Retailing- The Formula
If retail is going to be one of the main focuses of your business (and it should be!), we believe that the appropriate space must be allotted, based on a practical 4-point formula; not an impractical guesstimate. Too much, or too little space allotted to retail can seriously impede your sales opportunities throughout the entire spa and for the life of the business. Use this formula to (re)assign retail space and help avoid the pains of an under-performing floor plan.
And know that if you plan on selling retail, you will be responsible for implementing the staff and supplier systems to ensure you reach your goals. Read more on Robust Retail and get great hints on how to keep these systems running well ONGOING.
Selling isn’t a hope, it’s a plan. If you are dedicated to focusing on great bottom line retail results, careful planning is important.
Your 4 steps to (re)allotting retail space:
- Know what your projected revenue is for each service department, such as massages; facials; body treatments, etc. (Service price X available hours X number of rooms @ % utilization);
- Assign projected/anticipated retail sales percentages to each service within each of your service departments. For example:
- Massage is not known for being highly retail-driven (although massage is often the most popular item on the menu – bad disconnect here), so you might predict 5-10% retail $ to service $ for each. So if you sold a $100 massage, retail might be $5.00 to $10.00… sad but true. I always recommend finding out what your Massage Therapists want to sell, and getting it in the door to make it happen.
- Body treatments should hold lucrative retail opportunities, given there is an endless supply of wonderful products available to support these services. So depending on your commitment to inventory (not to mention education and training), one might predict 25%+ for body treatments. But unfortunately we often see much less.
- Manicures and pedicures @ 20%+ should be a very fair assumption;
- Hair salon retail could easily be 50-100%+ of service. Hair removal services however, not so much in the way of retail , at 0-10% of service (although once again there are plenty of opportunities to maintain skin health here that are not being given priority);
- Facials are usually the #1 retail-driven service; coming in at anywhere from 20-100%+ of service revenue, dependent on many factors. So if you sold a $100 facial, you might project retail to be $20 – $100+.
Whether you have historical numbers to draw from, or you are “guesstimating” your sales volumes, make careful decisions based on research, so that your space requirements are realistic.
3. Calculate what your combined retail revenue projections are for all of your departments and determine what this equates to as a percentage of total sales.
- Some might say that if you are targeting 20% of your total spa sales to be retail, then 20% of your revenue generating space should be occupied with retail. Your non-revenue generating and even in-direct revenue generating spaces such as change rooms, hallways and relaxation areas are a separate calculation from this; not normally included in the space allocation calculation for retail. In other words, the amount of space you allot to retail, is directly related to its overall dollar contribution to the bottom line; just as your spa services are.
4. Dedicate spa retail space based on these assumptions. Here’s a hypothetical scenario with an easy to understand calculation:
- If your predictions tell you that you are going to do $500,000. in service revenue and $100,000. in retail revenue, that means retail is going to contribute approximately 20% of total revenue. So if you have 2,000 square feet of revenue generating space; you may end up assigning 20-25% of that space to retail (planning for growth), or 400 – 500 square feet.
Take this one step further
Now that you know the projected retail dollars for each department, assign appropriate space (and budget allotments) within your 400-500 square feet to correspond with those projections. For example, if your facial department is generating 50% of your total retail revenue, then allot 50% of the 400-500 square feet to retail. If massage is forecasted to generate 5%, allot 5% of the space, and so on. Oftentimes products will be displayed and inter-mingled between department categories, but you get my drift. But remember, you have a lot of control over what and how much sells – designing your retail space to suit your needs is a very important PROJECT.
Your needs should also be based heavily upon product margins of course. Prime real estate to top tier products. See our Product Margins blog for more on this.
Remember that all spas are unique
Your spa may break from the norm and actually generate higher retail sales with certain services than most other spas (or lower), so be sure to do your homework and know your situation. If you don’t have historical data, go with the general industry standards as mentioned above, combined with what you know and find in your research, and have that PLAN in place to actually achieve those numbers.
Be very careful not to allot more space than is realistic
If your retail sales volumes turn out to be lower than projected and you have given up too much space to retail, you may also find that you are now short on treatment room space because of these exaggerated predictions. This could seriously damage ongoing revenue opportunities. So be certain that when you commit to retail space, you are in tandem, committing to a retail sales program.
But your plan is the BEST plan…
If you have grand plans to make retail more than just a supplementary second revenue stream…good for you! Spread your wings as wide as is reasonable, and get that cash register ringing!
Having inventory throughout the spa is not that common anymore. I think that the complexities that surround monitoring this inventory, have caused many owners to opt to concentrate stock all in one place.
Those that do have inventory throughout the space must rotate it; count it; clean it; display it; protect it, and so on. I believe that extracting stock from remote display cases is asking for trouble, it’s much easier to control from one station that is set up to handle the step to step sales procedure. As a side note – I see a lot of stock that is basically inaccessible to the client: behind reception desks; enclosed in showcases; lack of testers; etc. Be sure to allow them to touch and feel. It’s ok to protect high ticket priced items however, such as skin care. Our “Categorizing your Inventory” blog will help you with this.