BW Confidential - Issue #6 - May/June 2011 - (Page 36)

Wellness Discounting in spas Deal breaker A discounting frenzy has taken hold in the spa industry, but what does this mean for the business’ long-term health? by Alissa Demorest T he spa industry has jumped onto the discounting bandwagon. Figures from industry association ISPA’s 2010 Spa Industry Study show that 54% of spas in the US are offering last-minute discounts through websites including Facebook, LivingSocial and Groupon. Its December 2010 Snapshot Survey revealed that 37% of ISPA members work with daily group buying websites, such as Groupon and LivingSocial. Spas, in turn, make up a substantial share of these discounters’ business—between 20 and 30%, say industry sources. You get what you pay for The hundreds of new customers that these group discount websites promise—and often deliver—have been a blessing for many spas struggling in a still-difficult economy. As a result, many individual operators have begun signing partnerships with daily deal sites. However, offering discounts of between 50 and 75% is problematic in an industry where many operators have trouble breaking even. Labor costs, for example, are a spa’s numberone expense at around 50% of operating costs. If a spa offers a treatment at 50% off, it is making nothing on the sale and also has to pay a commission to the daily-deal site. Multiply this by several hundred couponholders and it can put a small spa out of business. Vanessa Sitbon, founder of French spa operator La Sultane de Saba comments: “When you discount, your personnel needs to either be an intern or a trainee; the hourly wage for a treatment room is very high and you can’t feasibly discount two hours of treatment using qualified personnel”. Rather than discounting, La Sultane de Saba works with gift-card company Smartbox, and puts a cap on the number of treatment hours it allows for these consumers. The problem, say industry observers, is that many spas are using daily-deal sites to generate traffic in their new (or flagging) business, “ Working with a site like Groupon needs to be part of the company’s overall marketing plan. The goal is not to be discounting 100% of the time Groupon France marketing director Barbara Weisz rather than coming up with coherent, longterm marketing plans. “The mid or lower-level spas never really gave any thought to marketing when times were good. Now that times ” are bad, they are in peril and look to sites like Groupon as the saviour, which they clearly are not. Deep discounting in our industry is a dangerous path,” warns US-based consultancy Contento Marketing Group principal Nancy Griffin. Discounting sites, however, say that their services can be a powerful tool if used appropriately. “Working with a site like Groupon needs to be part of the spa’s overall marketing plan. For example, instead of doing advertisements a spa can do targeted operations with us twice a year and then go back to business as usual without discounting. The goal is not to be discounting 100% of the time,” comments Groupon France marketing director Barbara Weisz. Yet industry blogs are bursting with comments from operators who claim that these sites are aggressive and hungry: they take steep commissions on sales generated and do not always provide the guidance and partnership that they claim to offer. Many discounting sites also demand n n n May-June 2011 - N°6 - BW Confidential 36

Table of Contents for the Digital Edition of BW Confidential - Issue #6 - May/June 2011

Cover
Comment
Contents
Update
- Brand & retail news recap
- Digital digest
- Companies on the move
Take note
- Market facts, figures & trends
Best of BW
- Highlights from our e-publication
Launches
- The latest in fragrance, skincare & make-up
Interview
- Puig ceo Marc Puig
Insight: Skincare
- Category overview
- Department store initiatives
- Perfumeries
- The latest trends
Wellness
- Discounting in spas
- Spa case studies
Retail
- New store concepts
Travel retail
- Market analysis: Asia & Middle East
- Chinese travelers
Radar
- Four up-and-coming beauty brands
Market watch: China
- Analysis: country overview
- Industry roundtable
- Prestige retailing
- E-commerce
Packaging
- Decoration techniques
Last word
- LPK Beauty vp group creative director Liz Grubow

BW Confidential - Issue #6 - May/June 2011