Spa Business Model Series : #3 Product House

Spa Business Model Series : #3 Product House

Over the past two weeks, we’ve looked at the pros and cons of Self Managing your hotel spa and also working with a Spa Management Company. This week we’ll take a look at another possible business model to consider. One which might not seem so obvious. That option is, using a Product House, or a skincare company, as a true partner in your business.

Another possible business model for hotel spas would be partnering with a Product House. This is simply a company that manufactures skincare products. Pevonia, Decleor, Elemis, Clarins, Jurlique and L’Occitane are all examples of popular spa skincare brands. Some Product Houses may also have their own dedicated spa division which specialises in spa management and operates in much the same way as any other spa management company.

Even if a Product House does not have their own spa management division, it is still possible to use them to help run your spa. With any Product House, their main objective is to sell more product so it is in their best interest to help your spa succeed. The more treatments you do, the more products you use and the more potential there is to sell retail. If the skincare brand has a professional range as well as a retail range, they win in both cases.

Therapist Training

Clearly the most critical element for any spa is the people. Without well-trained therapists, the chances of your spa succeeding are close to zero. Product Houses will not necessarily be able to find therapists for you, but they will definitely be able to help you train them. They do this not for you but for themselves. The better trained your therapists are, the more products they sell for the skincare brand. Hence, a good skincare brand will provide training on both treatment protocols and retail product knowledge and selling skills.

Innovation Partner

Partnering with a Product House also means your spa will have regular updates to the treatment menu, albeit within the limits of the skincare brand itself. This is an important consideration as the skincare industry can be a very trend-focussed business. What is popular and fashionable today might not be tomorrow. Remember, though, that if your spa relies on a skincare brand for support, you will also be somewhat stuck with them. They may not insist on total exclusivity, but they probably will not be as supportive if you introduce skincare products from another brand.

A strong skincare brand can launch anywhere from ten to twenty new products every year to keep up with their competitors. It really is a dynamic industry. The way they make money with these new products is to create new treatments that use the products. When they do that, they need to come back and train your spa team again. Your treatment menu gets refreshed, your staff get more training, the brand sells more products. Everybody wins.

Collateral Matters

To further support these new product releases, the skincare company will also usually produce various collateral and promotional materials which are not specifically designed for your spa but can be customised or used as part of your own promotional materials. The best part about these collaterals is that they are invariably of high quality, using professional imagery and design. Most spas do not have the budget or expertise to produce such materials on a regular basis.

Free…kinda?

And the Product House is going to provide you all this training, marketing and support for free. Yes, free! Free like the toy you get in a Happy Meal at McDonalds. Free like the meals you get on a full-service airline. In other words, not free at all – the costs are factored into the prices of their products. As long as you keep buying product from them, they will continue to support you. As soon as you stop buying, the support will dry up. In a perfect world, both parties will benefit from this structure, but as we know, the world is an imperfect place. Ultimately, the Product House wants the spa to continuously buy more inventory. The spa, conversely, wants to keep inventory levels as low as possible while still generating good sales. This is where both parties need to be conscious of the other’s motivations and ensure good, open communication to avoid conflict.

The Fine Print

Some skincare brands insist on minimum order quantities before they will sell their products to the spa. This makes sense for them as they want to make sure they get a return on their investment of time and resource in supporting the spa. But the spa needs to be comfortable that those minimum orders will not become a burden on their business. Cash flow is vital to any spa business and to have too much money tied up in inventory sitting of the shelves can be crippling.

Skincare products do not last forever either. Most have a shelf-life of one to two years from the date they are produced. Be aware that several months can sometimes pass from the day the product was first manufactured to the day it ends up on your spa’s shelves. The spa needs to be mindful of the expiry dates of the products before committing to a large order. Unlike food products that often have either ‘Use By’ or ‘Best Before’ dates clearly printed on the package, skincare products instead use a rather complex coding system, called Batch Codes, to identify the production date. These are unique to each manufacturer. It is important then that spas understand this coding system and check each product when received from the supplier.

Local Partner

It should be noted that in the vast majority of cases, the Product House is actually represented by a local distributor which can add a layer of confusion and potential conflict to the arrangement. The distributor is usually the party that has to absorb the costs of hiring the trainers, producing localised collateral, etc. The Product House, the actual manufacturer of the products, sells them to the distributor at a discounted price. Selling price for the products is usually set by the Product House as they want to ensure consistent pricing across all markets so within the margin between what the distributor pays and what they are allowed to sell to the spa at, they must cover all the costs of providing support to the spa.

In addition to the inventory versus support issue, remember that the Product House is not running the spa. Unless they have committed to a spa management contract, as we discussed in the previous chapter, their role is that of a supplier and someone else has ultimate responsibility for the spa. The Product House can be a great support and they can help reduce the load, but the buck does not stop with them.

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