Breaking Down the Big Five
ISPA Research Highlights the Pandemic’s Effects
By Josh Corman
The 2021 ISPA U.S. Industry Study’s “Big Five” Statistics were revealed live to attendees of the ISPA Stronger Together Summit in May by Colin McIlheney and Russell Donaldson of PricewaterhouseCoopers (PwC). Predictably, the new figures reveal a significant drop in overall industry revenue, total number of spa visits andthe total number of employees—full-time, part-time or contract—working in the industry (see page 14). But behind those stark figures lie a number of important observations about how the spa industry has been affected by the COVID-19 and what the next phase of its recovery might look like.
What’s the Damage?
After more than a year of spa closures, occupancy limits, travel disruptions and staff reductions, it wasn’t particularly surprising to learn of the pandemic’s substantial effect on nearly every one of the Big Five. “Clearly, because of the pandemic—lockdown, the fact that people could not get out to go to spas, the obvious difficulty traveling to get to remote locations— this had a severe impact on all the key metrics,” noted Colin McIlheney, leader of global research at PwC. “I feel it’s very incumbent on us, having been with you for such a long time doing these numbers, to highlight clearly the impact that the pandemic has had on the industry.” McIlheney also pointed out that, at first glance, the 2021 Big Five seem most similar to the figures from around the time of the great recession, though he urged attendees not to get too caught up in the comparison. “What we’re facing now is a very different issue and a different problem with different opportunities and different challenges than in 2009,” he explained.
“The great recession was a different illness with the same symptoms,” said Russell Donaldson, manager at PwC, referring to the lower industry revenue and drop in spa visits. “2008 to 2009 was problematic because of a fall in demand. Fewer people had disposable income to spend on ‘luxuries’ like spa-going, so demand fell and the industry suffered. This time, it’s more a crisis of supply. It was the enforced closures and concerns about public health that were stopping people from visiting.”
The distinction here is crucial, because the different root causes of these events means that the recovery from them will likely be different as well. For instance, Donaldson noted that spas commonly discounted treatments and services during the great recession to incentivize spagoers with less disposable income to return. Such measures will likely not be required as part of the industry’s recovery this time around, he said: “The indicators we’re seeing now show the overall demand [for spa services] is high. A lot of people have more disposable income that they had when the pandemic struck. People have been stuck at home without a service that they love for a fairly long period of time, and there are good signs that demand will be high as things loosen from the pandemic.” Colin McIlheney was in full agreement. “I believe the mantra at the moment is, ‘Open it and they will come.’ I think if we can get the spas open, you will see unprecedented demand to get back to spas and back to the services that people want.”
Reasons for Optimism
As both McIlheney and Donaldson noted throughout their session, the spa industry’s longer-term outlook is far from doom-and-gloom, despite the impact evident across the Big Five. In fact, one positive indicator can be found in those very same figures. Spa revenue per guest visit remained relatively stable, falling only slightly—from $99.5 USD to $97.5 USD. This suggests that occupancy restrictions and closures had far more to do with lost revenues in 2020 than a lack of spending power or demand on the power of spa-goers.
Beyond the Big Five, there are plenty of other figures that suggest better days are on the horizon for the spa industry. Chief among those are some recent statistics regarding travel in the U.S. According to the Bureau of Transportation, the number of air passengers in the U.S. fell 62 percent in 2020 (domestic travel was down 59 percent and international travel down 74 percent during that time). Obviously, that kind of reduction in travel had a greater effect on resort/hotel spas, which draw significant business from traveling guests who are staying on the property. But as Donaldson revealed, the Transportation Safety Authority has reported that U.S. airports are seeing about two-thirds (65 percent) as much throughput (meaning the total number of people arriving from and departing for flights) as at the same point in 2019. “That’s a big recovery already,” Donaldson noted. “When you think of flying in Europe and Canada, we’re only seeing about 20 to 30 percent throughput when it comes to air travel. Consumer confidence in travel does seem to be increasing also—88 percent of a recent survey of U.S.-based respondents said that they are keen to travel this year and quite a high proportion of those within the next three months.” This increase in travel is a good sign for the industry, as are the stated reasons most people have for traveling to begin with. When those same survey respondents were asked why they wanted to travel, their top responses, according to Donaldson, were “to escape and relax, to do new things, and to visit places they have been before. Those are all things that especially resort/hotel spas can cater to very strongly.”
Thankfully, increasing travel is not the only sign of a potentially strong recovery for spas in 2021 and beyond. In PwC’s annual global survey of CEOs, a record share of respondents reported that they believe that economic growth will improve. And while Donaldson admits that the dire economic conditions so many businesses faced in 2020 makes betting on growth a safe wager, having the people leading those businesses overwhelmingly assert that better days are ahead can only be taken as a positive.
CEOs aren’t the only ones feeling optimistic. Consumer confidence is rising as well, with the Conference Board’s Consumer Confidence Index recently reaching its highest point since February 2020—the eve of the pandemic. Donaldson credits a few different things with these rising confidence levels: the continued COVID-19 vaccine rollout, the rising desire for a return to traveling and the elevated level of disposable income available to consumers. The last item in that list may cause some confusion, given the number of furloughs and job losses that occurred in 2020. But financial assistance from COVID-19 relief legislation put a substantial amount of cash in consumers’ pockets, including, in many cases, the pockets of those who had been able to remain in their jobs and, therefore, maintain their income. Recovery Déjà Vu? No matter their respective causes, the economic effects of the great recession and the COVID-19 pandemic on the spa industry are relatively similar. So what does that mean for the industry’s recovery from the downturn? As with many aspects of the pandemic, thinking has evolved on that question, said Donaldson: “The overriding view [at the start of the pandemic] was that we would probably see a V-shaped recovery. There would be this short, sharp contraction, but things would very quickly return to normal, and life would continue as it was before the pandemic. It has turned out to be a little bit of a naïve way of looking at this.” Obviously, that quick bounce-back hasn’t materialized, as spas and much of the economy in general have operated under significant restrictions for large portions of the last year or more.
Another possibility is a U-shaped recovery, which happens when the economy improves, but does so slowly as conditions change. The recovery from the great recession was U-shaped, and at one point, many believed that the COVID-19 crisis would lead to something similar. However, as Donaldson explained, the latest analysis suggests that the U.S. could be in for a more nuanced kind of rebound from the effects of the pandemic: a K-shaped recovery. Said Donaldson, “That essentially means that different aspects of the economy are recovering at different speeds. Economies and sectors are split between those that have returned to growth quite quickly and those that are experiencing a more protracted downturn. As a result of that, the shape of the economy is changing because of the differing speed of things returning to normal.”
It may be likely, then, that spas in certain geographic regions—areas where restrictions were lifted earlier or where vaccination rates are particularly high—will see a speedier return to pre-pandemic revenue and profit levels than those where restrictions linger. The idea of a K-shaped recovery may be frustrating for spa leaders who have spent much of the past year seeking relief from occupancy limits and other restrictions, but it probably isn’t surprising. Given the inconsistent and fragmented nature of spas’ experiences with such restrictions during the pandemic, an inconsistent and fragmented recovery is fitting. The recovery of spas able to resume fullscale operations sooner rather than later will almost certainly outpace those required to keep restrictions in place longer.
For spa leaders, recovering from the pandemic will require the same patience and flexibility that they have had to practice for more than a year. And though some spas may return to normal—whatever that means in a post-COVID world—more quickly than others, Colin McIlheney suggested that the spa industry as a whole has cause for hope. “There is a feeling that some of the industries that were most impacted by not being able to open may have the best recovery,” he said. “Obviously, your at-home delivery services did very well, but spas, restaurants, bars, et cetera, which have had to close—there’s clearly an evidence of pent-up demand there, and I think there are definitely grounds for optimism for the later quarters of this year, and particularly for 2022.”