State Of The Industry Report: An Industry At A Crossroads

There is no denying that the indoor tanning industry is standing at a crossroads, and many of its players are trying to predict which road will take them to the Promised Land. Needless to say, the upcoming season is going to be a pivotal one; however, everyone from salon owners to manufacturers, distributors to allied companies all play an important role in the future of our industry.

Every September we publish an annual State Of The Industry Report, a comprehensive analysis of the past season. The report normally takes an in-depth statistical look into a number of issues that influenced the industry as a whole and provides a detailed analysis of what is occurring at the salon level. This year, we’ve revamped the presentation to examine specific areas currently affecting the entire industry. Some areas such as weather, war and economy are uncontrollable, while others such as how to market, provide services and stand together as an industry are controllable.

Since 2001, tanning salons nationwide have endured some tumultuous times. Every year, we hoped and prayed that the next season would be the season to lead us out of the lull. While the past few seasons have been difficult for many, it appears there might be sunlight on the horizon.

While interviewing salon operators and industry vendors, it appears that the 2006 season started out stronger and earlier than years past. There was optimism and a renewed sense of excitement from veterans and newcomers alike. Many operators I spoke with agreed that rediscovering marketing and knowing when and how to change directions was the secret to their success in 2006. Once again, many salons cited a flat to average year; however, the same amount claimed they had a higher than average year. It appears that location, business models and marketing tactics had much to do with the success or failure of some salons, in addition to the aforementioned uncontrollables.

For detailed statistics and information regarding salon analysis and market demographics, please review the State Of The Industry Report that appeared in the March 15 Fact Book. You also can access this information at www.lookingfit.com. 

There is no debate that the industry has trudged through a valley for the past five years; however, many veterans agree that there are signs of a climb out of that valley. Many of those signs point to a number of things, one of which is industry consolidation.

Consolidation, mergers, buyouts and closures are common occurrences in a maturing market. Last year, industry insiders predicted that consolidation would continue in larger saturated markets but not in smaller, rural markets that didn’t have the populous to support bigger salons. They also agreed that the number of first-time salon owners increased in 2005 and expected that to continue into 2006. Industry experts agree that the indoor tanning industry traditionally has a 20-percent attrition rate, which means some salons will survive and others will not.

Additionally, the trend of mega-salons, chains and franchises acquiring independent salons continued in 2006 in certain regions. On the other hand, independent salons reported average growth and some are in the middle of expanding existing salons or opening more locations. Interestingly, the “thinning of the herd” concept came true for many in 2006 including salons, distributors, suppliers, manufacturers and allied sectors. Decreased margins and intense competition made the season especially difficult. Some industry veterans closed their doors or sold out, while others are mapping out a plan for survival in 2007. Even large manufacturers and full-service distributors were affected in 2006; however, they held their market share thanks to solid salon relationships and offering equipment, lamps, lotions, parts, supplies, customer service, financing and new Web-based programs.

As an industry, we need to embrace the consolidation that has occurred to a degree. The face of the U.S. tanning industry has changed dramatically since last season, and it is time for new leaders to emerge and take the industry to the next level. Leadership needs to generate passion and excitement, and the new leaders will bring bright ideas.

The U.S. Market

Nearly 30 years after being labeled a passing fad, the $5 billion U.S. indoor tanning industry still is providing golden tans to approximately 30 million Americans each year.

There are approximately 25,000 professional indoor tanning salons and another 20,000 locations such as health clubs, spas, video stores and beauty salons that have one or two tanning units. The highest number of tanning salons per capita are found in the Midwest and Southeast, with Ohio, North Carolina, Michigan, South Carolina, Illinois, Indiana and Florida having the most salons.

The majority of indoor tanning facilities in the United States are small businesses, and more than 50 percent of them have female ownership, compared to 25 percent of businesses in other industries, according to the U.S. Census. Indoor tanning also provides jobs for approximately 160,000 employees annually.

It is important to note that the indoor tanning industry is similar to many service industries in that there is a low-entry level in terms of capital outlay. It takes between $300,000 and $250,000 at minimum in initial investment to outfit a standard 10-room salon properly in today’s market.

In 1982, the initial investment was about $30,000. Additionally, there is no mandatory education required to run a tanning salon except in those states that require mandatory certification.

The byproduct of this is that when times get tough inexperienced business owners with relatively low capital investment are prone to fail no matter the state of the industry. They need the business expertise to ride out the tough times. If not, competition will take business away.

The majority of freestanding tanning salons have at least 10 rooms with three to five levels of tanning and a sunless unit; however, the past few years have seen a shift toward larger salons with more space and services. A typical 10-unit salon may feature one big bed, two mid-range or premium beds, a UV standup, five entry-level beds and a sunless unit. [Note: These are conservative estimates since mega-salons house 20 or more tanning units in one location.] Statistics for 2006 reveal that 60 percent of salons reported an average single-session price of $7 or more; only 3 percent charged $5 or less.

Additionally, 45 percent of salons reported that lotion sales accounted for 30 percent or more of monthly revenues. This number is up from last year and suggests that salon operators are getting better about selling the concept of total skincare.

Today’s professional salon owner also brings a higher commitment to his or her business. They entered the market with sound business models and financial acumen. This translates to more maturity of ownership, experience and stability. Many salons have failed over the years because of absentee ownership. Successful salon owners keep their fingers on the pulse of the industry and are in the salons to oversee business.

Nearly 300 million people live in the United States. As an industry benchmark, we estimate that 10 percent of the U.S. population will tan indoors annually, which means that 30 million Americans will frequent a professional tanning salon in 2006.

For years, the average indoor-tanner profile has remained constant—the majority falling in the 18-49 age group; 70 percent of which are women— 50 percent of which are ages 20-39. Over the years, there has been a continued increase in tanning with women ages 40-49 as traditional tanners move into this age bracket. Add to the fact that more men are visiting salons because they want a golden tan and are becoming more educated about the importance of professional skincare products.

However, salon owners need to take notice of the baby-boomer tanner born between 1946 and 1964. While we have addressed this subject in past issues, the oldest boomer turns 60 years old this year. This means they have different tanning goals and skincare needs. In fact, statistics indicate that baby boomers spend $4 out of every $10 on beauty. Boomer beauty could and should be a “revenue beast” for the tanning facility.

Add to that the fact that today’s customer demographic also contains one of the highest service-based spending groups—a combination of the baby-boomer generation and the maturing Generation X group born between 1964 and 1980.

Emerging onto the tanning scene is Generation Y—the generation born between 1978 and 2000 that accounts for approximately 76 million Americans. According to Wikipedia, economic materialism seems to be abundant with Generation Y. This spending group is obsessed with clothing brand names and chains like Abercrombie and Fitch, American Eagle Outfitters, Armani Exchange, Dolce and Gabbana and Juicy Couture and possessing expensive electronic devices such as iPods, hightech cell phones, digital cameras and laptops. This group is the offspring of the first generation of U.S. indoor tanners. Salons should take special notice of this segment and market accordingly.

Evaluate your databases and print a report that outlines who is buying what and how you can increase the dollars-per-customer ratio by creating a reason for tanners to come to the salon. Create tanning packages that require customers to adjust their schedules to you as opposed to the other way around. Offer 30 days of tanning for a certain amount of money because it requires a new purchasing decision in 30 days. The promotion doesn’t work to your advantage if you sell 30 tans for a certain amount of money because the customers feel they have to use every single session.

Ancillary services can help salon owners buck the difficulties of the tanning off-season. These add-on services remain popular year-round and allow salon owners to leverage their existing customer bases and use much of their same operating models. The indoor tanning salon can play host to a number of ancillary services that can help add additional revenue from a minimal investment of money and staff.

Even if your salon only offers tanning, don’t underestimate your future growth. As the total salon concept becomes more widespread, it may be necessary for you to provide additional services to maintain an edge over your competition.

Some of the most popular ancillary services include sunless, hydrotherapy, day spa amenities, light therapy, skincare, nails, body wraps, massage, fitness, video, travel and nutritional supplements. Salons must identify what add-on services will work for their business models. Explore new ideas and determine whether they fit into your salon concept and design because today’s busy clients are looking for a one-stop shop for all their needs.

For the past six years, the sunless segment has been the king of add-on services. The sunless boom began in 1999 and took off in 2000 as a way for salon operators to reach new generations of tanners and open doors the doors to an emerging market. In 2006, salons reported that sunless sessions continued to be popular, but session prices were dropping due to increased competition.

According to results from LOOKING FIT’s 2006 Top 250 Salons survey, 40 percent of U.S. tanning salons offer at least one automatic sunless booth and 22 percent offer sunless airbrush or HVLP/turbine tanning. While this number remained the same from 2005, it should be viewed in terms of sunless unit sales versus sunless session sales.

Sunless equipment manufacturers reported continued interest and steady sales as many salons added sunless. They also noted that many chains and franchises added sunless to their business models. In terms of sunless session sales, salons reported around the same number or higher as last season. Many cited that sunless sales, once again, helped salvage a flat year.

On the negative side, many salons were slashing prices or using scare tactics to increase sunless sales. This only hurts the industry, as we are now fighting for mass-market sunless dollars. We are battling a huge anti-tanning coalition that now includes the cosmetic giants and medical associations. We must market these services as a compliment to UV tanning or an alternative to tanning for those individuals who cannot or should not tan indoors or outdoors.

As with any business, there are various uncontrollable factors that affect its success or failure. In 2005, those factors included the war in Iraq, weather, increased gas prices and an unstable economy. Those same factors, as well as increased interest rates, a stock-market rollercoaster and more unrest in the Middle East, affected the 2006 season.

Add to that the fact that many salons and suppliers are still recovering from the 2005 hurricane season that slammed the Gulf Coast region hard. With the hurricane season beginning June 1, we only can hope for a reprieve from Mother Nature’s wrath, but only time will tell.

Consumer spending was down in 2005, and many tanners cut back on the little luxuries to save money. However, a number of smart salon owners realized that you can’t market a luxury during a recession. They shifted to a value-driven marketing plan that basically said: “Can’t go on vacation this year? Take a break at my salon.” By doing this, they retain customers and can upsell them when the economy picks up. Many of those same salons carried that plan forward in 2006 and found new and innovative ways to get more people in their beds, so to speak. From “Friday Night Couple’s Tanning Night” to “Tans For Cans”, salons cashed in on some creative promotions. They also used these promotions to service their databases and target a specific buying demographic.

So, since tanning is considered a personal lifestyle choice, let’s take a closer look at consumer spending in 2006 and how affects the industry. In July, the market research firm Datamonitor said the American lifestyle is speeding along at a forever quickening pace making the role of personal care products and services in our everyday lives more important than ever.

The company found that the two key factors driving the self-indulgence market are a general population with a growing disposable income, and growing levels of everyday stress. Specifically, the report concludes that Americans’ greater income is allowing them to upgrade to premium products and services when they treat themselves, and their rising stress levels are increasing the frequency with which they purchase self-indulgent products and services. The report also states that the boundaries that once separated premium and mass-market products and services are being redefined, creating a mid-market “affordable-premium” category and a “super-premium” segment. In conclusion, the report forecasts greater growth for the U.S. personal care market than for the general U.S. marketplace.

Marketing savvy salon owners should have picked out the following key words: self-indulgence, everyday stress, treat themselves and upgrade to premium products. Isn’t this what the tanning experience is all about? Isn’t that what we’ve been selling for nearly 30 years?

This year more than ever, the indoor tanning industry was besieged with anti-tanning propaganda from the media and medical communities. The two biggest issues in 2006 were underage tanning and salon’s making health claims.

The Indoor Tanning Association (ITA) spent much of its time fighting anti-tanning legislation at the state level; however, many local municipalities also introduced anti-tanning referendums. This is extremely disturbing since what was once a state issue now has become a state, local and county issue. Add to that the introduction of HR 4767, otherwise known as The Tan Act. Sponsored by Rep. Carolyn Maloney (D-NY) and Rep. Ginny Brown-Waite (R-FL), HR 4767 was introduced to Congress and would require the FDA to conduct consumer testing to determine the appropriateness of the current labeling requirements for indoor tanning beds. It also would require FDA to hold public hearings, solicit comments from the public and report to Congress the determinations it makes in the study.

The Academy of American Dermatology (AAD) and other medical associations are teaming up with cosmetic and beauty companies to wave the anti-tanning stick in the public’s eye. Just look at Cosmopolitan magazine’s multimedia anti-tanning crusade this summer. Did you know it was co-sponsored by Neutrogena? It doesn’t take a rocket scientist to realize that Neutrogena sells self-tanners and is taking profits from you—the professional skincare consultant.

The indoor tanning industry has a tough road ahead fighting multimillion-dollar public relations firms touting the so-called evils of tanning. We need to band together as an intelligent unified voice and spread the Good News about moderate, sensible and responsible exposure to sunlight. This is the only way to take the ammunition out of the hands of the anti-tanning coalition.

Tanning critics will continue to beat their drums; however, it can be countered largely by the mounting studies favoring sensible, moderate and responsible exposure to light in a controlled atmosphere.

The ITA and a handful of salon operators are doing their best to fight state tanning legislation, but they need help. Salon owners also can help at the local level. The UV Foundation also is working on some groundbreaking studies that will lend credibility to the benefits of tanning.

Additionally, Don Smith and Pat Reykdal work tirelessly to spread the Good News about the benefits of tanning and the role of vitamin D in overall health. Their Good News articles appear in LOOKING FIT and can be downloaded online for salon owners to review. In fact, turn to page 36 for the fourth installment of the five-part series—”UVR-Induced Vitamin D: The Elephant Sitting In The Living Room”—which began in June. The series provides salon owners with information to become knowledgeable about UVR-induced vitamin D so they can play a leading educational role in the vitamin D revolution that is just ahead.

Tanning salon operators need to be ambassadors for our industry now and in the future. Clip out positive articles wherever you see them and post them in your salon’s lobby or in the tanning rooms. Educate your employees about explaining the benefits of responsible tanning properly so as not to overstep the FTC and FDA boundaries.

Now that we have examined some specific areas currently affecting the entire industry, what road will you go down? Will you become a stronger force in the industry or will you sit by and let others lead? Better yet, will you be here next year?

For more information on competing in this evolving market, download our free on-demand Webinar “How To Compete In A Changing Marketplace” by logging on to www.lookingfit.com. You will gain valuable insight into the evolving industry and its wonderful potential.