Winning Moves For Tanning & Equipment
A Comprehensive Report On The State Of The Industry
by Judie Bizzozero
Since the late '70s, indoor tanning has been the "fad" that keeps on going. In the early days, indoor tanning was viewed as a passing trend--something that would humor and entice us for a while, but fade out in a few years. Nearly 25 years later, the industry is alive and well and gaining the attention of more mainstream businesses looking to play the tanning game. While this phenomena doesn't surprise those of us in the business, the industry's resilience surprises even some of its most staunch critics.
Estimates reveal that the indoor tanning industry has matured and evolved into a more than $5 billion industry. In an economy that has fallen on soft times, niche industries find it increasingly difficult to tread the rough economic waters. While many trades have suffered major trauma on the playing field, the indoor tanning industry has withstood the battle with minimal injury.
Variables in the net-worth equation include equipment, lamps, lotions, retail sales, tanning sessions, revenues and much more. We've put together arguably the most comprehensive industry report ever compiled by surveying and interviewing salon owners, manufacturers, distributors and state regulators. We also used statistics gathered through our Tanning Tours, the Top 250 Salon issues, annual trade expos and the magazine itself. We believe this report gives a fair indication of the growth patterns and market share of equipment in the indoor tanning industry.
With a new season on the horizon, many current and prospective salon owners and operators are looking to up the ante on their competition either by updating their equipment choices or adding new units to expand their properties.
As we gear up for another tanning season, it's time to take stock of the equipment sector by examining five key properties on the game of Tanopoly: Salon Street, Demographic Drive, Equipment Circle, Sunless Boulevard and Financial Plaza. While there are many more variables in the equipment equation, we hope the following points help paint a clear picture of the market.
Winning Moves
Research indicates that the average salon has been in business for about 10 years; however, some salons have experienced a number of owners. But the majority of growth is from individuals staying in the business longer. This translates to more maturity of ownership, more experience and more stability.
Salon Street
Today's salons are sophisticated in design and marketing. Tanning salon owners who have been in business for years understand that upgrading their facilities and offerings is just as important as upgrading the equipment and products they sell. In this fast-paced world, salon owners have capitalized on selling time and relaxation--of which we never seem to have enough.
Well, we've come a long way. Today's average tanning salon is a little more upscale, boasts a customer database of more than 2,200 customers and features--on average--a minimum of 10 pieces of equipment. Additionally, the average base unit has increased to a 36-lamp bed. Salons also are offering three to five levels of tanning so customers can choose their tanning lifestyle.
A typical 10-bed salon features six base units, two premium units, an upgrade and a standup. (Again, this is just an average. We know there is a large contingent of salons that offer 20-plus units.) Additionally, high-pressure units are making their mark on the industry. Many salons have found great success by offering at least one unit if their market supports it. Exclusive high-pressure salons are becoming less popular, as salon owners realize the benefit of mixing up the tanning levels.
To gauge equipment purchases, salon owners need to determine their desired session times. Do you want a 9-, 12-, 15-, 20- or 30-minute bed? The choice is yours to make, but you really should offer a variety to suit every customer.
Experts agree that the most popular session time is 20 minutes due to tanners' desires for longer, more relaxing tanning experiences. It is important to not lose sight of the fact that as our lives become more hectic, we search for stress relief, and tanning offers that and a golden, cosmetic tan.
Although the average tanning salon now has a minimum of 10 units, salons with fewer than four beds still represent the largest component of the industry; this may be attributed to growth within the beauty industry, where one or two tanning beds often are added to existing beauty salons. The percentage of salons with six to 10 units remains around 42 percent, with 11-15 units at 12 percent and those with more than 16 units at more than 21 percent.
The Midwest and Southeast boast the highest number of tanning salons per capita. The most populous states for tanning include Ohio, North Carolina, Michigan, South Carolina, Illinois, Indiana and Florida. Some of the least populated include Vermont, Hawaii and Wyoming. There has been increased tanning activity in Montana and Alaska of late.
Only a few years ago, salon owners had the choice to expand or remain the same. Many of the salons that are still in business chose to expand their services and add more locations. In some parts of the country, many small salons are feeling the crunch from the mega salons that have 20 to 50 beds and a variety of services under one roof. It is here that the salon owner must monitor its competition and perhaps change with the times.
Interestingly, 78 percent of salons planned in 2000 to expand their facilities or purchase new equipment within 12 months. In 2001, that number increased to 88 percent. Instead of undergoing a complete remodel or build-out, some salons opt for adding ancillary services. A word of caution: This might not be the solution to every salon's woes. Adding services might require limiting the number of tanning units, therefore cutting into profit margins. If a salon owner has the room to add services without detracting from tanning, then it can work.
Today's salon owner is a professional businessperson who has made a long-term commitment to the future of an industry. Fading are the quick profiteers interested in earning the almighty dollar rather than educating tanners about responsible tanning and regulations.
Research indicates that the average salon has been in business for about 10 years; however, some salons have experienced a number of owners. But the majority of growth is from |individuals staying in the business longer. This translates to more maturity of ownership, more experience and more stability.
We also are seeing a more sophisticated customer who is researching the industry and product vendors and asking for business information and operating costs. Most salon owners want to run their business the right way and are in this business for the long-term investment.
To illustrate this, more than 35 percent of salon owners say their salon revenue was $300,000 or more in 2001, and more than 90 percent say they expect to see their revenue increase in 2002.
Demographic Drive
The public's growing acceptance of indoor tanning has helped the maturity of the indoor tanning industry as a successful niche trade. Consumers continue to flock to indoor tanning salons looking to obtain a healthy-looking tan and relieve ever-increasing stress.
There are approximately 288 million people living in the United States. Traditionally, an estimated 10 percent of the U.S. population tan indoors. That means that in 2002 28 million Americans potentially will tan indoors, up from 27 million in 2001. In some pockets of the country, such as the Midwest and Southeast, the number will be significantly higher.
Salon owners need to identify customer demographics specific to their location. In other words, analyze the market to determine the potential number of tanners in your area. For example, an analysis of one Southeast state's population puts the number of potential tanners at about 22 percent--that's a conservative 12 percent above the national average.
Now, more than ever, tanning is becoming more recognized as a true lifestyle activity. With this increased recognition comes more interest from mainstream businesses studying the tanning-salon market and venturing into this lucrative arena. This only creates a heightened awareness of the business of indoor tanning. From health clubs to video stores, tanning is emerging all over the business world.
According to economists, the real sign of health in an industry is when it begins to grow from within just as the indoor tanning industry has done.
The demographic of the average indoor tanner has remained fairly constant over the industry's nearly 30-year history. The majority of those who tan continue to be in the 18-49 age group, 70 percent of which are women and 53 percent of which are women ages 20-39. Additionally, there has been significant rise in tanning within women ages 40-49.
Interestingly, one of the fastest-growing segments of the indoor tanning industry is older tanners over the age of 55. According to surveys, more than 2.5 percent of the indoor tanning demographic now consists of tanners over the age of 55. Another area of growth is the male population age 18-24. Some experts attribute this increase to the fact that more men are realizing that a tan is one of the only acceptable male cosmetics and they view tanning salons as a place to meet women. Whatever the reason, the numbers are increasing.
What is most significant about the indoor tanning industry's demographic of tanners is that it contains one of the highest service-based spending groups--a combination of the older baby boomer generation as well as the maturing Generation X demographic.
Salon owners also need to pay special attention to the "aging demographic." For example, the 22-year-old customer who began tanning 20 years ago may still enjoy tanning indoors; however, that customer now has a different tanning goal and skincare need. It's up to savvy salon operators to keep those customers coming back year after year.
Equipment Circle
Today's equipment manufacturers realize people want more diverse choices in appearance and function. Much like the first automobiles, the first tanning beds were primitive and boxy in appearance because they were built for functionality rather than aesthetics. As the industry progressed, equipment manufacturers improved upon their products and began introducing a selection of tanning units that included more curves, more comfortable acrylics and more sophisticated timing devices.
Equipment manufacturers became smarter about the science of tanning, and in 2002 end users are buying far more superior products than they did 25 years ago. Today's units offer features and quality at reasonable price-points. And, as an industry, we have witnessed the introduction of many new performance and convenience features that weren't always available. This provides salons owners with a full range of choices, from a basic Ford unit to a Lexus unit with all the bells and whistles.
Since tanning equipment is one of the most important purchases a salon owner will make, today's buyers are looking for innovations in the engineering of tanning equipment and reasonable price-points. Tanning equipment can range anywhere from around $2,900 for a 24-lamp unit all the way to $40,000 and higher for a high-end unit.
We estimate that there are approximately 178,000 tanning units operating in the U.S. market today. An average tanning bed costs around $7,000, which equates to roughly $1.24 billion--at a minimum--in pure equipment sales.
Industry veterans agree that the Europeans still influence the tanning market. For instance, European tanning units have become more ergonomically correct and large enough to include a wider range of tanners than ever before. The industry has seen sales in tanning units evolve from 24-lamp units to 48-lamp units and more. Many contend that the expensive, good-looking European beds have forced the U.S. manufacturers to turn up the heat and produce better products and market them smarter.
Manufacturers no longer are solely focusing on increasing wattage for performance; they are looking at the science of tanning and how the unit actually performs. In other words, manufacturers are focusing on lamp placement and the output on the UV spectrum rather than bombarding the tanner with increased wattage and heat. Industry insiders agree that you don't have to have a 200-lamp bed to get performance, but you do have to have a photometrically engineered bed that delivers results.
Equipment sales are cyclical, and many manufacturers experienced peaks and valleys in the 1990s. However, over the past three years, the majority report that their businesses have been steady with sound growth due in large part to new salons coming into the market and veteran salons upgrading equipment as technology evolves.
While many salons report their overall business as flat or mildly increasing, some equipment vendors estimate business growth to remain anywhere from 8 percent to 50 percent over the next few years.
While we've focused on new equipment, used tanning units do have their place in the market. The majority of used equipment can be found in the lower-end salons, nail salons and business that are not concentrating on tanning as their primary source of income. But one thing experts agree on is the fact that nobody is going to compete in today's market with used equipment.
Sunless Boulevard
The goal of any tanning salon should be to stand out in a crowded marketplace by offering a unique experience. It's always important to find ways to increase profits or salon sales by adding something new.
Typically what you are doing is either bringing in new customers because of a new product or generating additional dollars from your current customers. Many salons offer facial services, aromatherapy, nail services and even body wraps. Another profitable ancillary profit-generator is sunless tanning systems.
Emerging onto the scene about three years ago, spray-on tanning units once were considered taboo to tanning industry veterans. However, today's systems feature advanced technology that provides an even, all-over tan to customers and offer tanning salons a whole new revenue center that ultimately will increase traffic and profits.
For those salons skeptical of sunless tanning units, remember this: Tanners and non-tanners want to look good and feel good. With only 10 percent of the U.S. population currently tanning indoors, consider the possibilities. What better way to double or even triple the number of tanners in the United States than by introducing them to non-UV tanning? There is a huge segment of the population that will never tan indoors because they are concerned about the effects of UV radiation or have been brainwashed by the anti-tanning community.
Savvy salons that market sunless tanning correctly have the potential of gaining a new segment of customers. While customers may not take out a traditional tanning bed for a spin, they will pay for a great spray-on tan and most likely purchase moisturizers and skincare products from the salon. But don't overlook your core customers. Many traditional tanners will use spray-on units for a quick fix or even a nice change to their tanning regime. Again, marketing is crucial. Sunless units are a complement to UV tanning--not a replacement.
Estimated figures reveal that this market segment is growing at a phenomenal rate. Since 1999, the number of sunless units placed in professional tanning salons has grown about 200 percent. And at a price tag of around $30,000 that adds significantly to the industry's bottom line. By the end of this year, we estimate approximately 2,250 sunless tanning units will be operational in the U.S. market.
While some salons have opted to offer sunless-only tanning, that number is relatively low. In fact, the majority of sunless sales is comprised of one-unit placement to complement an established salon's traditional UV offering. Interestingly, the amount of repeat business is growing by leaps and bounds as multistore owners add units to their other facilities after seeing the profit potential.
As technology continues to evolve, the momentum keeps building, and that means huge growth in the next few years.
Financial Plaza
To stay competitive in the market, salons are expanding existing facilities, upgrading equipment choices and, in some cases, opening additional salons. Equipment manufacturers have experienced a shot in the arm, but in one of the roughest economies of the past 20 years, where is the money coming from?
Today's salons are looking at a much higher initial investment in equipment. Twenty years ago, a startup salon required about $30,000 in capital to get its doors open. Today, that number can be roughly around $200,000 for an eight-bed salon. That's an 85 percent increase since 1982.
Statistics reveal that over the past few years, the average lease or loan transaction for indoor tanning equipment has doubled from around $15,000 to $30,000 or higher, depending on the number and type of units. Lenders agree that the growth, in part, is due to stronger salon owners having better credit, better business plans and long-term commitments to the industry.
Estimates reveal that about 20 percent of all transactions are for startup salons. This number is historically accurate, as we estimate about a 20-percent attrition rate for salons each year. Additionally, about 95 percent of all funding goes to new equipment and about 50 percent of that number to a leasing option with an average term of 36 months.
According to our statistics, 85 percent of equipment sales are financed in some shape or form. Financing can be obtained through banks, leasing companies or even borrowing from a 401(k). In fact, many equipment manufacturers have found success in offering in-house financing.
While the indoor tanning industry is not recession-proof, it fares better than other industries because it is a vanity-driven business. It is a continually growing industry able to survive peaks and valleys because tanners will cut other lifestyle corners to maintain a healthy- looking glow.
To illustrate this, figures indicate that default rates on leases and loans are relatively low--averaging in the neighborhood of 3 percent. Bad debt statistics are even better--averaging less than 1 percent. These are not bad figures in an economy that began recession in the latter half of 2000.
Larger banks and lending institutions are realizing the indoor tanning industry is a specialized niche capable of holding its own in a soft economy. While the industry has built a more professional image in the past five years, there has been increased interest lately from lenders outside the industry.
Much of that is due to the efforts of lenders within our industry who have worked to break down some of the misconceptions that outsiders have about tanning and hair industries. As one lender says: "There comes a point in time that you have to look at the tanning industry and realize that it's not an accident."
Winning With Equipment
Now that you've taken a spin around the Tanopoly equipment board, have you figured out your equipment strategy for the upcoming season? By taking stock of your salon, demographics, equipment and financial options, the key to success is only a few moves away.
