When the economy suffers a downturn or is unpredictable, it’s understandable that salon and spa franchises may struggle to find solid footing. Any business leaders or managers would be right to wonder: Can we expect a soft landing this time around, or is an extended recession about to hit? How do we get consumers to give our business a share of their discretionary wallet?
If you’ve shared these thoughts, read on for a reality check (it’s optimistic) and practical advice from industry experts leading salon- and spa-focused franchise brands in the United States. Here, we recap highlights from their discussion at the Zenoti beauty and wellness summit, Innergize 2023.
David Willis, CEO, European Wax Center, 1,000+ locations
John Teza, CEO, Hand & Stone Massage and Facial Spa, 600 locations
Despite a feeling of economic volatility, let’s start with the good news. John Teza from Hand & Stone considers the current economic climate healthier than it was during the great financial crash of 2007-2009 when the unemployment rate more than doubled, the stock market tanked, and home values plummeted.
“We’re nowhere near that today, right?” says Teza. “Unemployment remains low, very low… The consumer appears to be relatively flush.” He adds that wages have kept up with inflation.
“We’re just going to have to keep doing our best to offer value that consumers seek out. Brands that do that through these challenging macroeconomic headwinds are going to win.”
- David Willis, CEO, European Wax Center
How to decide which business strategies to pursue
Allocate the right resources, be it “budget dollars or people” to support franchisees in delivering an exceptional guest experience every time, says David Willis from European Wax Center. That commitment to guests should be ongoing and consistent at every center.
"If we give them just one bad first impression, it’s tough to recover from that,” says Willis. “Have we identified those things that our guests value the most in our brand – and we think we have – and are we diverting focused attention on resource allocation to properly supporting that?”
John Teza offers a way to sift through the conflicting interests of clients, franchise owners, team members, and investors: Think about how to make the franchisee P&L stronger. “Everything kind of cascades up from there,” says Teza. “On the revenue side, it’s reach, [visit] frequency, and ticket or rate. That’s the order in which you really should want to address growing revenue. Unfortunately, the reverse is true in terms of how easy it is.”
How to grow top-line revenue during tough economic times
1) Create a pathway to revenue growth not through price increases but through upgrades, says John Teza, who uses the Hand & Stone upgrade model as an example. It’s a strategy that’s applicable for any size beauty and wellness business. “On the skincare side of our business journey, somebody can participate with one of our base level upgrades or can go all the way up to a $100 or $120 very highly efficacious service upgrade,” he explains.
It's easy for guests booking online through Zenoti software to add service upgrades helping boost their ticket size before they even enter a salon or spa.
2) Offer incentives to customer segments based on criteria like visit frequency. Giving all customers the same incentives, be they financial, loyalty, or reward-based doesn’t work. The following table distills David Willis' sharing of European Wax Center’s approach to different customer segments.
3) Add a mobile app so customers can easily book their own appointments, refer friends and family, buy gift cards, and more. A particular revenue driver for Hand & Stone, the Zenoti mobile app for customers had 100,000 downloads (20% of the brand’s overall membership base). John Teza reports an $8 higher average ticket for services booked through the app.
Ticket boost aside, Teza spells out what he considers the more important benefit of the mobile app: “It gives franchisees the opportunity to think differently about how they’re deploying their resources at their front desk… they may have the ability to be a little more efficient with that dollar spend.” By reducing the appointment booking call volume, the Zenoti mobile app frees up staff to instead focus on membership and gift card sales in-store.
Strategies to improve profitability
Here, we look at four areas that impact the top and bottom line for beauty and wellness businesses.
1) Guest acquisition
Give your entire enterprise – regardless of number of locations – every opportunity to attract and secure new guests. “We owe that to our franchisees… Over the history of the brand, we’ve offered the first wax free. We’re so confident that the guests will enjoy the service that we’re willing to make that investment,” says David Willis.
2) Churn prevention
Equip staff with the tools to give guests an exceptional experience so they’ll want to return to your brand. European Wax Center arms center-level associates with scripts to ensure that “the guest feels great,” says David Willis. Center managers call first-time guests to ask about their visit. “It’s those little things that our guests tend to value,” he adds.
3) Commission and compensation
Choose commission structures that incentivize service providers for upsells and product sales while still maintaining profitability for the franchisee. John Teza suggests being intentional with structuring compensation: “Do you have a variable-rate structure on the base and then a fixed-rate structure on the upgrade? A lot of our franchisees are moving towards that.”
4) Cost reductions
Negotiate costs at the enterprise level that impact profitability at the unit level. Credit card fees are an example of such costs. “We have watched credit card fees expand across the network significantly over the last 18-24 months,” says John Teza, “so we have a responsibility to get ourselves back in line from a processing fee perspective.”
How data sharing helps franchisees exchange best practices
Across any size franchise or network of locations, data is key. It’s the only true measure of what’s being done well and where other opportunities exist. For optimal effect, all locations need to participate in data sharing. Doing so helps generate benchmark data like the top quartile and best-in-class. Such insights provide aspirational goals for franchisees, serving as a tide to lift all ships – or franchise locations, in this case.
“Arming our franchise network with data moves the needle,” says David Willis, CEO of European Wax Center. “We’ve rolled out network reporting where franchisees can see KPIs for every other center in the system. We’ve found that sharing best practices, putting franchisees in the spotlight… has really resonated with our network.”
Feature image: David Willis, European Wax Center