26 May 2018 Spa Business Handbook
 

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Spa Business Handbook - US Luxury Spa Performance

Research

US Luxury Spa Performance


STR’s Jan Freitag analyses the performance of US spas, including average revenues and utilisation rates, in luxury hotels in 2012 based on findings from the SpaSTAR benchmarking report

Jan Freitag, Smith Travel Research (STR)
The average treatment rate dropped in the first 10 months of 2012 but only by a couple of dollars Pressmaster / shutterstock.com
It may be harder to raise salon service rates (compared to therapies) as consumers know what prices to expect Gemenacom / shutterstock.com
Many spas need to address the problem of declining retail sales as this can be one of the most profitable areas Tyler Olson/ shutterstock.com

Smith Travel Research’s (STR) SpaSTAR report is based on 45 luxury hotels with spas in the US. Each month these spas send STR their performance figures covering treatment (such as massages and facials), salon (such as manicure, pedicure and hair services) and retail operations. In this article we examine some of these metrics and put them into context.

The latest data available runs up to October 2012 and we discuss the operational performance of the three operations centers in light of this. Please keep in mind that the sample set of this data is rather specific: these are high-end spas in high-end hotels in the US. In other words, results from these studies should only be used as directional indicators and may or may not reflect the trends in your spa. They would not be a good indicator for free standing day spas, for example. We do believe, however, that they show how the industry fared for the upper end of the hotel spa segment last year.

Treatment results
The average treatment rate (ATR) for the first 10 months of 2012 dropped by 2.2 per cent from the same period in 2011 to US$134 (€104, £88). This drop reversed a trend we observed in 2011 when ATR picked up slightly and increased 0.6 per cent from the first 10 months of 2010.

The monthly average performance, reveals that the ATR increased in the beginning months of the year 2011 and then dropped again starting in late 2011. Yet in 2012, operators were not able to stem the slide. It needs to be pointed out, however, that the monthly declines were only between US$1 and US$3 on average.

Following the general trend in ATR, the average utilisation of treatment rooms increased in 2011 and then dropped in 2012. In October, the year-to-date utilisation stood at 26 per cent, down 2.7 per cent from the first 10 months of 2011. As always we caution that the interpretation of this utilisation number through ‘hotel operator glasses’ will cause consternation and lead to asking the wrong questions. Since treatment rooms are open up to 12 hours per day and can be occupied by the hour the utilisation rate is hardly comparable to a hotel occupancy rate which routinely ranges between 60 per cent and 80 per cent.

The question for operators in 2013 remains how to increase utilisation and ultimately ATR. New service offerings to drive more customers to the spa and tight monitoring of opening hours are essential to assure ongoing profitability.

Salon results
After initial stagnation in the average salon rate (ASR) – covering services such as manicures, pedicures and hairdressing in spas – we saw some improvements in this department in 2012 as shown in Graph 3. The ASR increase to the end of October 2012 was only 1.5 per cent over the 10 months but given the uncertain macro economic environment and decreases in ATR any good news is worth highlighting. Looking back further, in January 2010 the ASR was US$60.08 (€46.83, £39.50) and in October 2012 it was US$61.43 (€47.88 £40.39). An interpretation of the steady pricing may be that commoditisation of salon services makes it harder to increase rates. Consumers can’t easily compare treatments, especially if operators use different names for the same treatment, but on the services side the outcome expectation is well set and consumers know what they get from spa to spa and expect to pay similar prices.

Salon station utilisation has been on a downward slide for the last two years . The latest annualised utilisation rate now stands at just under 16 per cent, down from almost 18 per cent in early 2010. Again, these numbers need to be seen in the context of seats in the spas being available for 12 or more hours per day and therefore utilisation rates are expected to be lower than hotel occupancy rates. To interpret if the current level of utilisation for our sample is high or low depends on the individual spa manager’s point of view.

The question for operators in 2013 is how to increase salon station utilisation since revenue gains seem to be hard to come by.

Retail sales
Rather than provide a total retail sales number per spa we calculate the average retail spend per treatment. This number has declined over time and now stands at US$18 (€14, £12), down from US$23 (€18, £15) in 2010. Since the average treatment room utilisation has declined, as discussed, and assuming that the treatment room availability has remained somewhat static this can be interpreted to mean that treatments and total retail sales have both declined. In any case, this decrease is probably the most remarkable fact in this feature since it could be argued that the decline in this number hits the spa bottom line disproportionately. If spa managers could increase one number to make spas more profitable that number is probably the amount of retail revenue.

Summary
In 2012, the US luxury hotel industry continued to recover demand and the average daily room rate (up 4.6 per cent) that was given up during the 2009 economic slowdown. The next step forward is to continue increases by pushing auxiliary revenues in other departments such as F&B, meetings and spa.

As demand for hotel rooms increases it is more important than ever to target hotel guests and make spa treatments accessible by providing an attractive value proposition. Treatments and salon service offerings need to be communicated effectively to increase utilisation and ultimately treatment and service revenues. Spa retail revenue is more profitable than the other spa departments so extra care needs to be taken to increase retail revenues from existing guests.

Progressing through 2013 we are expecting that as the ongoing hotel recovery finally spills over, we will be able to show some positive results on the spa side. We are expecting room occupancies in luxury hotels to continue to grow, so now it is time to start bringing more of those hotel guests into the spa.


Join the SPA STAR report
Smith Travel Research (STR) first launched the SpaSTAR report in 2007 as an online benchmarking tool for hotel and resort spas. Its definitions are based on the uniform system of accounts for the spa industry by the International Spa Association (ISPA) which has been sponsoring the report since 2010.

It’s free to participate in and receive a monthly SpaSTAR report which outlines nationwide metrics on nine spa performance indicators providing valuable and much-need information to spa operators. However, there is a fee for competitive set analysis.

Sign up today: www.spa.str.com


ABOUT THE AUTHOR
Jan Freitag is the senior vice-president at Smith Travel Research (STR) which offers its hotel STAR benchmarking to more than 43,000 chains globally. He’s also responsible for growing the STAR report in other areas and sectors with the spa industry being an obvious fit. Prior to STR, Freitag focused on hospitality consulting for hotelreports.com and Ernst & Young in the US.
Email: jan@str.com
Phone: +1 615 824 8664
Twitter: @Jan_Freitag


Originally published in Spa Business Handbook 2013 issue 1

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