THEM WELL SO YOU CAN BE
AS RELAXED AS YOUR GUESTS
By Patty Monteson,
New England Real Estate Journal
August 16 - 22, 2002
The development of
resort-based spas has increased in the past 15 years and today
most resorts either have or are planning a spa. Once considered
marketing tools for a resort, these spas now must be viable
businesses in and of themselves. Many spas are "lazy assets"
and there are missed opportunities to increase revenues, contain
expenses, offer incentive-based compensation programs, generate
higher profits and create retail "annuities." With
millions of dollars being poured into spa development, owners
and investors should see a realistic return on investment; therefore,
it is important to start the process with a solid foundation.
Here is a step-by-step process that we typically follow when
planning a spa.
Identify the Objectives
- Most of our clients want to have a spa that will be a profit
center, improve the marketability and profitability of their
core business and, in some cases, help sell real estate. Remember,
if you have a mixed-use property and are selling homes, condominiums
or even timeshare, you are selling a lifestyle. Often the spa
is an important component of this lifestyle.
During this stage
you want to also identify your market - present and future.
We have found that spas have a profound impact on the decision-making
process when choosing a property. Research conducted by our
company has found that 81% of spa-users would choose one resort
over another because it had a spa.
Develop the Concept
- Next, determine the type of spa and the guest experience.
This program will drive the facility planning. Some spas will
offer a sense of place and the spa reflects the geographical
or historical aspects of the area. Others may take a theme,
e.g., Asian, and then plan the spa services and facility around
this. When developing your concept, you need to create the experience,
touch the senses, evoke the feelings and create the memories.
You need to know
your market and understand what your competition is offering
and then create something that your market wants, your competition
is not offering and will help you increase and deepen your market.
Be careful not to come up with a concept that is so esoteric
it limits and/or alienates your market.
Plan the Facility
- As you develop the design theme you need to create the story
and set the stage for your concept. It is critical that the
spa is comfortable for your guests so it really can be an experience
for them. Some other things to remember are the spa should be
easy to maintain, be operationally efficient and have the ability
to be profitable for owner/operator.
The size is based
on the market demographics, market mix, hours of operation,
concept, objectives, budget, etc. Remember, bigger does not
necessarily mean more profitable. We believe it is imperative
for the spa to have enough profit centers and comfort zones.
If you think there is a chance for an expansion of the spa in
the future, plan for it during this stage.
As for location,
provide easy access for your guests and, if you plan to have
a day spa component, for non-resort guests also. Whenever possible,
combine indoor and outdoor space.
Determine the Start-up
Costs - Next, put a price to all this planning by determining
your costs for construction, general FF&E, spa-specific
FF&E and pre-opening costs such as training, marketing,
etc. It is not uncommon for a four-star quality spa to have
a turnkey cost in the range of $350 - $450 per square foot.
A five-star quality spa can cost $450 - $550 per square foot
and, in some cases, higher. At some point, you need to evaluate
the developmental cost and projected revenues to determine if
you will be able to get the necessary return on investment.
Prepare the Proforma
- You need to prepare realistic financial projections for the
spa. In the Spring of 2002, our firm surveyed 28 resort spas
and found they contributed an average of $35.28 per occupied
room to the resort.
Our 1999 HFD Economic
Study of 30 Resort-Based Spas found that most revenues (55%)
come from ala carte services. This survey also found that most
spas receive about 10% of their gross revenue from retail. We
believe a more acceptable number would be 15%. Retail should
be an on-going extender of your brand identity and equity. It
is the only annuity a spa has because it is consumable and also
has the highest profit potential since it is not labor intensive.
In terms of intangible benefits of the spa, our 1999 study showed
(via responses by general managers) that spas help resorts in
terms of their marketing advantage, revenue/occupied room, occupancy
and perceived value for room rate.
Labor is the most
expensive operating cost. Planning less labor-intensive facilities
and creating the right compensation program is critical to the
financial success of the spa. In a stabilized year, payroll
can be 35% - 45% of gross revenues. With benefits, it can be
55% - 65%. Operating expenses are usually between 13% - 20%
of gross revenues.
spas are not independent business units. The hotel often covers
many of the expenses and very few, if any, pay rent. When the
spa is being charged in full or on a pro-rated basis for most
expenses, with the exception of rent, the profit, as a percentage
of gross, is in the range of 15% - 25%. If the spa is more of
a department (primarily responsible only for payroll and product-related
costs), the range is usually between 30% - 40%.Summary - While,
it's easy to get caught up in the excitement of spa development,
it is important to understand the development, financial and
operational realities of the spa if you want it to be a profitable
business that can be both a tangible and intangible asset for
ISHC, is the co-owner of Pompano Beach, Florida-based Health
Fitness Dynamics, Inc. (hfdspa.com), an internationally recognized
firm that specializes in the planning, marketing and management
of spas for fine hotels & resorts, day spas and mixed-use
properties. Since 1983, HFD has been the consulting firm to
over $600 million of completed spa development and views each
project from a business perspective so the spa asset can be
as valuable as possible. A partial list of clients includes:
Cranwell Resort, Spa & Golf Club; The Homestead; Four Seasons
Hualalai; The Salish Lodge; Miraval; Pinehurst; Delano; Bacara;
The Greenbrier; Topnotch Resort & Spa; La Posada de Santa
Fe and Hotel Crescent Court.
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Fitness Dynamics, Inc.
1305 N.E. 23rd Avenue, Suite 2, Pompano Beach, Florida,
954-942-0049 - Fax: 954-941-0854