Thinking of Jumping on the Spa Bandwagon?
Look Before You Leap

Patty Monteson, ISHC and Judy Singer, ISHC

Today's resort spa-user is increasingly integrating "spa life" in their day-to-day life at home doing regular exercise, recreational sports and pampering oneself with massages, facials, manicures and pedicures. Spas are no longer just indulgences during annual vacations. They are important centers for overall well-being and healthy mind and body maintenance. As a result, spa-users expect and insist on having these facilities and services available to them while traveling.

In an effort to capitalize on the growing demand for spas, hotels and resorts are "jumping on the bandwagon" to say they have a spa. Not all of these ventures are thoughtful with regards to the planning and operation of the spa. This was illustrated in a recent article in The Wall Street Journal written by Michelle Higgins. Entitled, "You Call This a Spa," the article cautioned readers that they are playing spa roulette when using spas at hotels and resorts. She informed readers that if they thought they knew what a spa was, they should guess again. She and her team went on a cross-country tour of 10 hotel spas which she described as an assignment that ranged from "blissful to blistering." They discovered that there was no consistency of standards among the spas visited and featured in the article. The article went on to say that apparently, their experience wasn't unique and quoted HFD research which stated that only 30% of men and 50% of women would return to the spa they were visiting. This quote was taken from the 1997 HFD Spa-Goer Study which included responses from almost 2,400 people who were using the spa at one of the 28 resorts in the study. When asked, "After Going to a Spa, I Feel...," only 43% of the respondents said that they wanted to return.

Today's hotels and resorts need to provide a special spa experience to their guests while, at the same time, recoup their investment which, in some cases, can be significant.

Recouping Your Investment in the Spa

First of all, the spa should be a tangible asset. Although the spa business is "booming" and spa operators are generally satisfied with their "success," we think most spas are "lazy assets" and are leaving significant profits on the table. We believe the owner's expectations of a spa's profitability are so low that they consider anything over break-even as "doing well."

As part of its consulting practice, HFD conducts numerous economic research studies. This is always a challenge since not all spas keep track of their data (this is sometimes a sign that the spa is not viewed as a serious and accountable business) plus there is no Uniform System of Accounting for Spas which means it's difficult to accurately compare numbers (HFD has just completed a system that it will be introducing to its clients). Keeping these two points in mind, in the 1999 HFD Economic Study of 30 resort-based spas (some are independent business units and others are partially subsidized by the resort....neither pay rent), we found the following (as a percentage of gross revenues):

• Payroll: 35 - 45%
• Payroll w/benefits: 55 - 65%
• Operating Expenses: 13 - 20%
• Net Operating Profit (all expenses, excluding rent) = 15 - 25%
• NOI with Payroll and Products Only = 30 - 40%

From this information, HFD developed its own guidelines so that spas have a goal. We believe the "blended" industry benchmarks (combination of spas being operated as an IBU and those which are mostly subsidized by the resort) are as follows (as a % of gross revenues unless otherwise stated):

• Payroll and benefits 55% or less (40% without benefits)
• Retail sales at 15% or more of treatment revenues
• Operating expense at 15% or less
• Net operating profit of 30% or more

The spa can be a profitable business if it is planned, marketed and managed properly. We suggest setting the standards and expectations and making sure the spa is an accountable business.

Secondly, the spa should be an intangible asset for the resort. In the 1999 HFD Economic Study, we asked the following question: "Does Spa Enhance or Increase... " The percentages of "yes" answers from the general managers and directors of operations were:

• Marketing Advantage - 97%
• Revenue/Occupied Room - 83%
• Occupancy - 73%
• Perceived Value for Room Rate - 70%
• Room Rate - 57% * Length of Stay - 43%
• Number of People/Occupied Room - 27%

Furthermore, in the 1997 HFD Spa-Goer Study, we found that 81% of the people in our survey would choose one resort over another because of the spa.

Lastly, the spa should contribute to the asset of the resort. An example we are familiar with involves a spa that cost $1.5 million and was able to add $5 million to the sale price of the resort when it was sold. This was based on the future potential of the spa since it wasn't even open one year when the sale was finalized.

As spas continue to be the trend, try not to be trendy. Don't be another "me too." Spend time understanding the market and the business. Set high expectations, establish measurable goals. Spas are "hot" and it's easy to get burned. Stay focused on delivering the promise.

About the Authors:

Patty Monteson and Judy Singer are co-owners of Health Fitness Dynamics, Inc. (HFD), an innovative full-service spa consulting company. Since 1983, the Pompano Beach, Florida corporation has worked primarily with fine hotels, resorts and mixed-use developments to help plan, market and manage health spas that are service-oriented profit centers. HFD has been the spa consulting company to more than $600 million worth of completed spa development.

In addition to its consulting, HFD had funded and conducted several marketing and economic studies. HFD has surveyed more than 6,000 people in 3 landmark Spa-Goer and Non Spa-Goer studies. The company has also conducted numerous economic studies on the financial potential, costs and realities of marketing and operating spas. . Top

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