Planet Beach A Case Study of Success

by Scott Hoover

Fast Beginnings

Stephen P. Smith and a partner opened their first tanning salon, Electric Beach, in uptown New Orleans on May 15, 1995. Shortly thereafter, Smith bought out his partner and began experimenting with an operating system borrowed from a local health club that he owned at the time. Smith had a theory that tanning could be sold to customers on a membership contract basis, with dues drafted electronically from checking accounts and credit cards much the same way as memberships at a health club.

"My goal in opening up an indoor tanning salon was to get out of the health club business because it just wasn't profitable for me," says Smith. "We took our experience from the health club industry and applied it to the first salon we owned in New Orleans. We knew tanning was a great business if you could figure out how not to have a slow season. The concept that salon owners have to realize is that you can't sell time, you have to sell memberships if you are going to avoid the slow season."

It soon became apparent to Smith that his hypothesis was correct. Thus, he decided to embark on an aggressive program to franchise the new salon system. To do this, the name of the salon had to be changed, and on April 1, 1996, Planet Beach was born.

In order to focus on the expansion of Planet Beach, Smith sold all his assets except for the salon and hired two key employees--Nancy Price and Mandy Bryant--from the health club he previously owned.

Price became a major stockholder of the newly created Planet Beach Franchising Corporation and vice president of sales. Bryant became the general manager of the original Planet Beach tanning salon and now serves the company as senior regional manager. In July 1996, they added another vital component to the corporation when Richard Juka, a former PetsMart executive, joined the team as a major stockholder and vice president of operations. Juka was introduced to the company through his brother Rusty, director of public relations for Planet Beach. Shortly after Richard joined the company, Rusty was killed in a boating accident. His spirit is one of the motivating factors of Planet Beach.

Location, Location, Location

Planet Beach Franchising Corp. offers a number of services to franchisees including a market analysis, help choosing a site, ideas on different salon layouts and designs, support and training, management software and financing assistance.

"There are many reasons that I decided to franchise, but the major one is the opportunity to fill a niche in an industry that wasn't being filled," says Smith. "Research shows that independent salons opening their doors for the first time have a 40-percent survival rate past the first year; however, a franchised operation has a more than 90-percent success rate. One of the major differences between Planet Beach and other salons is that we focus on selling memberships, not on selling time."

According to Smith, one of the main differences between Planet Beach and other franchisors is the size of the salon and the experience the company brings to the franchisee.

"We don't do mega salons," he says. "We keep it simple by operating salons with a minimum of seven units and a maximum of nine units. Typically, the salons are 1,000-1,200 square feet in size. In addition, we provide for our franchisees and salon managers 26 hours of in-class training at our corporate office, as well as a complete turnkey operation. It is critical for salon owners who are considering becoming a franchisee to look at the current numbers that salons within the franchise are doing, the franchisor's financial stability and what their executive staff consists of."

The first step to opening a salon is Planet Beach's market analysis including a complete competitor evaluation within a 3-mile radius of the proposed salon location. In addition, the market analysis includes demographic information along with a summary indicating whether the location has a viable customer base to sustain a profitable salon.

"If the market analysis concludes a territory is too risky, a recommendation on another market will be made," says Smith. "Planet Beach will research markets for a prospective franchisee until an area is chosen."

The next step is the site selection. Corporate will evaluate all the potential locations, as well as rental rates, visibility, tenant mix, age of the shopping center, landlord services, security and parking.

"Usually, we will recommend one to three sites in a certain area along with an evaluation of the pros and cons of each site," notes Smith. "Lease proposals then will be made for at least two locations and corporate will work with salon owners to gain the most favorable lease terms and build-out agreements."

He says Planet Beach also helps with salon layout and design with close attention being given to fixtures and merchandising to provide for maximum retail profits. In addition, as part of the continued support, a Planet Beach representative is assigned to each location as a permanent consultant.

"The representative will evaluate the salon's performance on a daily basis and provide recommendations," he says. "Additionally, monthly sales and management training camps are available, and product knowledge and safety certification clinics are held regularly.

"In essence, it's like being in business for yourself, but not by yourself," Smith adds. "When our franchisees purchase a Planet Beach salon, they have a constant consulting firm that has the experience and background they need to succeed."

For many new salon owners, one of the most difficult aspects of opening their own business is coming up with the needed capital. Planet Beach Franchising Corp. offers help in this area by providing a business plan that already has proven effective in raising funds from banks, leasing companies, venture capital firms, the Small Business Administration and private investors.

"Corporate will provide insight into how a package should be presented to each of the various funding agencies for the best results," states Smith. "If a franchisee chooses to raise capital from private investors, we can show them how to set up a private placement offering."

NASDAQ Bound

According to Smith, one of the reasons that Planet Beach has been so successful is because it continues to build a solid foundation for the company.

"We don't believe in selling nails, jewelry or any other add-on services," he says. "We feel the best way to be successful is to be a tanning salon and selling only retail that will enhance the tanning process. Planet Beach concentrates on being an expert in the tanning business."

One of the biggest obstacles Planet Beach has faced over the past three years is finding determined, hard-working employees.

"Over the past year, the company has gotten better about finding good people," he says. "It sometimes is difficult for an existing salon to buy into a franchise. We have found that hiring employees from other tanning salons has been very difficult because of some of the bad habits they have acquired. It is much easier to start with a brand new salon and do everything correct from the beginning."

Another perceived disadvantage of owning a franchised salon is the lack of freedom to make decisions. However, Smith states this is not a large stumbling block when it comes to Planet Beach franchises.

"Salon owners are giving up some element of freedom and creativity by working with a franchise; however, the trade-off is the 90-percent success-to-failure rate," he says. "It's better for new salon owners to learn from the mistakes of others than from their own mistakes."

As far as the future of the indoor tanning industry, Smith sees it going through much the same process that the video industry went through a few years ago.

"Currently, the industry is going through a natural evolution process," he says. "I believe within the next five years the majority of indoor tanning salons will be consolidated and will own more than 50 percent of the indoor tanning market. It is the same evolution that occurred in the health club and video industries and to other sole proprietorships throughout the United States. The key for the tanning industry is to make sure franchisors don't just develop a name, but also back it up with operational and organizational guidelines."

As for Planet Beach, Smith guarantees the company will be there at the end.

"Our goal is to open more than 200 locations by the year 2000," he says. "Also, before the millennium, Planet Beach will become one of the first publicly traded indoor tanning salons on the NASDAQ market, and in five years the goal is to have more than 1,000 salons throughout the United States and Canada."

Times are changing in the indoor tanning industry. With the coming millennium, a new era in indoor tanning is emerging, bringing with it a new class of business people and enterprising entrepreneurs staking out their tanning territories and finding their fortunes.

Planet Beach Corp., a New Orleans-based franchisor since 1996 currently has 30 stores, 10 of which are corporate and 20 of which are franchised. They are located in southern Louisiana and Georgia with a number of salons opening in Alabama, Florida, South Carolina, Texas and Mississippi in the near future.