Retail Management for Spas | Chapter 9.2 | Four Months from Opening

Much work has already been done in preparation for the spa retail opening, but there is still much left to do. Each step brings the spa professional closer to a trouble free grand opening.

 

a. Establish Sales and Inventory Procedures

Depending on the size of the spa operation, the step of establishing sales and inventory procedures is done about four months before opening. One important step the spa will need to take is to establish charge accounts with its vendor partners. The spa professional works with the spa accountant to create a credit form that contains all of the pertinent credit information about the spa. This saves the time of completing individual credit applications from the many vendor partners with which the spa will be working. Exhibit 2 shows a sample credit application.

Spa professionals also need to decide the frequency of retail inventories, and how they will handle transfers from retail inventory to professional products. The practice of therapists pulling product from the retail shelves to use in treatments can be a significant retail challenge for spa operations. Unless it is appropriately recorded on a transfer log, the cost of the product may not get charged to professional products and may end up inflating the retail cost of goods sold. (Chapter 4: Inventory Management, discusses transfers in detail.)

Transfers may happen in some resort/hotel spas where the resort gift shop also sells spa merchandise, in which case the movement of merchandise from the spa retail space to another shop must be recorded. There is also a potential issue with resort VIP gifts, where the sales or catering manager will simply walk into the spa retail area and pull some merchandise to give to a VIP guest. Well before the spa opens, it is important to establish guidelines for what the resort’s sales or marketing department will be charged for the merchandise, and whether it will be at retail or at cost. It is suggested that spa management assemble some gift ideas and costs for the sales team to use when selecting VIP gifts. In addition, an authorization form must be in place very early, as resort sales personnel will want to take spa gifts with them on sales calls months before the facility opens. It may be wise to order a separate stock for VIPs and marketing use, so that the spa retail operation does not face the service predicament of being out of stock for the paying guests.

It is customary to extend employee discounts to spa employees for retail merchandise. Standard discounts are 25 to 30 percent for resort/hotel spa employees, 30 to 50 percent for day spa employees, and 40 to 50 percent for managers and executives. The Uniform System of Financial Reporting for Spas provides for an adjustment of revenue identified as employee discounts. If employees are allowed to make purchases at cost, the spa professional needs to decide whether the item will be subtracted from inventory value or if the purchases will be shown as an employee discount and factored into the overall cost of goods sold for the spa retail department.

Other questions to consider at this stage include: What will be the spa retail department’s policy with respect to returns? Will the spa charge postage/courier charges for retail products mailed to the guest’s home? Review the market survey to determine the standard shipping charges from competitors or, at a resort/hotel, from other retail outlets on property.

 

b. Establish Commission Strategy

Four months before opening is the right time to construct the preliminary commission plan. Before the spa begins to recruit retail leadership, retail consultants, or even therapists, management develops the basic retail commission plan. Who should be included in any retail commissions—the supervisor, just therapists, front desk staff, and/or retail consultants? Does the spa want to give a retail commission to hair stylists or nail technicians? Will the policy be a flat percentage commission or will retail goals be established for each staff member and structure the commission on a tiered scale based on achievement of the retail goals? Will the commission structure be tiered according to the profit margin of the item sold? It is important when management starts interviewing potential employees that they are able to communicate any retail commissions that will be part of the employees’ compensation.

 

c.  Finalize Opening Inventory Value and Begin Merchandise Purchases

Although the pre-opening retail planning example used previously would suggest that the spa should plan on an inventory value of $40,000, the fact is that the dollars to purchase the inventory must be included in the overall pre-opening spa budget. It is important, therefore, to finalize the amount that can be spent for opening retail inventory and to make any classification allocation adjustments before the retail merchandise purchasing process begins. The purchases for retail inventory are not an expense of the spa on the statement of income, but are recorded as an asset on the spa or property balance sheet.

Each month, the accountant will start with the beginning inventory, add to that any merchandise at cost received during the period, and subtract the ending inventory to determine the cost of goods sold, but the fact is that inventories are still a “cash” transaction and the spa must have the capital resources to purchase retail merchandise. Thus it is essential that a final plan be developed to avoid a situation where the spa has committed to $40,000 worth of spa retail purchases, only to discover that it no longer has $40,000 to allocate to retail inventory, but $30,000, meaning that the spa cannot make any additional commitments or will have to adjust purchases to which it has already committed.

Purchase orders (POs) must be used for all of the retail purchases to maintain appropriate records. For products that are used both as a treatment professional product and a retail product, spa directors will use separate POs for each purchase. Vendors will often provide a purchase confirmation that can be checked against for errors and retained along with the original purchase order. Spa professionals record all retail purchases on the “on order log,” which is organized by delivery date. Individual files are set up for each retail vendor as purchases are made. To develop harmonious vendor relationships that meet the spa’s needs, spa professionals establish an earliest delivery date and a date after which the spa reserves the right to cancel the order. The spa will not want boxes of new retail merchandise stacking up for a month or two before the spa opens. It is appropriate to ask for the merchandise to be delivered three to four weeks before the anticipated opening. It can then be stored in a secure area separate from other spa operating supplies.

 

d.  Develop Retail Marketing Plan

Time is needed to plan a specific spa retail promotional direction. Some promotional and sales opportunities are easy such as Christmas, Valentine’s Day, and Mother’s Day, but those three annual events will not result in a plan to maximize spa retail revenue. Spa professionals must examine all of the possible in-spa retail promotions that can be used during the course of the year to increase exposure to the retail space, which is more detailed than simply having some merchandise on a sale table or rack in the spa lobby. Some examples might include:

  • Gift with purchase programs
  • Special pricing for groups of products
  • Buy one and receive a percentage off a second companion item

There are also countless seasonal promotions that can be implemented in addition to the typical holiday promotions. Examples might include:

  • Summer promotions for sun products or waxing and pedicure promotions for swimsuits and sandals or special facials for sun damaged skin or even anti-cellulite treatments
  • Father’s Day special with men’s treatments and products
  • Graduation specials as students have now graduated to care for their skin as adults
  • Wedding promotions for the bride and groom—give them a special relaxation product basket to treat themselves after the big day or matching robes for bride and groom
  • A makeup promotion for graduations or just before the holidays
  • New product launches       
  • Seasonal apparel
  • A winter promotion for dry skin in the cold of winter

There are hundreds of additional ideas limited only by the professional’s imagination. The spa’s vendor partners can help identify cooperative promotional events or advertising opportunities and develop a promotional calendar for retail for the year, which can be reviewed on a quarterly basis. Discussion of these opportunities should be a regular part of the spa professionals’ dialogue with vendors. Even small/independent operators may be surprised at what is available to them if they consistently ask their vendors these types of questions. Chapter 8 offers additional marketing ideas.

 

e. Develop Processes for Retail Direct Mail and Mail Order

Mail order business and direct mail programs are a good way to drive repeat business for the spa retail operation. The easiest customer to sell is the one who has already purchased product from the retail operation. All that has to be done is to establish a system to collect e-mail addresses, mailing addresses, or telephone numbers and to maintain a guest history card or program. For example, a guest buys a night cream that should last approximately 30 days. That guest would probably consider a card or e-mail asking how the guest liked the product and suggesting having additional product shipped to them to be a high level of service by spa staff. Better yet, the follow-up promotion can tell the guest that the spa is having a special offer on that product offering a 20 percent discount if they buy two or three of the products. Tell the guest that the spa does not charge for shipping (if applicable) and invite them to call anytime they need a special product.

Some spas have been able to increase their retail revenue by 20 to 40 percent with an effective mail order process. The names and addresses that are collected at the spa retail space can form the beginning of a database for direct mail programs announcing new products or treatments or highlighting special promotions throughout the year.

 

f.  Select Packaging and Gift Wrap Program

Packaging is a vital merchandising tool. It is an excellent opportunity to create logo awareness and promotional exposure for the spa. This, along with development of a saleable logo and its use on merchandise, are two very important steps in spa branding. The packaging can also be used as a display tool inside the spa retail area for displays. With packaging, color, texture, and design are important. The interior design of the spa should guide management in the packaging selections. A typical spa packaging program would include:

  • Merchandise bags
  • Gift boxes
  • Tissue
  • Gift baskets and fill
  • Ribbon
  • Wrapping paper
  • Double stick tape
  • Paper rack or bar cutter
  • Price tags/hang tags
  • Shipping labels
  • Sales check/receipts forms

There are several choices for packaging suppliers. If the spa intends to include its logo on the gift boxes or merchandise bags, it is important to source the packaging materials four to six months before the spa’s opening.

 

g.  Source Remaining Retail Merchandise

At this point in the spa’s critical path countdown, the major spa product classifications have probably been selected, including key skin care, hair, and nail treatment products, plus the peripheral support lines for body treatments and bath and body products. Additionally, final decisions have likely been made with respect to the spa robes and terry and sandals. The spa logo has been finalized, embroidery tapes have been produced, and basic apparel lines have been selected. Now it is time to source the other potential retail products that might include:

  • Books and media
  • Instructional videos
  • CDs and/or DVDs
  • Stationary, journals, and note cards
  • Workout wear, spa loungewear, or yoga wear
  • Fashion accessories such as jewelry
  • Fitness bags, totes, or purses
  • Scarves or hair accessories
  • Home-related gifts such as candles
  • Pillows
  • Throws
  • Pictures or frames
  • Vitamins or supplements
  • Snacks, beverages, or other sundries if applicable

The ISPA directory or the ISPA Web site is the best place to begin to identify potential vendor partners that specialize in spa merchandise. There may also be a gift show or gift merchandise mart nearby where spa professionals can shop for potential merchandise. The competitive retail survey can provide vendor leads, as will an Internet search.

There is no question that the number of spas has exploded over the past 10 years and that spa consumers are much better traveled than they were a few years ago. One of the challenges with spa retail is coming up with a unique retail “feel,” since most spas will feature bath and body products, skin care lines, candles, robes, and so on. Just as most people look for distinctive shops and retail stores when they travel, hoping to find more than just the same old stores in every town, the same holds true for the spa guest. They are looking for points of difference as they shop. It is important to stay true to the spa theme of the health and wellness of guests and to select products that remain consistent with the core purpose and philosophy of the spa. At the same time, it is wise to capitalize on the unique characteristics or location that makes this spa special.

For example, if the spa is in the southwest desert or on a northern lake, source products that will enable the guest to take home merchandise that will bring them back to the tranquility of their visit to the spa. Explore artisans in the area who may craft beautiful ceramic bowls that could be used to display towels in the master bath of the guest’s home or Native American weavings or bead work that will connect guests with history when they look at it back home. In some cases these artisans will be willing to work with spa retailers on a consignment basis, which means that the spa does not have to commit inventory capital to carry the merchandise in its retail space.

Distinctive merchandise displayed in retail showcases or in the window of the spa retail area will act as a magnet to draw guests into the space. Whether or not they purchase that distinctive product, guests are likely to find other merchandise in the boutique that they will choose to purchase. Some spa operators go overboard on finding unique products and miss opportunities to maximize sales and profits on their key items. A general rule of thumb is that “unique and different” should represent 20 percent or less and core items (those that are re-orderable and consistent in the spa’s business) should be at least 80 percent of sales and inventory. Whether core products or unique items, all retail purchases are made with the goal of matching the philosophy of the retail operation with the spa’s overall philosophy.

Small spa operators or spas with limited retail space may say that they do not have the opportunity to carry additional merchandise beyond the basic skin care, bath and body, hair, and nail merchandise. They should take into consideration that the spa would be leaving retail sales dollars on the table as guests would be willing to buy these additional merchandise items if they were available. The key questions to ask are whether the spa has the capital to invest in additional retail inventory and how well that merchandise can be displayed or whether additional design and fixturing is required.

 

h.  Recruit Retail Supervisor or Retail Consultants

Retail in a spa is handled in several ways. If the spa is large with a dedicated retail area, it will probably have a retail manager or supervisor and dedicated retail consultants. In some spas, the retail is displayed in the reception area of the spa, but retail floor staff works the area, asking guests whether they can be of assistance. In other spas, the retail is simply another function of the reception desk staff. The spa relies solely on the therapists to influence retail sales or guests find something of interest by themselves.

Often, the spa director or the owner/operator of a spa assumes responsibility for the retail department himself or herself with very little expertise in managing a retail operation. One of the purposes of this course is to better equip the individual responsible for retail with the basic tools to manage a retail operation, but clearly the more human resources the spa commits to its retail department, the more revenue will be realized. Those spas that have dedicated personnel and training specific to retail selling techniques have demonstrated higher levels of sales and profits that justify their investments.

When looking for retail leadership, ISPA members can post the position on the ISPA job bank. In addition, spa professionals can advertise in the local newspapers or trade publications. If there is a college or university in the area that offers a merchandising program, make contact there for graduating students looking for employment.

The ideal candidate would be someone who has been a supervisor for a cosmetics area of a traditional department store or a health and beauty store operation with some merchandising education, or someone who has worked as a retail buyer for a specialty or traditional retailer. It is important to recognize that it is unlikely that prospective hires will have the knowledge to manage all aspects of the spa retail department and they will need support from spa leadership or the owner/operator. Some spas will contract with a retail buyer or consultant to handle the buying, inventory management, and merchandising on a part-time basis for the spa, including ongoing periodic reviews of the spa’s retail performance and counsel and reports to spa leadership.

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