Spa Industry Tones Up

ByChristina Valhouli,

July 18, 2002 -- These days, when many travelers check into a hotel, they can choose to battle jet lag by working out in the health club or, as is becoming increasingly popular, unwind in the spa.

For years, spas were seen as havens for the rich, places where privileged muscles could be soothed and pampered, and skin rejuvenated.

Today, however, thanks in part to the economic boom of the 1990s and the growing trend among Americans to indulge themselves, spas have become increasingly popular — and profitable.

According to a study from the International Spa Association and PricewaterhouseCoopers, the spa industry had revenue of $5 billion in 1999, the last year for which data exists, and the number of spa locations doubled from 1994 to 1999, with an annual growth average of 19 percent.

In 1999, there were approximately 90.7 million spa visits in the United States.

The profit margins are also high. According to Cristina Ampil, PricewaterhouseCoopers' hospitality and leisure analyst, the average profit margin for all four types of spas — club spas, day spas, resort and hotel spas and "other" spas — is 17.3 percent, with the highest profits coming from day spas.

But unlike those other temples to physical well-being, health clubs, spas remain stand-alone operations. While the industry is growing quickly, it continues to be largely fragmented, and a major chain spa has not emerged as a front-runner.

Bubbling With Opportunity

The appeal of a chain spa is that it would reach a mass-market audience, and treatments could be offered at lower prices, which would appeal to both investors and potential clients.

Many spa analysts are eyeing malls as a potential growth area because of their high traffic and square footage.

The major obstacles standing in the way of a creation of a chain spa are financing, lack of management expertise, overly rapid expansion and fear of diluting quality for quantity, according to industry experts.

"Everybody is trying to position themselves as a chain spa, and there's a lot of buzz going on that the time to do it is now," says Gayle Brady, vice president of ISPA. "The problem is that growth has come quicker than expected."

The best way to describe the growth of the spa industry is to compare it to an awkward teenager just hitting puberty; the industry has grown too fast too quickly and doesn't quite know what to do with itself.

Despite the fast growth, the industry remains surprisingly fragmented — the approximately 5,700 spas in the United States are operated by roughly 5,000 different organizations.

The Contenders

Currently, two companies are poised as potential front-runners to become chain spas: Nassau, Bahamas-based Steiner Leisure and Miami-based Elizabeth Arden.

Elizabeth Arden has more spas, but Steiner has more square footage, since it operates mega-spas on 110 cruise ships, as well as 50 resort spas and about 17 luxury day spas.

Spas on cruises are a smart idea; cruise ships guarantee a captive audience, and a vacation mentality makes pricey spa treatments easier to swallow. Last year, Steiner's revenue was about $194 million.

Many insiders thought that Bliss, a New York spa started by Marcia Kilgore that was bought by luxury conglomerate LVMH Moët Hennessy Louis Vuitton in 1999, would be an obvious choice for a chain, since it had high visibility and backers with deep pockets.

People in the industry say that Bliss has actually scaled back on plans to expand from its three locations (two in New York and one in London) and will focus on selling its products via mail-order catalog instead, which is more profitable and doesn't require the expensive overhead of a brick-and-mortar building.

One analyst estimated that Bliss's catalog, which has 11 million subscribers, contributed to 35 percent of the company's total revenue (the company itself is mum about revenue).

In the fall, Bliss will add a "beauty bar" at the Harvey Nichols department store in London, which will provide quick-fix treatments to customers, such as manicures and waxing.

‘Heart and Soul Business’

Still, many wonder why, given the increasing popularity of spas, no major chains have emerged to dominate the market.

"One of the big questions we're asking ourselves is why chain spas do not exist," says Ampil. "With such huge growth, why is financing a problem?"

One answer is that it's difficult to raise the capital for rolling out a chain of spas because of high overhead and startup costs. The other problem is managerial. Many spa owners are former therapists who may be pros at Rolfing your back but do not have business sense.

Although it sounds clichéd, like the proverbial artist who doesn't care about profits, that sentiment was repeated over and over by analysts as well as spa consultants such as Brian Paris, director of the Sundance Spa, who has consulted on more than 28 spas.

The nature of the business is also volatile since it depends on the skills of therapists, who need to be well-trained and well-compensated. "You have multiple factors going on, and it's not like serving coffee," says Maurice Voce, vice president of marketing at Steiner Leisure.

The high turnover rate is also a problem — "Retaining people is a headache," says Ampil. While some therapists do develop a following and branch out on their own (such as Bliss's Kilgore, who started her practice in her apartment), many lack business savvy.

As ISPA's Brady put it diplomatically, "There's a lot of heart and soul in this business, so it's not always about the money."

The best comparison is the hair-care industry. While a few luminaries, such as Frédéric Fekkai and Garren, have struck out on their own, the field is still dominated by boutique shops rather than large chains.

Hotels continue to be a major destination for spas, because the hotel can finance spas and vacationers usually don't bat an eye at the spa's costly treatments. "When you're on vacation, especially in a place like Las Vegas, there's a certain euphoria," says Brady. "You don't mind spending the money."

Many hotel spas are also open to the general public to attract a wider clientele, and some hotel chains, such as the Mandarin Oriental, are equally known for their spas as well as their rooms.

"Having a spa is almost a required entity today," says Anne McCall, general manager of the Toronto-based Fairmont Hotels & Resorts. "When a meeting planner is looking at your facility, one of the first things they ask you is if you have a spa."

Fairmont is in the midst of rolling out a chain of separately branded spas, called Willow Stream, within its hotels. The company spent around $20 million on six new spas in Scottsdale, Ariz., Bermuda and Mexico, among other locations, and has plans to add nine more in the future.

Unexpected Concepts and Locations

A top priority was to lure more men to the spas, since 50 percent of the hotel guests are men, says McCall, so one part of the budget went to pay a cultural anthropologist who quizzed men and women about their bathing habits and least/most favorite body parts.

The anthropologist learned that men feel uncomfortable parading around in bathrobes, so Willow Stream will issue men boxer shorts in a new program dubbed "Keep your shorts on."

Because of financing and management difficulties, spas are popping up in unexpected places.

Liz Mazurski, the editor in chief of Santa Barbara-based Spa magazine, says spas within health clubs are a growing trend and are possible contenders to become a dominant chain spa. Gold's Gym, which has 620 locations, is rolling out spas, but insiders sniff that any treatments aimed at sweaty beefcakes can't be very good.

The Sports Club Co., which has locations in Los Angeles, Boston, New York City and San Francisco, also has its own line of spas, called Splash, which are open to nonmembers as well. Spas are also an increasing presence on cruise ships and within airport lounges.

"The fitness facilities are well positioned to do this because they're in a membership situation," says Brady. "The customer is already within the building, and they've already paid their monthly club dues."

And the customers are helping to defray the cost of the spa, since it's not a standalone structure.

A Question of Quality

The other problem holding back the creation of a chain spa is that many spa consultants and managers fear the experience will become diluted. "Look at Marcia Kilgore of Bliss," says Brady. "How do you take her idea, her personality and her skill, multiply it by 50 and still guarantee a great facial?"

Of course, therapists can be trained, but then quality control becomes another issue.

But it is the shopping mall that, in the opinion of Ampil, has the greatest potential for a chain spa. Steiner Leisure already has spas in some suburban malls (such as those in Birmingham, Ala., and Coral Gables, Fla.) and plans to roll out more.

While mall spas will be targeting middle America, customers may balk at the high prices. To combat that, another blossoming trend is "mini-treatments," where treatment time for massages and facials are cut in half (of course, the treatment is less comprehensive, so clients get what they pay for).

The faster treatments result in lower prices, and higher turnover rates in treatment rooms.

"I think we will start to see spas in malls soon," says Brady. "There's clearly a need, and it also needs to be affordable. If someone can figure out how to do that, they'll be answering the multimillion-dollar question."

For more, go to

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events