Following is a recent column I wrote for American Spa magazine's "Business Builders" column. Wynne Business receives many questions about private labeling, a tremendous hot-button topic in the industry. We also deal with the topic in depth in our Real World Startup Workshop. As well, our Spa Directors' Management Intensive always includes a lively conversation about the pros and cons of private branding.
“Branding” is the marketing buzzword of the decade, and a process that business experts consider essential to success. Our lives are touched by iconic brands such as Apple, Nike,
Harley Davidson and Coach, and as entrepreneurs we dream of creating a household name of our own. Brand-building in a spa requires branded products and services. But whose? As a spa consultant, I’m constantly asked by my clients which brands I think are the best. The question seems perfectly reasonable, save for one thing. If you spend all your time building someone else’s brand, who’s going to build yours?
Think for a moment about Target’s branding strategy. The democratization of style and design is Target’s brand promise. It offers enticing private brands created by household name designers—but unlike traditional retailers, these brands are exclusive to Target. What a strategy!
Now I’d like you to think about the day it’s time to retire. Your business valuation is probably not going to be very impressive; this is the service industry. What do you have to offer that potential buyer? Brand equity. Customers who are loyal to your company, its products and services.
A real brand is more than a sum of its operating parts. It has a life of its own.
A great spa brand offers unique, proprietary experiences that customers can’t have elsewhere. And contributing to those unique experiences are great products that they can’t buy elsewhere.
Many of our industry’s manufacturers understand branding far better than the spas they serve. If you’d like to carry certain prestige brands, they require that you include some of their proprietary services on your spa menu. This is brilliant branding—for them! But when Prestige Brand has installed their proprietary services on the menus of both you and your competitor, how will you differentiate yourself?
Here’s another common scenario. Spa X retails a popular product brand—we’ll call it Myrtle’s Miracle. As estheticians come and go at Spa X, they’re “pollinated” by Myrtle’s Miracle, and then one fine day, they take their brand loyalty with them to Spa Q, their next destination. One can virtually map the “explosion” of former estheticians using MM from its epicenter at Spa X. The market is eventually awash in a profusion of competitors selling the same product—Myrtle’s Miracle. The various parties content themselves with a smaller slice of the same pie.
What if, instead, Spa X sold their own private Brand X, which was exclusive to them? When Susie the esthetician heads to greener pastures, Brand X, happily, does not go with her. Clients of Susie’s who love Brand X still visit the spa to buy it—making it easier to Spa X to woo them back. To make it easy to keep Brand X in its clients’ hands, Spa X also retails its exclusive Brand X in its online store, eventually creating a following for the product in people who have never even visited the spa. When it’s time for Ms. X to retire, and sell her company, she has a true asset in Brand X.
Many of my startup clients feel they’re not “ready” for a private brand when they first open their doors. I tell them if they’re afraid to put their name on a bottle, they’d better not put their name on a building, either. Many of my turnaround clients feel that they can’t give up the support they receive from their brand. Support is an area where brands truly shine. But that support can come at a tremendous cost.
Exclusivity is one of the two key benefits of private branding. The other is profitability. I’ve yet to learn how or when it was decided that spas should receive 50% gross profit (or less) on products that we sell. Oddly, no manufacturer I’ve ever asked about this has been able to tell me why; it’s been industry standard for so long. Back in the days when our industry was comprised of mom and pop salons with proprietors “behind the chair,” and independent operators or therapists renting rooms, 50% gross profit worked fine. In today’s high-overhead spas that pay 10% retail commission to employees, it doesn’t pencil. At Preston Wynne, if a manufacturer can’t deliver at least a 60% gross margin, I just can’t afford to carry their product.
As a one-time owner of a private label company (spun out from Preston Wynne in 2002), I might not appear to be the most objective person when it comes to the spa industry’s private label-vs.-branded debate. But as a spa operator, I use a very objective measure when I compare the benefits of private branding—my profit and loss statement.
Much like the generic food companies that sprung up in the 1980’s, private brand manufacturers in our industry at first struggled with the perception that their offerings were sub-par. And to be frank, sometimes they were. The quality of private brand products has steadily climbed in the 20-plus years I’ve been in business, and options have expanded. Through careful research I’ve been able to hand-pick a collection of wonderful suppliers whose formulas consistently delight my guests.
The private label trend is growing—as more professional managers bring best practices from other industries and bump their heads against our industry’s notoriously low profit margins, private label sales have steadily climbed. To many of the “outsiders” I’ve consulted with, private label is a foregone conclusion. They can’t make their business plan work without it. Unlike the estheticians that fell blindly in love with Myrtle’s Miracle, their first priority is making sure that their business is healthy and profitable.
But wait. You’ve probably talked to spa owners who have dabbled with private brands and insist that they “don’t sell.” This actually translates to, “My staff doesn’t sell.” (This in turn translates to: “I don’t know how to motivate my staff to sell.”) Whenever Wynne Business does turnaround work with a spa that is not selling well (with a retail ratio—the percentage of retail sales to total sales—below 25%) they insist that their branded products sell the best. Of course they do!
A private brand product line does best in a spa where the brand—the company—is respected and supported by its employees. A private brand does well in a well-run organization. Private branding is not the panacea for poor management, or lack of management. In a weak organization, a strong outside brand may actually provide some of the support, structure and vision that’s lacking in management. This is an appealing proposition for many technicians-turned-managers who lack the skill or even the will to manage their spas and their retail programs. Ultimately though, branding autonomy gives the company the best chance of maximizing profit and value.
I can vouch for the fact that retail sales in the spa environment have become more competitive and more difficult in the past ten years. Our spa’s customers are bombarded by companies marketing skin and body care products and cosmetics, including department stores (your number one competitor) drugstores (number two) infomercials, specialty retailers like Sephora, multi level marketers, natural foods stores, even doctors.
Yet the fact remains that the primary influencer of a spa guest’s beauty and self-care purchases is their service provider. It’s a powerful sales platform. In the treatment room, thanks to the magic of the spa experience, and the rapport and trust you’ve built with your guest, you are in charge. That means your brand has the opportunity to compete, head to head, with the best-marketed lines in the world, and win.
TODAY’S OPTIONS IN PRIVATE LABEL
1. “Over label” private label. These collections of products come ready to sell, in generic packages that are often clean and attractive; you add your label. You review the vendor’s stock offerings and pick the products that you like best.
With over label, someone in your operation literally applies your labels to the products. CBI Laboratories, Coats Aloe, YG Laboratories and Manna Cosmetics’ Esthetic Research Group all market “over label” products. If you are buying large quantities you can silkscreen containers instead; however, the minimum orders for most spas are prohibitive.
2. Semi-custom, or “custom label” private label. Again, you choose your products from a library of finished products, and the manufacturer labels them for you. These products come to you ready to put on your shelves. The semi-custom option may include the opportunity to re-name products or even rewrite label copy, which can increase your house brand’s distinctiveness. New, high tech printing processes have made custom labeling inexpensive and fast. Some of these manufacturers have small minimum orders.
Branded companies are also testing custom-label divisions. Maui based Island Essence provides custom-label and semi-custom bath and body products to the Hawaiian spa market, and AcquaCures, based in Hollister, California began offering its bath-and-body Passport to Beauty Collection for custom labeling since 2005.
3. True Custom Manufacturing. This type of private branding enables you to create your own formulas. You’ll choose from packaging components—bottles, jars, lids, dispensers, boxes--to assemble a collection with a specific look. Minimum orders for some packaging components can be 10,000 pieces or more. Finally, you’ll complete your product’s image with custom labels, silkscreening, or hot stamping with high-end metallic foils.
Development costs for true custom products are very high, with R & D costs of $20,000 per product or more not uncommon. One custom manufacturer, Covalence, in Phoenix Arizona, has modest R & D charges that bring custom formulation into the realm of the affordable. They also wholesale their own library of products, which can be over-labeled or custom-packaged.
Custom manufacturing requires an enormous commitment of time and energy on the part of the spa, and a champion is needed. If you’re collecting feedback from your team, you’ll need good project management tools in order to keep track of your many iterations and the outcome of each version’s trial. I generally discourage new spas from undertaking a full custom manufacturing process, or insist that the scope be very limited. Few are prepared for the cost, the time commitment, and the focus required.
Owning the formulas for your own product line, though? Priceless.
4. Hybrid Private Branding. Branded companies who pay attention to the trends have seen the private label juggernaut coming. Some are now engaged in co-branding with prestige spa brands, a relationship that can hopefully provide the best of both worlds: exclusivity, and brand-building for both parties.