact our individual successes is the best thing we can do for our country and our economy. So the lesson is to focus on what we do best and make it as successful as possible. The ripple effect of this is that we provide employment , and contribute to a healthy economy in each of our communities.

Despite what politicians tell us, our [collective] economic struggle will not be solved with greater consumer participation, but rather through greater productivity.

Second, we must seek opportunity that did not exist before. A bear market provides each of us with new opportunities and we must be sharp enough to recognize them and take advantage of them when they present themselves.

This is just as true for those of us who have been in business for a while as well as those about to get into the Spa business. I am more optimistic than ever that success can be achieved in, frankly, greater proportions during an economic downturn than during the healthy economic times. For you see that when business is easy, then all businesses seem to look the same to the consumer, but when there is tension and struggle the wheat is separated from the chaff. The professional organizations tend to stand out more from their competition and hold the loyalty of the Client.

Consumers can smell panic in a business and when the aroma of failure is in the air they will seek out your competitors and spread the word to their friends, further crippling your business. But therein lies the opportunity, because your competitors are feeling the economic crunch, some will go out of business, some are just scared, either way YOU stand to gain part of their market-share if you are the BEST and you remain optimistic.

Over the next three weeks I will share with you my strategy for weathering the storm, increasing business, finding opportunity, and enhancing your return on investment.

I will be writing 3 more posts, as well as answering your questions and learning from your feedback.The first will be, “Finding the Opportunity For Existing Spa Operations” , the second will b, “Opening A Spa During A Shaky Economy”, and the third will be, “New Opportunities For Investing In Spas Right Now”.

In the mean time, I would ask each of you to do 4 things in preparation for these posts –

1. Turn off the news; focus on yourself and what you can achieve. (Re)watch or (re)read “The Secret” or other materials that will help you “visualize” what you wish to accomplish.

2. Join the Day Spa Association and let’s band together to strengthen each other through education, networking, lobbying, and to use the benefits that members enjoy to better equip and manage your business.

3. Take a look at your operation (or visualize the operation you want to have) and ask yourself the tough questions:

a.) Are you poised for success?

b.) Are your expenses under control (payroll expenses in particular)?

c.) What are your market differentiators, what makes you different (or better) than your competition?

d.) Are you doing everything you can each day to drive more business through the door and control your expenses?

e.) Or are you already overworked and underpaid and don’t know which way to turn?

f.) What are your competitive advantages and disadvantages?

4. Take a field trip through your community and find the Spas / Salons that have already gone out of business , identify those that are about to go out of business, and then determine why they are failing. Then ask yourself what makes you different from the ones that are still left in business and why clients go to them instead of your facility.

This self-assessment , re-focusing, and competitive analysis will come in handy during our future posts whether you are already in business, want to open a spa, or are looking for opportunities for investment.

Until then,

Best wishes & Healthy profits,

Skip Williams