Recession-Proofing Your Business

Securing Your Interests During Economic Downturns

By Monica Schuloff Smith

Originally published in ASCP's Skin Deep, July/August 2008.

We often think about weatherproofing or fireproofing assets like our homes and businesses in case of some unforeseen catastrophe, but most of us generally don’t think about recession-proofing. While recessions are difficult to pinpoint or predict, it’s important to prepare our business now for the economic uncertainties ahead.

According to spa consultant Douglas Preston, president of Preston, Inc., the spa industry has experienced three recessions in the last 24 years, and it now looks as though the industry may be impacted by a fourth.

Skip Williams, a spa financial development consultant and vice president of Resources & Development, feels the market has already changed. “Within the last 18 months, and without many of us knowing it at the time, the market has shifted from an ‘excess demand’ marketplace to an ‘excess supply’ situation,” he says.

At first, everyone overreacts. “Nervous spa owners often initially react by cutting advertising expenses, trimming retail inventory and outlays for pending or planned equipment purchases, expansions, and so on,” Preston says. “Employers will consider allowing attrition to reduce payroll costs or delay hiring new recruits.”

Consumer attitudes about cutting back on the unnecessary are only an early reaction, says Monica Leedom, a veteran day spa owner.

“Consumers panic at first, but then decide that taking care of themselves in stressful times is the least they deserve,” Leedom says. During weak economies, the volume of services she’s sold actually goes up. She theorizes that spa services perhaps soften the disappointment of not getting other, bigger things like new cars
or homes.

Tighten the Purse

When times are good, it’s easy to spend more, but experts agree the good times are exactly when you should be frugal so a steady decline in income doesn’t impact you. When revenues are high, you should swell emergency savings.

When a recession hits, the first thing you have to do is keep your spirits high. “Believe that you’ll make it through this challenge, as most businesses will,” Preston says.

The next thing you need to do is save as much money as you can. This requires a reality check when it comes to nonessentials, Taylor says. Make a list of the things you can live without and eliminate wasteful spending.

“Delay spending on expenses that are not critical for success or won’t damage the quality of your customer experience,” Preston says. “Shampoo your carpet if replacing it isn’t absolutely necessary. Buy flowers that last longer, shop for bulk supplies and amenities, switch to energy-saving lightbulbs where incandescent ones aren’t required. Do more in-house cleaning and reduce the use of outside service providers. While these reductions won’t reverse the effects of a steep recession, it’s often the small, unseen expenses that lead business owners to the limit of their budgets.”

Sometimes extra money is just sitting there on your shelf collecting dust, as many spas have redundant, slow-moving inventory. This locks up badly needed cash, says Preston, who believes most spas could trim 10 to 15 percent of their current stock and never miss it. It’s important to understand inventory turnaround rates. Avoid adding new products that may be fun to carry, but don’t move off the shelves.

“Every brand of product that you carry has a cost that comes with it in terms of training, shelf space, and ordering costs,” says Heather Gallegos, president of Spa Clientele Solutions. “Having fewer brands is one way to increase your focus on your favorite and hopefully most profitable products. Get rid of your excess inventory with your promotions. Rather than a discount, offer a free product with a full-price service. Be sure to communicate the retail value of the product they will receive. Avoid using this to get rid of old product, as this trains clients to expect future sales and discounts.”

Sherry Taylor, medical spa consultant and paramedical skin care instructor at the Steiner Education Group in Fort Lauderdale, Florida, thinks you should not reduce inventory. “Even if clients cut back on services, they will continue to purchase their skin care products and you want to have them on hand when they stop by,” she says.

“Clients will only be patient so long in hearing, ‘we’re out of that’ or ‘it’s on order,’ before going elsewhere to purchase their products,” Leedom says.

Taylor offers another solution to cutting costs: sell more retail, which will increase revenue. “Motivate your staff through fun sales contests,” she says. She also encourages business owners to take advantage of vendor discounts and promotions.

Leedom warns not to cut costs in areas that will be noticed. “The first thing to do is to vamp up your amenities and spruce up the spa’s appearance—these are positive messages to your clients,” she says.

Accentuate the Positive

“Recession-proof your spa by offering services and products that deliver results your clients can’t live without,” says Taylor, who explains if you are not already doing it, add extra personal touches like handwritten notes to let your clients know how much you value their business.

You can also use your current client base to refer new clients, Taylor says. “Do not be afraid to ask your clients for referrals. This is the least expensive, most effective way to build your client list,” she says.

According to Gallegos, referral and reward programs are as critical as client database and tracking systems. It’s important to communicate with clients regularly in a variety of ways to be sure they know about your program.

Be ready, says Williams, who feels there’s tremendous opportunity to scoop up business in a down market. “Watch your competitors carefully as many will go out of business. Stand ready to try and grab their customers. Be creative. Try to buy their client list, advertise in the proximity of their facility, and hire their top practitioners, taking care not to overpay them.”

Avoid the “R” Word

In addition to keeping spirits high, Preston says don’t encourage or even permit employee recession talk in the spa or with customers.

“Recessions are like viruses: the more people you meet carrying the infection, the more it spreads,” he says. “Spas are supposed to bring relief from daily cares, not reinforce them.”

Second, do not redefine your business to reflect a temporary condition like a recession, Preston says. Avoid slashing services and programs. Taylor agrees and says you should not cut back on services or products your clients expect.

Experts agree that as a rule, you should not offer discounts during a recession, but specials are fine as long as your clientele understands the price reduction is temporary and will not be repeated. When you cut back and offer discounts, Taylor says, you send a message the business is in trouble. Instead, give services added value—a complimentary upgrade goes a long way.

Remember what happened to Macy’s, reminds Preston. “Years ago, Macy’s had so many sales, so often, they accidentally became a discount chain and drove themselves to bankruptcy. “They’ve never really recovered from that change in customer perception,” Preston says. “Some braver spa owners will even venture to raise some prices so long as they understand they have a client base that can withstand higher tabs.”

But Williams warns against price hikes. “Do not raise prices right now unless you have excess demand,” he says. “Instead, the business should look for ways to deliver services more efficiently.”

Williams also thinks marketing is crucial during a recession. “Do not stop marketing,” he advises. “Just find less expensive (and more effective) ways to market.”

Gallegos says you can market inexpensively if you network with the local businesses, schools, and groups your clients frequent.

“They should know that you are there, provide excellent service, and are willing to work together,” Gallegos says. “Consider donating to local fundraisers that offer good marketing opportunities, or promote a local business to your clients in return for them marketing your services to their clients.”

Put Plans on Hold

If you’re planning to expand, wait. If you’ve already announced it to customers, then tell them you’re delaying because you’re reviewing the plans more carefully,” Leedom says.

“As a business consultant, I generally halt most expansion plans when I see that the spa owner handles their present customers inefficiently,” Preston says. “Why invest more money just to waste more opportunity? It doesn’t make financial sense.”

Williams says you should proceed cautiously if you have plans to expand. “Watch your numbers and don’t expand unless you are continuing to grow,” he says.

“Avoid starting new things that don’t follow your business plan,” Gallegos says. “Expansions in any economy need to be considered very carefully. Good reasons for expanding in a slow economy could be a motivated landlord or seller of commercial real estate. You could lock into a very good lease or invest in a below market-value building.

“However, be sure that there will be customers in your new or larger space,” she says. “A not-so-good reason for expanding in a slow economy would be to add new services in hopes of attracting more diverse clients. Laser focus on marketing and improving your current services is a safer option to grow your business.”

The rule of the day is to hope and plan for the best, but expect the worst. Keep an eye on your numbers, and be sure to deliver the best services possible.

“Those who survive this economic storm will emerge as the pinnacle of success within their respective marketplaces and be poised to take full advantage of the bull market that will come again,” Williams says.