MedSpa Expansion Trend Faces Economic Reality Check

By Wendy Lewis, Contributing Editor
O
ver the past few years, medspa and laser treatment franchises
have emerged in every city across America. Seduced by the
industry buzz and growth statistics, many physicians see medical spas
as a means to boost their income and eliminate the headaches of
daily practice. MedSpa business models offer individuals the
ability to participate in what has come to be known as, “the
booming medical spa market.” This opportunity sounds
tempting, but further analysis reveals widespread dissatisfaction among owners due to increasing overhead, inconsistent results of marketing programs
and sweeping financial losses.
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MedSpa Economic Reality Check
According to Milana Knowles, vice president of medical and day spas,
SpaFinder, Inc. (New York, N.Y.), “Medical spas are a major, long-standing
trend in our industry that shows no sign of slowing down anytime soon. Many
spa owners are reaching out to dermatologists to enhance their services and
add a medical dimension to their spa services, providing a consumer friendly
experience of receiving treatments and injectables from a medical professional
in a comfortable spa setting. At the same time, more physicians are opening
their own medical spas, where they primarily offer cosmetic treatments with a
nurturing spa environment. Sweeping demographic trends are underpinning the
demand for both models. We are continuing
to see huge numbers of baby
“Medical spas are a
boomers with expendable income
major, long-standing trend seeking ways to maintain a youthful
in our industry that shows appearance, but now they’re being
joined by a younger demographic
no sign of slowing
that’s come of age in an environment
where
preventing the appearance of
down anytime soon.”
aging is an important concern.”
MedSpas represent a want, rather than a need for consumers, unlike general medical practices where people need to visit for health reasons. The popular adage, “If
you build it, they will come” does not apply in the medspa market. When a medspa
opens its doors, customers are not going to just flock to sign up for laser hair removal
and injectable treatments. It takes time, money and perseverance to develop a loyal
clientele. However, medspa franchises make it sound so appealing to practicioners
and investors that it may be hard to cut through all the hype.
FAULTY MEDSPA BUSINESS MODELS
“A very strong sub-trend within the medical spa trend is medical spa chains and
franchises, including Solana MedSpas® (Irvine, Calif.), Sona® MedSpa (Franklin,
Tenn.), Radiance (Scottsdale, Ariz.) and Pure (U.S. and Canada), to name a few.
Usually, doctors or aestheticians open medspas, but operating a successful spa
requires business and marketing skills as well. Franchises and chains are a great
solution, enabling physicians and aestheticians to focus on patients and leave marketing to full-time internal departments,” noted Ms. Knowles.
Groups such as Sona are selling franchises around the country by specializing
in laser hair removal. According to their website there are 24 locations in the U.S.
They offer exclusive territories, meaning there will be only one Sona MedSpa center in a specified radius. However, this does not take into account the number of
other clinics offering the same services within that geographic region. This model
requires a monthly marketing and advertising spend to build the Sona name.
In contrast, Solana MedSpas offers partners an opportunity to use their own
names so they are not functioning as part of national chain. Solana markets a
turnkey solution with management training as part of its core system.
However, some of the current franchise medical spas and laser clinics have serious flaws for both owners and consumers. The most obvious issue is that franchise
models are in the business of selling franchises, and not necessarily making ongoing revenue for their franchisees. For many franchisees the parent company’s
financial projections vastly overestimate revenue and underestimate the initial
start-up costs required. As a result, some chains have experienced foreclosures or
turnovers in multiple cities over the past few years, or have transferred ownership.
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MedSpa Economic Reality Check
“My wife and I went through the training for one of these groups and decided not
to pursue it. The people running the program seemed very slick. We had the sense
that they would tell us anything just to get us to sign on, and if we had a problem
they would be nowhere to be found. We also found them to be less than forthcoming with information and willing to circumvent business and medical ethics to make
a sale. That was the final deciding factor,” said one prospective entrepreneur.
According to Janice Gronvold, principal of Spectrec (Newport
Coast, Calif.) and instructor for the spa and hospitality management certificate program at the University of California, Irvine,
“MedSpa models were influenced by dermatologists and plastic
surgeons who expanded upon their core business to offer added
value, non-invasive aesthetic services and ongoing skincare proJanice Grunvold
grams. However, many medspa concepts focused on building a
business based upon added value services such as Botox® (Allergan, Irvine,
Calif.), dermal fillers and laser services, which were not enough to support a
long-term viable business model. As a result, many medspas have ended up
competing over price rather than building a business based upon a true value
proposition to differentiate themselves from others offering similar services.”
Attempting to commoditize aesthetic
services, which require a highly customized and personalized approach,
“positions franchise models in a high
risk category with a limited window of
time before they inevitably falter,” said
Ms. Gronvold. “Aesthetics is just one
dimension of the total spa service. There
is much more to delivering a good quality spa experience to the consumer than
just zapping or injecting someone.”
“Attempting to commoditize aesthetic services,
which require a highly
customized and personalized approach, positions
franchise models in a
high risk category.”
In some markets, recruiting the right physician to work onsite and instill customer
confidence is key, but many of the franchise systems promote a model which basically utilizes a physician in name only. Stark laws which govern physician self-referrals
vary from state to state, and in a number of states some of these models cannot work
in terms of non-physicians employing physicians. On site versus off site medical director models, requiring a licensed practitioner to oversee clinic operations also varies
by state. In addition, generic manuals that are an integral part of turnkey models are
not always relevant in the specific state that the medspa is doing business.
Perhaps the greatest challenge facing the medspa industry is the vast number
of players jumping into the arena only to find they are not well enough
equipped with the medical expertise, business or marketing know-how to execute their business plan for a successful medspa.
Rick Frisk
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The big question remains as to whether medspas are really the
right place for non-medical entrepreneurs. According to Rick Frisk,
president of Avanti Skin and Wellness Clinics and Belviso Dayspa
and Laser Centers (Wash. and Calif.), “The downside to franchising is that they are willing to sell to anyone, and to be successful
you must have a business background. Physicians are notoriously
bad businessman. Entrepreneurs are more accustomed to running
businesses so they tend to fare better.”
MedSpa Economic Reality Check
However, Renato Saltz, M.D., vice president of the American
Society for Aesthetic Plastic Surgery (ASAPS) and medspa owner,
has experienced the opposite, “In our market, in Salt Lake City,
which was just named the ‘Vainest City in America’ by Forbes
Magazine (New York, N.Y.), we have seen many medical spa
Renato Saltz, M.D. models run by non-plastic surgeons come and go.”
Whenever an industry is exploding the way medspas are, many players vye
for market share and superiority. It would seem that many of the smaller solo
spa owners that have been struggling are in danger of going bankrupt in the
near future due to increasing competition and price gauging. But, in some
cases, prospective medspa owners may do better on their own rather than signing on with a national chain. The franchise model is not always the key to
success.
According to Dr. Saltz, who opened his own medical spa six years ago in Salt
Lake City, Utah, “To be successful, medical spas work best when they support a
busy aesthetic practice. We use our
spa for facial and body contouring
“We use our spa for
services to enhance surgical results,
facial and body contourrather than as a self-supporting profit
center. My advice to other surgeons is
ing services to enhance
not to build a spa to make money, but
surgical results, rather
rather to add a spa onto your existing
practice as a service to your patients.
than as a self-supporting
The business needs to have a solid cusprofit center.”
tomer base to survive.”
Physicians who own and operate their clinics may have a distinct advantage
because they can market directly and more economically to their existing
patient population. Most practitioners already have at least several thousand
patients in their database from day one, whereas franchised medspa models
start with zero customers and essentially need to secure repeat visits with every
new client in order to sustain a successful practice.
The most common medspa model requires an ongoing program of creative
cross-promotions and guerrilla marketing tactics. Saturation marketing has been
the source of hundreds of appointments set up before a medspa opens its doors.
“We believe in outbound marketing, open houses, direct mail and forming partnerships with other local businesses. We have showings at women’s expos,
health fairs and wedding shows to generate viable leads. We also do some
radio and devote a large part of our budget to web marketing,” noted Mr. Frisk.
Many medspa owners offer multi-treatment packages and “Buy One Get
One” promotions where the client pays up front for a series of treatments and
gets an additional number of treatments at no charge or at a discounted rate.
By aggressively signing up clients for these packages, sales are captured thus
driving future service obligations forward. However, the disadvantage of this
tactic is the medspa faces mounting liability for performing treatments already
paid for. If the owner tries to close the business, there may be a large amount
of clients who have prepaid and are legally entitled to the treatments they have
paid for. Understandably, this tactic can also make a medspa tricky to sell
because prospective buyers will be concerned with the prospects of encountering a huge liability.
THE Aesthetic Guide Primary Care Edition Spring 2008 www.miinews.com
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MedSpa Economic Reality Check
Another dilemma in the industry is that medspa models tend to encourage the
concept of over promising results to get customers in the door. Inconsistent results
with some procedures lead to unpredictable client satisfaction. Efficacy has presented a stumbling block, which is often cited as a problem of the technology
itself. When patients complain of hair regrowth or dissatisfaction with their photorejuvenation outcomes, demands for additional free treatments and/or refunds
can create an adversarial atmosphere that poisons the facility’s reputation in the
local community. More focus should be on achieving tried and true methods to
attract new clients and enlist existing clients for repeat and referral business.
According to Janice Carrera Worth, president of Anushka Spa, Salon and
Cosmedical Centre (West Palm
Beach, Fla.), “The industry is ripe with
“The ability to sustain a
casualties. I predict a big shakeout as
profitable delivery of
more medspa owners end up with litiaesthetic medical services gation and financial woes. The ability
to sustain a profitable delivery of aesis a challenge that
thetic medical services is a challenge
requires a unique combi- that requires a unique combination of
business and marketing acumen with
nation of business and
medical skills. The fall out is not only
economic
with these failed ventures,
marketing acumen with
but patient confidence and general
medical skills.”
perception of the market place is
being eroded.”
However, there are some industry veterans who have developed a strategy
for long-term growth. Mr. Frisk plans to open 30 more units on the west coast
by the end of 2008. “Part of the challenge with some of the franchises that are
failing is that they were expecting a turnkey operation, but it’s all about your
team. Having the right people on the team is critical, and paying them fairly
and incentivizing them on production will keep them happy.”
“We buy clinics that are failing and are able to turn them around by adding
good staff and cutting down on expensive advertising that doesn’t work like it used
to. I invest the majority of our money into staffing. A lot of centers just add people,
who are not properly trained, as needed to answer phones and administer treatments. I look for strong people with good interpersonal skills,” Mr. Frisk added.
RECRUITMENT & TRAINING
Staffing is one of the biggest hurdles affecting spa industry growth. Today’s
consumers are much savvier and ask tougher questions; therefore service offerings must be consistent. Finding the right people to deliver these services in a
professional manner is a big concern for smaller businesses. You have to invest
in education for personnel and you have to be passionately committed.
According to Mr. Frisk, “The key to success is how good your staff is. If people
don’t like you, they won’t come back.”
“Facility owners today need to be extremely committed to an ongoing education
strategy for every employee who comes in contact with the patient,” noted Ms.
Worth, whose facility routinely sends medical staff to national conferences for continuing education and to stay up to date with new technology and protocols. “This
needs to be a business priority which is a major investment of time, resources and
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MedSpa Economic Reality Check
money to insure a highly professional, informed staff to interact with clients.”
Medical staff needs to be in an ongoing mode of research and advanced training.
“The learning curve of aesthetic treatments is unparalleled, yet needs to be balanced with prudence and safety,” she added.
MEETING CONSUMER DEMANDS
Consumers have come to expect an increasingly high standard of professionalism and caring from a medspa environment. “Medical spas are providing serious medical services and the safety and efficacy of the procedure needs to be
paramount. Patients visiting a medspa facility are extremely knowledgeable on
what is available in the marketplace,” explained Ms. Worth.
Based on his own patient survey, the most popular procedures at Dr. Saltz’s
medspa are IPL therapy – pre-operatively combined with microdermabrasion and
peels – as well as an early regimen of lympathic drainage massage to reduce
swelling and camouflage mineral makeup. “We have learned from the ASAPS cosmetic medicine task force that offering non-invasive services, as a benefit to patients,
is an integral part of a modern aesthetic surgery practice,” Dr. Saltz added.
According to Ms. Worth, “The physical environment that a medspa offers –
when done right – is evolving into a sleek, medically modern palate against a
backdrop of a soothing spa atmosphere. High-end clientele want a sensate
experience that permeates clinical purity, infused with cutting edge design tied
up with a bow of peaceful tranquility. The most successful medspas have a floor
plan that allows access and medical migration from spa/salon to medical areas
in a very organic way. Technology allows us to infuse the space with medical
information and available procedures by a feeling of osmosis.”
Susie Santiago, a spa management consultant in London, U.K.,
explained that consumers are looking for results and a track record of
success. “Consumers want thorough, honest and realistic consultations from professional practitioners who don’t pressure them into
decision making. They are looking for spotlessly clean and well maintained premises, coupled with style and an attractive interior design.
Susie Santiago
The environment should create a feeling of luxury, comfort and
warmth. They expect the staff to be wel“Whilst advertising
coming, sensitive and knowledgeable
and to exude professional efficiency,”
drives brand awareness
she explained.
In the end, brands that thrive are the
ones that can demonstrate a track
record of success and maintain credibility with clients through a portfolio of
testimonials that will stand up to scrutiny. “Whilst advertising drives brand
awareness and recognition, word-ofmouth recommendation is a key driver
to the longevity of future spa brand
leaders as many patients will seek out
others with good results to help verify
their decision making process,” said
Ms. Santiago.
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and recognition, word-ofmouth recommendation is
a key driver to the
longevity of future spa
brand leaders as many
patients will seek out others with good results to
help verify their decision
making process.”
MedSpa Economic Reality Check
THE FUTURE OF MEDSPAS
Technology based treatments are becoming the default method of healthcare. New technologies – touted as a replacement for a practicioner’s skill
and expertise – are being developed at a swift pace. What some of these
models do not take into account is the power of trust building and the practitioner-patient relationship.
Dolev Rafaeli
According to Dolev Rafaeli, president and CEO of Radiancy,
Inc. (Orangeburg, N.Y.), “The U.S. medspa market is the new
frontier for device makers. With the huge market expansion, the
future of medspas lies in the successful fusion of solid medical
attention with a pampering and service oriented environment in
a cost-effective manner.”
“MedSpa staff might lack the training and expertise required to operate the
high-end complex technologies used in physician offices. Therefore, userfriendly and reliable equipment is key for the success of medspas. Market
proven, clinically efficacious technologies that are financially accessible and
user-friendly, will drive the market,” explained Mr. Rafaeli.
The future of medspas represents some challenges and impressive opportunities for entrepreneurs, physicians and their partners. According to Mr. Frisk,
“The industry will progress more into anti-aging in the future. We feature neutraceuticals and bio identical hormones based on comprehensive diagnostics
as a natural complement to skin tightening and other aesthetic procedures.
We have partnered with Cutera® (Brisbane, Calif.) and Syneron (Irvine,
Calif.), and we are featuring several new technologies in the body shaping
category. We are interested in warranties and support, how much research
and development a company is doing, and what is coming down the
pipeline.”
Aesthetic medicine is predicted to become more refined in the near future
as the industry matures and larger, more sophisticated business owners buy
up fledgling units. Greater diversification of medical aesthetics, spa lifestyle
programs, wellness and health
resorts can be expected.
“The future will revolve
around an integrative
As Ms. Gronvold conveyed, “The
future will revolve around an inteservice model. For examgrative service model. For example,
ple, it is paramount, in my
it is paramount, in my view, to
include lifestyle issues such as diet,
view, to include lifestyle
exercise and stress in any medical
issues such as diet, exerspa program.” The next frontier for
medspas will be to incorporate a
cise and stress in any
variety of traditional and holistic or
medical spa program.”
alternative professionals to enhance
the client experience. For medspas
to remain relevant in the future, they will need a strategy, vision, training and
commitment to get it right. Only, well-funded, serious operations, based on
sound business principles who deliver a five star customer experience will be
the ultimate winners. ■
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