To Brand or Not To Brand
Retailing has always been an important component of the spa business. But revenues don’t always equal profit, and it may be time to look for some margin leverage. If you consider that a retail sale with typical branded products needs to contribute to overhead in the same way that a service sale does, by the time you pay for the product, overhead, and sales commission, there is very little left in the way of profits. Perhaps it’s time to explore the possibility of offering a private label brand, which may help you achieve better margins and offer you some exclusivity in the marketplace.
Private label products have become more prevalent in many consumer-goods businesses, from frozen food to clothing, and the business case for this is strong. Polls have shown that shoppers currently feel that 80 percent of private label brands are equal to or better than the quality of nationally known brands. As a result, consumers are putting their shopping dollars behind the sentiment. Private label brand sales grew 21 percent between 2007 and 2011, while national brand sales only grew by 3 percent. “Private brands are no longer the cheap option, they are the smart option,” says Maurice Alkemade, divisional vice president for private label at Walgreens, which plans to double its current $4 billion in annual sales of private label in the next five to seven years.
While your sales may not compare to Walgreens, the strategy still makes sense. The first place to focus is on a well-defined target market. Who is your desired customer, and what kinds of products are they most likely to be interested in? Whatever your spa’s niche, if you currently offer a national brand, chances are there are a couple of items missing from the lineup that would make an ideal starting point for a private label brand.
Colleen Rose, owner of Yoga 360 (Frankfort, IL), carries a national brand, as she loves the line and the education, but she also started carrying her own brand, Conway Rose, about 18 months ago. “The most positive effect of having our own brand is that the markup is higher, and clients become very loyal, because they can’t get it anywhere else,” she says. Nina Milano, owner of La Therapie (Cary, NC), also carries both a national and custom brand and says the best thing about having her own brand is her ability to create her own facial protocols, keep professional supply costs down, and vary the rewards to technicians for successful retailing. “National brands, although with great quality and packaging, just don’t offer the ability to pay more than eight to ten percent commission to technicians,” she says. Drew Allt, owner of Drew Patrick Spa (Bayshore, NY), opened his spa five years ago with two custom brands aimed at different market segments. “The best thing about having our own brands is our ability to introduce new products to meet the needs of our clients, and we choose to carry only products we need.” According to Rebecca James Gadberry, president of YG Labs, having your product name and brand in front of your clients is like taping your business card to their mirror. “You’re on their mind every day, and they’re reminded of the high quality and results you deliver,” she says.
If you have a new spa, starting out with your own brand can be a no-brainer. “Many owners hesitate selling a product without instant name recognition, but private branding can be equally successful and significantly more profitable,” says Liz Beresford, CEO of Vitelle Laboratories.
Introducing private label products definitely requires a well-thought-out strategy. Your products should be connected to the vision and mission of your spa, perhaps including a signature aroma or using packaging with messaging consistent with your spa philosophy. “A private label line needs to be based on the benefits of the spa; if you put a logo on a bottle just to put it on the shelf, on the shelf is where it will sit,” says Suzie Sommer, senior vice president of marketing for Ready Care Industries.
A common misconception about private label is that it will involve research, chemists, a long startup period, and lots of money. Happily, none of these are necessarily true. Certainly, you can spend hundreds of thousands of dollars creating your own custom formulations, but most private label manufacturers have a wide array of stock formulas, and can even tweak existing formulas. “Ready Care offers three stock lines that are available in more than 22 blends and fragrances,” says Sommer. “We can also tweak to add ingredients for emphasis, but most customers prefer our stock products, as they are tried-and-true formulas with significant benefits.” Debbie Fitzpatrick, vice president of sales and marketing for Botanical Science, says that unless a customer can turn 500 to 1,000 units of a given product within 90 days, she and her team discourage them from a custom formulation. “The money is best spent on marketing,” she says.
“Don’t choose the cheap product or the one in the most beautiful package—make sure you test the products on yourself, staff, and friends before you invest,” says Gadberry. From there, one big concern for spa owners is getting staff members to sell the product. “Staff will sell what they feel comfortable with, so efficacy, training, and product knowledge are essential to the success of the brand,” says Beresford.
It’s important to understand that private label suppliers can offer better margins, because they don’t have the infrastructure, including educators and marketing support, that a branded line may offer. “Spas using a private label line should know that they are the brand they offer, and at that point the term ‘private label’ no longer applies,” says Douglas Preston, on behalf of Brush Up with Barbara. “They will need to support their brand the same as they would any other and know their products and be able to train without routinely depending on the vendor.” As such, management needs to be fully behind the brand. Right after the launch, owners can expect to spend more on education and training for the staff.
Another thing to remember is that private label is not just confined to skincare, and cosmetics present an especially good opportunity. According to Karen Bock, president of Brushes by Karen, “Makeup has the bonus of the makeup bag, which women use in public places, providing free advertising.” Plus, according to a survey by market-research agency Mintel, 26 percent of women don’t even know if the cosmetics that they use are private label or not. What’s important are quality and value.
“The right strategy for private label, or custom branding, is to create a brand as a marketing tool, rather than just a price alternative,” says Todd Maute, senior vice president of the branding firm CBX. “This way the retailer gains the opportunity to tell a complete brand story while boosting customer loyalty.” Nielsen analyst Todd Hale concurs, noting that “private brands can prevail if retailers focus more on innovation, rather than simply developing lower priced alternatives.”
“In twenty-five years, we’ve never had a customer who buys high volumes of private label go out of business,” says Fitzgerald. “We believe one of the reasons is that these types of customers understand their business plan and the need for profitability to ensure longevity.”