Third Quarter Forecast 2011

Events across the world stand to affect your day spa’s bottom line.

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As 2010 yielded to 2011, economic optimism seemed on the verge of blossoming. The U.S. economy had seen four consecutive quarters of growth, unemployment had begun to drop and it appeared we would finally begin to see signs of sustained recovery from the worst recession in 80 years. In the span of a few short months, however, events overseas—Japan’s devastating earthquake and tsunami, the overthrow of the Egyptian government and Libya’s sudden civil war—tempered that spirit. Unrest “over there” translated to consumer uncertainty over here; and previously mounting confidence in a strengthened U.S. economy was again overruled by fear and trepidation.

So what does this have to do with your day spa? Let’s look at the direct impact: The current unrest in the Middle East and North Africa affects worldwide oil supply, resulting in gas price hikes—to more than $4.00 per gallon in some parts of the U.S. As a result, the already cautious consumer is pulling back even more this quarter. Heightened global conflict and natural disasters aren’t helping overall confidence levels either. In January many economists forecasted a robust first-quarter growth of 4%, but by April, most were predicting 2% or lower for the second quarter.

For a macro perspective on business today, I turn to New York Times columnist Thomas Friedman, who summarizes the scope of the 21st century in his best-selling book, The World is Flat. “Right around the year 2000, we entered a whole new era: Globalization 3.0,” he writes. “[It’s] shrinking the world from a size small to a size tiny and flattening the playing field at the same time.”

Here are a few key guidelines on how to reconcile our flat world with the big picture as well as expert tips to help you weather consumer withdrawal and higher costs as we embark upon the third quarter.

A Global Affair

Angela Cortright, owner of Southern California–based Spa Gregorie’s, has felt the impact of this smaller, flatter world—especially the ripple effects of skyrocketing oil prices. “All suppliers are dependent on transportation companies, and the rise in oil and other costs impacts our bottom line as well as our customers’ spending power,” notes Cortright, who’s seen a lot of ups and downs since opening in 1998. “We know that low consumer confidence tends to impair our business, since spa is a non-essential,” she says. “And global unrest is not good for confidence.”

But Rianna Riego, principal of consulting resource Global SpaVantage, detects a silver lining in the global storm cloud. “As the spa world evolves in response to consumer needs and budgets, I don’t see much of an impact on this side of the world,” she says. “Remember that the emerging markets for spa growth are in Asia and the Middle East. So while the shrinking global economy causes short-term challenges for spa owners, long-term opportunities abound for those who engage in the new small-world order, and take advantage of growing markets outside the U.S.” More precisely, now may be time to look into foreign suppliers, spa trends, partnership, and perhaps even global expansion.

Global uncertainty will most likely continue to taint 2011, and though your first instinct may be to hunker down and wait it out, experts say times like these are ideal for action, not passivity. Your competition’s in the same boat right now, and a proactive spa owner will position his or her business for a triumphant return once recovery resumes. Here are five suggestions to help your spa stand stronger once the global fog lifts.

1. Watch what you spend

Make sure you have controls in place to prevent wasteful spending by employees. If you don’t already, now is the time to require that all expenses be approved by you or a trusted manager. Obtain competitive pricing from alternate product and supply vendors. Get rid of stale inventory, even if you have to sell it near cost, and don’t replace it. A little bit of saving in a lot of areas adds up, and actually improves your cash flow, even when sales are flat.

After the recession hit, Cortright took a close look at the use of linens at Spa Gregorie’s. “It may be hard to believe, but we found out that providing an extra towel during each treatment was costing the business $12,000 a year,” she says.

2. Practice targeted marketing

A sputtering economic recovery is no environment in which to wait for clients to come your way. Slow periods give you more time to get out into the community and promote your spa. Sponsor a local event or set up a booth at a neighborhood festival. Cortright uses sluggish times to focus on reclaiming former guests. “I circle back using our email campaign program to blast specialized incentives,” she says. “We’ve also introduced a facial club deal to appeal to those who’d like to come back but have budget or convenience issues.”

3. Get adventurous

According to Riego, recent events have illustrated the importance of innovation in the industry; with peoples’ changing perspectives on ‘spa’ comes an opportunity to kick it up a notch. “Clients are more educated, knowledgeable and price-conscious than ever,” she says. “I challenge owners and operators to think outside the box, key in to what clients really want, determine what would set you apart from the competition and try new things. Integrate wellness programs that include holistic practitioners, launch a regular speaker session, or partner with community wellness centers. Create loyalty programs to reward frequency and per-visit expenditure.”

4. Clean house

The historically high U.S. unemployment rate is a major contributor to low consumer confidence, but it also creates hiring opportunities for your spa business. The sea is rife with fish right now. If some of your employees aren’t strong performers, tap your network for contacts to help find under- or unemployed people with experience and solid recommendations. You can also explore virtual recruiting tools such as Monster.com, massagejobs.com and BeautyTech.com.

5. Consider refinancing

If you have any business debt, now’s the time to set up an appointment with your banker and request a longer term on your loan. For instance, a $100,000 loan with a 7% interest rate that’s being repaid over three years requires a monthly payment of $3,088. Stretching the repayment term to five years would bring it down to $1,980. This is also a great time to consider a new bank; with the economic recovery underway, they’re all hungry for new borrowers. Take advantage of this highly competitive environment to better the structure and lower the costs of your financing.

Our flatter world’s direct economic impact has resulted in a cloudy forecast, at least throughout this quarter. Rather than passively long for the days of a booming economy and a peaceful world marketplace, use the above actions to survive—and even thrive—in the uncertain global environment of 2011.

J. Tol Broome, Jr. is a freelance financial writer.