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Spa Businesses Hold On in Tough Times

The spa industry is feeling the pinch of a down economy as cash-strapped consumers forgo luxury pampering in favor of only the most essential grooming services.

The spa industry is feeling the pinch of a down economy as cash-strapped consumers forgo luxury pampering in favor of only the most essential grooming services. With some New York-based day spa proprietors reporting first-quarter losses of up to 40 percent, Spa Week, running Monday through April 19, looks to offer some financial relief with its highly marketed, well-known discounts.

“We haven’t been seeing as many new clients, and we’ve noticed that a lot of existing clients were rebooking less frequently because of economic reasons, so it’s been scary,” said Melissa Shea, the spa director at Amore Pacific Spa, a luxury skin care destination in New York’s SoHo neighborhood which, due to a 20 percent drop in service revenues compared with the same period last year, will take part in Spa Week for the first time. “For us it offers exposure to our spa, increased online visibility and most importantly, the opportunity to offer luxury services to clients that otherwise might have been intimidated by our price point.”

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Spa Week founder Cheryl Reid, who formed the promotional biannual event five years ago after seeing the success restaurant week brought to local businesses, said this month’s event marks the biggest Spa Week yet, with 675 spas participating nationwide. “There has been a 20 percent increase in spas that have signed on with us for April, because in this economy they need the business. It brings in so many more consumers during quiet times.”

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According to SpaFinder, a New York-based spa marketing and media company, the day spa business in the U.S. actually grew just under 10 percent year over year, from revenues of $8.9 billion in 2007 to $9.7 billion in 2008, with 51 percent of day spas, which account for 74 percent of the spa market, reporting revenue gains. But many New York day spa owners said the real downturn didn’t begin until December or January.

“It started back in October, but we didn’t really hit the bottom until January or February,” said Todd Walter, chief executive officer of Red Door Spa Holdings, who noted foot traffic has been down about 10 percent so far this year at Elizabeth Arden Red Door Spas. “Our total revenues are off about 12 percent for the first quarter, but we’re faring significantly better than the industry in general — which we hear is off anywhere from 30 to 40 percent — because our business is a lot more about maintenance and a lot less about luxury.”

Ling Chan, owner of Ling Skin Care, which operates three spas in Manhattan and specializes in results-oriented facials, agreed. “Our business is OK because we are not about pampering — our facial is strictly result-oriented. It’s about complete skin care.”

According to Walter, Red Door Spa’s loyal consumer base is still coming in for necessities like waxing and hair care, which are outperforming other services. “Our core guest has actually not changed her buying behavior — where we have seen changes and fewer visits is with the aspirational guest, who comes once a year for special occasions.”

It is those guests that Elizabeth Arden Red Door Spa hopes to capture through its participation in Spa Week, which it has done for the last two years. “There are two benefits that we look for in participation in Spa Week: The introduction of a new guest to the Red Door family and rewarding our existing guests with a better value.” According to company executives, Elizabeth Arden Red Door Spa receives about a 10 percent lift in revenue from weeks leading up to and immediately following Spa Week.

But for most spas, the injection of some much-needed revenue from Spa Week is only part of the survival kit helping them weather the economic storm. Many New York spa owners are trying to lure customers with value-added promotions, special offers and creative new offerings. According to a study conducted by SpaFinder, 66 percent of day spas nationwide said they plan to increase deals and unique promotions in 2009 versus 2008. According to the same study, incentives to attract new clients this year, outpace plans for discounts to existing clients by 11 percent.

Chan has added a workshop at her spas that teaches clients how to do at-home facials. The class is free of charge, but customers have to buy a six-product travel-size home maintenance kit, which costs $60. “It really kills two birds with one stone,” said Chan. “It teaches clients how to do the maintenance at home if they want to stretch time between facials but they have to buy the kit for their daily regimen.” Chan said her spa business has dropped about 15 percent since September.

The more moderately priced Graceful Services, which operates three Manhattan outposts that specialize in traditional Chinese deep tissue massage, has reduced regular prices to compensate for decreased foot traffic and a 20 percent drop in revenue for the same period a year ago. A facial that was originally $120 is now available for $80 and a 60-minute massage that was previously priced at $100 is now $80. “We’re trying to give better customer service now,” explained owner Grace Macnow. “We now offer a full hour massage, whereas before it was only 55 minutes. We’re also doing gift certificates, where if you buy 10 massages you get one free.”

Despite the rough economy, spa insiders insist there are bright spots within the industry. Many Manhattan day spa owners report steady weekend traffic and are optimistic that Spa Week will fill treatment rooms and convert spa skeptics into spa enthusiasts.

“With these types of economic times, people are approaching their wellness and health in a new manner,” said Lynne McNees, president of the International Spa Association. “Visits for luxury pampering have decreased, but there’s an increase for massage, in classes that focus on wellness and better nutrition. It really is the spa industry that is going to help people deal with the increased stress in their lives.”