Retailing has long been considered the magic bullet to spa profitability. However, the act of selling products doesn't ensure profitability. If you're retailing branded products, the keystone markup is 100 percent. In other words, the retail price is double the price you paid for it. Couple that fact with an average overhead of 40 percent, and a regular retail sale may not be all that profitable. The only way to truly profit is to sell products that have a better gross margin. An ideal solution? Offer your own private label line.
Today, clients are placing a high premium on value. When making a retail purchase, they are weighing the combination of features, benefits, and price that makes the most sense, rather than just being loyal to a particular brand. With this in mind, now is the perfect time to introduce your own line.
According to the Private Label Manufacturers Association, in the U.S., private label products account for 20 percent of items sold in supermarkets, mass merchants, and drug chains. Many consumers may not realize they're purchasing a private brand, such as Archer Farms at Target or INC International Concepts at Macy's. There was a time in the beauty industry when private label products had a nondescript, generic look and did not sell themselves. Today, you can combine label art and container styles in ways that allow you to create a unique, high-quality appearance for your own brand of spa products.
Some of the most effective private label strategies are those that are created and developed along with the spa brand itself. When you are in the creative stages of business development, knowing that you'll be offering private label products will likely influence your selection of logo, colors, and perhaps even your spa's name. However, not everyone has the foresight, energy, or money to start his or her own product brand when starting a spa business. "Most new owners are challenged enough with just the spa operation, let alone a retail brand that requires a business plan, sales and marketing plan, product knowledge, training, and menu development that is separate from the spa itself," says Rebecca James Gadberry, chairman and CEO of YG Laboratories. It may be easier to get the spa up and running and spend a few years on developing your spa brand before introducing it. The good news is that at that point, you'll have a sense of both the personality of your brand and your target market.
Selling an Experience
"Going to a spa is an experience, and when clients want to relive that experience, they remember the aroma, how they were touched, and how the products felt on their body," says Suzie Sommer, vice president of corporate development for Ready Care Industries. "When a spa does its job, the experience will be embedded in the guests' positive memories, and when they use the products at home, the aroma will take them right back." Private label products give you a way to differentiate your clients' experiences. "Using private label products amplifies and broadens your client's unique spa experience and reinforces your brand with every purchase," says Pam Busiek, president of CBI Laboratories. "The simple fact that your product is exclusive means it is part of an experience that can't be replicated anywhere else."
Making Economic Sense
Drew Allt, owner of Drew Patrick Spa (Bay Shore, NY), found the decision to create a private label line an easy one based on economics. What he found difficult was creating one that would meet the needs of most of his clients. "We developed two private lines and have a third in the works," says Allt. "One of our lines is positioned to connect to our local area using a local Indian name and ingredients that are native to our region. The other line is our signature line and is priced higher. We invest a great deal of effort into staff training and client education to ensure the best possible results from the products we sell, so selling our own brands simply makes the most sense for us."
Private label products generally cost anywhere from 20 to 40 percent of the retail price, an improvement over the typical 50 percent of a national brand. "Having our own skincare line allows us to double the typical retail commission to our staff and still walk away with more profit," says Yevgeniya Brazy, owner of Russian Day Spa (Colorado Springs, CO). "Stocking inventory is more affordable, and our back bar costs are half of what they were."
There are many choices when it comes to the appearance of your line. You can purchase products in plain packaging and have labels designed and produced separately and affixed when they arrive, although this isn't ideal for a busy spa. "If you are preparing a private label skin- or bodycare line for the first time, it can be time consuming, but no different than designing the layout of your facility or deciding what services to offer," says Debbie Fitzpatrick, vice president of sales for Botanical Science Technologies.
Many private label manufacturers will send products with the labels already applied. You can provide the label art, or you can work with the in-house designer at the manufacturer.
Prior to finalizing the name of your brand or products, be sure the names you've chosen are not already trademarked by another business. In the spa industry, many of the obvious ones are already taken. Feel free to make up a word that is evocative of the feeling you're trying to create. Also, FDA guidelines mandate that the brand name and point of distribution be printed on cosmetic labels. Get the information you need from the manufacturer to be in compliance, or you'll end up with products you can't sell. "Make sure any manufacturer you work with follows the 'Good Manufacturing Practices' outlined by the FDA," says Gadberry.
Sommer also advises paying attention to ingredient labels. "Make sure a manufacturer is not padding the list with ingredients that look good but are used in such small quantities they don't have any effect," she says. "Also, ask about minimums in orders, dollar amounts, and number of pieces, and find out what kind of marketing support they'll be able to give you."
"When clients use your private label product, they see your spa's name every morning and evening" says Gadberry. "It's like having your business card taped to their mirror." Aleks Vranicic, director of U.S. sales for Preston Inc. and co-owner of Yelka Day Spa (Los Altos, CA), has been using and retailing private label products for years. "Private label products provide great profit margins that allow you to get creative with promotional and marketing ideas, donate products to charities, pay higher commissions, and still generate a profit," says Vranicic. "In addition, once you've established your brand, it really helps with client retention. Clients know they can only get their products from your spa and not at a discount on the internet from someone else."
Vranicic says having a private label brand has done wonders for his business. "We've been more excited about our brands, so they've been easier to promote to our clients, and, as a result, we sell more," he says. "Right now, with the slower economy, every penny counts, and with our higher profit margins, we are maximizing every sale." —Lisa M. Starr
Lisa M. Starr is the senior east coast business consultant to spas and salons for Wynne Business. Her expertise includes business operations and finances, marketing and advertising, inventory management, human resource development, sales, and public relations. Email her at [email protected].