Looking Fit 09/2003: Strategic Moves: The Annual State Of The Industry Report '03

Strategic Moves
The Annual State Of The Industry Report '03

by Judie Bizzozero

As we begin to calculate our moves for the 2004 indoor tanning season, LOOKING FIT presents our annual State of the Industry Report 03. The following report analyzes the different pieces that make up the complex tanning chess match including industry demographics and the economy, the tanning salon, tanning equipment, emerging trends, and regulations.

This analysis is based on interviews and conversations with salon owners, manufacturers and distributors. We also used statistics gathered through our Tanning Tours, the Top 250 Salons issues, annual trade expos, training events and the magazine itself.

We hope this special report provides you the strategies to make the right business moves for the 2004 tanning season.

In  2002, we estimated that the indoor tanning industry was a more than $5 billion industry. Due to yet another rough economic year, the 2003 season pretty much mirrored last season. While many manufacturers and suppliers reported healthy increases in sales, the majority of salon owners reported only average to slightly increased numbers. Many salons had hoped the 2003 season would be the year to slip out of the economic noose; however, the weakened economy, world events and weather kept this from happening.

Therefore, it is safe to assume that while the industry grew in certain segments, it did not make huge strides in terms of overall growth. For instance, many salons refrained from purchasing new equipment and instead held on to their cash for a rainy day. Yet, this strategy backfired for some because 2003 witnessed an increase in new tanning salons opening stocked with brand-new equipment. Once-loyal customers jumped ship for the latest and greatest in tanning performance. Customer loyalty only will go so far, and salon owners need to provide the tanning results as well as good service to keep clients.

Additionally, while the equipment sector reported increased sales, the companies importing equipment saw their profit margins shrink because of the euro exchange rate. According to the Federal Reserve, in July 2003 $1 U.S.  equaled 1.13 euro. Conversely, in 2002, $1 U.S. equaled 0.99 euro. That means in 2003, importers were paying more money to get foreign product on U.S.  shores. To rub salt in the wound, the poor economy made it difficult to raise equipment price-points and salons werent buying as much as in years past.

However, there seems to be light at the end of the tunnel and all eyes are focused on the fourth quarter, which insiders hope will usher in a brighter economic picture. Enthusiasm for the 2004 tanning season seems higher than in years past, partially due to innovations in technologies and services and an increased number of new salons ready to place their chess pieces on the playing board. With a rebounding economy and great marketing, the upcoming season could be just the shot in the arm this industry needs.

Tanning continues to be a true lifestyle for many, even after decades of criticism from the anti-tanning establishments. For the past three decades, indoor tanning has grown into a viable and profitable industry.  This increased recognition has attracted more interest from mainstream businesses researching the tanning-salon market and venturing into this lucrative arena.

This trend continues for the 2004 season, as more salons are scheduled to open. Additionally, tanning units are finding their way into more fitness centers, beauty shops, video stores and resorts. There also is a growing trend of existing tanning customers making the leap to salon owner because they believe they can do it better than the salons where they tan. Economists say that the real sign of health in an industry is when it begins to grow from within just as the indoor tanning industry has done.

Its a fact that people want to look good and feel good, and indoor tanning provides that and much more. Consumers go to tanning salons to obtain healthy-looking tans, but they find the joys of relaxation and the very latest in skincare and bodycare products. So the key is to increase the number of tanners in each salon.

There are approximately 291 million people living in the United States. Traditionally, an estimated 10 percent of the U.S. population tan indoors. That means that in 2003, 29 million Americans will tan indoors, up from 28 million in 2002. Its up to smart salon owners to figure a way to get the other 90 percent of the population to try their services.

The profile of the average indoor tanner has remained constant over the industrys 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. There also has been a continued increase in tanning within women ages 40-49. Interestingly, one of the fastest growing segments in 2002 was women ages 16-19. Additionally, tanning continues to increase within males ages 18-24perhaps due to the fact that most men view a tan as one of the only acceptable male cosmetics and they think tanning salons are a great place to meet women.

Not to be overlooked is the aging tanner. Nearly 3 percent of the indoor tanning demographic now consists of tanners over the age of 55. These customers have different tanning goals and skincare needs.

The indoor tanning industrys customer demographic contains one of the highest service-based spending groups a combination of the older baby boomer generation and the maturing Generation X demographic. So its up to the smart salon operator to keep these customers coming back year after year.

First impressions are everything. From the moment a client walks through the door, an impression is being formed in his or her mind. Is the salons decor inviting?  Does it look professional and clean? Does it offer a variety of tanning levels in order to appeal to a customer base? Are the employees helpful and courteous? These are just a few things that can make or break a business in a matter of one visit.

Todays tanning salons are larger in size and more sophisticated in design than the salons of the late 1970s and early 1980s. Gone are dark paneling, plastic plants and palm trees; in are clean lines, creative concepts and cutting-edge technology.

As mentioned in last years industry report, opening a salon is no small investment. It requires about $200,000 or more in initial investment to properly outfit a 10-bed salon in todays market. In 1982, the initial investment was about $30,000.

Todays salon owner is a professional with a long-term commitment to the future of the tanning industry. Research indicates that the average salon has been in business for about 10 years. The majority of growth is from individuals staying in the business longer. This translates to more maturity of ownership, more experience and more stability.

The number of commercial tanning locations remained constant in 2003. In addition to the estimated 20,000-25,000 locations that concentrate strictly on tanning, there are another 30,000 locations such as health clubs, video stores and beauty salons that offer indoor tanning. While those facilities may offer one or two tanning units, they still impact the market.

In keeping with tradition, the Midwest and Southeast have the highest number of tanning salons per capita, with Ohio, North Carolina, Michigan, South Carolina, Illinois, Indiana and Florida leading the charge. In 2001 there was increased tanning activity in Montana and Alaska; however, Colorado and the Northeast experienced increased activity in 2002. Interestingly, the Northeast extended its busy season to June this year thanks to Mother Natures cold and rainy weather.

Todays average tanning salon boasts a customer database of more than 2,200 customers and featureson average a minimum of 10 pieces of equipment. Todays salons continue to offer three to five levels of tanning so customers can choose their tanning lifestyle. For example, a typical 10-bed salon features six base units, two premium units, an upgrade and a standup. It is important to note that this is an average; there are a large number of mega-salons offering 20 or more tanning units.

While the average tanning salon has a minimum of 10 units, salons with fewer than five beds continue to represent a growing component of the industry. The reason for this is attributed to growth within the beauty industry, where one or two tanning beds often are added to their existing services.

Statistics for 2003 reveal that the percentage of salons with one to five units remains around 25 percent, six to 10 units at 42 percent, with 11-15 units at 12 percent and those with more than 16 units at more than 21 percent.

In order to determine the correct mix of equipment, salon owners need to identify its customers desires. Industry insiders agree that the most popular session time is 20 minutes due to tanners desires for longer, more relaxing tanning experiences; however, do 9-, 12-, 15-, 20- or 30-minute beds fit better in the lineup? What do customers want? Offering a mix of session times can equate to more tanning sessions throughout the day and the potential for increased profits.

In 2003, high-pressure units continued to make an impact in the market due in large part to improved technology and increased tanning performance. Salons that had the customer base to support high-pressure found great success and profits from the addition of the unit.

This season also witnessed a surge in sunless tanning units, leg tanners and stand-up units. This illustrates the wide range of equipment choices available to todays consumer and provides salons with another source of revenue.

To make room for new equipment and services, salons have to decide whether to expand or open another location. In 2002, 88 percent of salons planned to expand their facilities or purchase new equipment within 12 months. In 2003, that number grew to 90 percent with 36 percent of those planning expansion within six months.

Experts agree that the time is now for salons to make a competitive move. Strategies include upgrading equipment, offering more services and getting more customers through their doors. To illustrate this, nearly 40 percent of salon owners said their salon revenue was $300,000 or more in 2002, and more than 80 percent say they expect to see their revenue increase in 2003, albeit conservatively. Many salons chose to increase their session prices. In 2003, 50 percent of salons reported an average single session price as $7; in 2002 only 44 percent earned that. Interestingly, lotion sales remained constant, with 46 percent of salons reaping 10 percent to 24 percent of their overall monthly revenue from lotion sales. This number was the same in 2002.

With an economy thats been lackluster at best for three years, many salon owners opted to hold on to their money and wait for the haze to clear. The time is ripe for investing back into business with the addition of new  equipment. Industry experts agree that those salons that have not upgraded technology since 2001 probably will be watching the end of the 2004 season from the sidelines.

Tanning equipment has come a long way since the 1970s. Todays units not only are cosmetically appealing, they also are equipped with the latest technologies to provide superior tanning performance at an affordable price.

Tanning equipment remains one of the most important and expensive purchases a salon owner will make, and that is why salon owners are demanding engineering innovations and affordable price points. Commercial tanning equipment ranges anywhere from around $2,900 for a base bed all the way to $40,000 and higher for a high-end unit.

We estimate that there are between 178,000 and 190,000 tanning units operating in the U.S. market today. By averaging the cost of a tanning bed around $7,000, it equates to roughly $1.24 billion to $1.3 billion worth of equipment operating in the U.S. market.

Industry statistics reveal that lowpressure units continue to dominate the market; however, medium-pressure units are becoming an increasingly popular upgrade. High-pressure units also are making a comeback as technology has improved their tanning performance. There has been resurgence in interest for stand-up units as salon owners realize they need to provide units with shorter session times for customers who are crunched for time. This season also saw a number of leg tanners emerge onto the market. These units fill a specific need in the market.

Europeans still influence the U.S. tanning market. The industry has seen sales in tanning units evolve from 24-lamp units to 48-lamp units and more.

Over the past few years we have witnessed the equipment manufacturers focus on lamp placement and the output of the UV spectrum rather than bombarding the tanner with increased wattage and heat. Industry insiders agree that its not a 200-lamp bed needed to get performance, rather a photometrically engineered bed that delivers results.

Insiders predict that the 2004 tanning equipment will boast better aesthetics as well as some technological improvements. Newer units will be more comfortable, have better eye appeal and have more bells and whistles in the form of sound systems, cooling mists and aromatherapy mists. Also look for significant advancements in highpressure technology.

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. As mentioned before, there are a record number of tanning salons set to open for the 2004 season, and that means there will be a lot of new equipment hitting the market this year.

Over the past few years, weve watched the sunless tanning segment of the industry position itself for tremendous growth. In 2003, sunless literally exploded with growth. While sunless provides a new service to existing clients looking to enhance their traditional tanning sessions, it has the potential to expand the tanning populous with new customers who either cannot or choose not to get a traditional UV tan.

Many industry insiders believe sunless tanning will be the vehicle that drives the indoor tanning industrys expansion because it has the potential to bring billions of dollars worth of additional business. Yet, some salon owners fear sunless will compete with their indoor tanning businesses, and thats why they dont carry them. In reality, the opposite is true. Business-savvy salon owners understand that their retail sales will skyrocket if they present themselves as total suncare and skincare specialists, able to fulfill every related need of their clients.

Salon operators offering ancillary services report that their businesses dont suffer the ups and downs of the tanning off-season. In fact, a large number report that incorporating sunless into their services has increased traditional UV tanning sessions.

Sunless products deliver immediate gratification because they provide a cosmetic, tanned look within a few hours of applicationsome even faster if the solution contains a bronzer. Individuals who choose not to use UV tanning devices still can get the desired healthy-looking glow of a golden tan. Salons that recognize this can boost profits with a tailor-made pitch. Customers use sunless products for a number of reasons including a quick fix when they are pressed for time, a tanning booster between traditional UV sessions, to touch up delicate or hard-to-tan areas such as faces, hands and feet, and to even out any pressure points, tan lines or uneven spots on the body.

It cannot be stressed enough that sunless should be promoted as a complement to traditional UV tanning. The sun-scare coalition spends billions of dollars each year promoting the dangers of UV exposure. If a persons only exposure to a tanning salon is what the sun-scare coalition wants him or her to know, then the indoor tanning industry is destined to lose.

Emerging onto the scene a few years ago, spray-on tanning units once were considered taboo to indoor tanning industry veterans. However, todays systems feature sophisticated designs and advanced technology that provide an even, all-over tan to customers and offer tanning salons a whole new revenue center that ultimately will increase traffic and profits. Customers enjoy the privacy of the spray-on booths as well as the results, while salon owners welcome automated systems that dont consume employees time with cleaning and setup.

Estimated figures reveal that this segment is growing at a phenomenal rate. Since 1999, the number of stand-up sunless units placed in professional tanning salons has grown about 200 percent. In fact, we estimate that by the end of this year more than 2,500 stand-up units will be in place nationwide.

Some salon operators state that use of traditional tanning units increased as much as 30 percent after they introduced a spray-on sunless booth. A lot of tanners find that the brown they get from UV-tanning is beautifully complemented by the golden brown they can get from a sunless tanning system.

While some salons have opted to offer sunless-only tanning, that number is relatively low. In fact, the majority of sales are comprised of one-unit placement to complement an established salons 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.

Increasingly popular this season is the demand for airbrush sunless tanning systems. These units are relatively inexpensive, compared to their spray-on booth counterparts, and provide salons with portable compressor units and sunless solutions that allow them to get up and running immediately. Companies supplying these units and formulas have reported phenomenal demands this season and anticipate the interest to continue.

The airbrush system seems to appeal particularly to customers who desire a quick fix for their face or uneven tan lines. While airbrushing does not have the same privacy factor as the spray-on booths, customers dont seem to mind. Salons can apply airbrush applications right at the front counter in a matter of minutes and make a nice, little profit. However, salons that provide full-body airbrushing should have a private room or designated area in the salon reserved for this service.

Many manufacturers are introducing new innovations including airbrushes that provide a larger spray for use on the torso, back and legs, as well as ventilated booths that address privacy and overspray issues.

By offering these products and delivery systems, indoor tanning salons can satisfy yet another group of potential customers who may never tan indoors. Once those customers use sunless, they most likely will purchase moisturizers and skincare products as well. Additionally, many traditional tanners will use spray-on units for a quick fix or even a nice change to their tanning regime.

As mentioned earlier, todays salons are facing much higher initial investments to open their businesses. 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. In 2003, the average equipment transaction was around $35,000, up from $30,000 in 2002.

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 for the 2003 season reveal that about 15 percent to 20 percent of all transactions are for start-up 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.

While this seasons numbers pretty much mirror 2002s, there is an increase in the number of new salons emerging onto the scene. Industry veterans agree that the amount of interest from individuals looking to open a salon has increased dramatically this year.

Opening a salon in 2003 takes a much larger investment than it did in 1983. In addition to securing the building, the next largest expense will be in the area of equipment. Estimates reveal that 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 the last few years, some equipment manufacturers have found success in offering in-house financing.

The 3-year economic slump has hit every industry with a punch; however, lenders report that the tanning industry has a relatively low 3 percent default rate on loans and leases.

Bad-debt statistics are even better, averaging less than 1 percent.

In 2003, lenders saw a small increase in bad debt, yet they were quick to point out that the tanning industry fared much better than other industries.

A number of regulatory changes and proposals made their way onto the tanning chessboard in 2003. The following is a recap of some of the changes, as well as updates on proposed amendments.

A hearing is pending with the Arizona Radiation Regulatory Agency board chairman to decide on revised rules for indoor tanning. If approved, the new rules are expected to be in place later this year.

One of the biggest changes in the tanning rules will be stronger language defining a trained and knowledgeable operator. According to the proposed rules, a trained operator must control a sunlamps timer when a tanning device is in use. For tanning facility staff to be deemed compliant, the salon must keep training records for inspection purposes that include dates and material covered for three years from the date the training was provided. A list of trained employees also must be posted in the tanning facility.

According to the new rules, operator training shall include:

• The requirements of the revised Arizona rules.
• Procedures for use of minor and adult user-consent forms.
• Potential for photosensitizing foods, cosmetics and medications.
• Requirements for use of protective eyewear by users of the equipment.
• Proper sanitizing procedures for the facility, equipment and eyewear.
• Manufacturers procedures for operation and maintenance of tanning equipment.
• Recognition of injury or overexposure.
• Pocedures used in case of emergency.

This training requirement can be accomplished by participating in a certification program such as that offered by the National Tanning Training Institute.

Legislation that would have established a restrictive licensing program for Connecticuts indoor tanning industry died in June when the states Legislature adjourned without taking final action.

Over a 3-month period, Senate Bill 833 was referred to several different committees, with each committee making changes. With the help of local lobbyists hired by the Indoor Tanning Association, the ITA was able to convince legislators to revise the bill and delete many of the most burdensome provisions.

As was the case in North Carolina, SB 833 played a role in the Legislatures debate over abortion rights. The Connecticut Legislature recommitted the bill to the Health Committee rather than address the abortion issue.

A proposed bill in the Florida Legislature would give a fee reprieve to a majority of the states 1,700 licensed tanning salons.

Last year, the Joint Administrations Office, Floridas legal advisory arm, directed the Florida Department of Health to conform its tanning-salon fee structure to existing Florida law.

The tanning rules written in 1991 offer specific fees that should have been charged for each tanning device used commercially in Florida.

In order to adhere to the rule, the department was ordered to stop the current fee structure and implement a new fee schedule based on the 1991 tanning law. The result would have been a considerable fee increase for a majority of Florida salons.

However, a pending bill referred to as the Public Health Clinch Bill would amend Chapter 381.89 of the Florida Statutes so salon owners would not have to worry about fee increases. The proposed bill has wording that would allow the Bureau of Facility Programs to charge a licensing fee of between $0 and $250 per device. This would allow the tanning program to continue with its existing fee structure, according to bureau staff.

Florida Department of Health staff credit Sarasota salon owner Jim Mendolera for leading the fight against the fee increase. Mendolera led a group of Florida salon owners joined together as the Florida Indoor Tanning Salon Organization (FITSO). Funds raised by the group helped hire attorneys and fund legislative assistance in the state capitol.

According to officials with the Massachusetts Board of Health, although existing tanning rules are not expected to change anytime soon, inspectors there have pledged to firmly enforce existing rules directing the estimated 400 state salons to abide by operator training requirements.

A trained operator must be present at a tanning facility at all times during operating hours. Currently, each operator must be trained and sufficiently knowledgeable in the correct operation of tanning devices used at a tanning facility.

This knowledge should include:

• Massachusetts and federal indoor tanning laws.
• Photosensitizing agents.
• Skin type determination.
• Recognition of injuries from overexposure to ultraviolet rays.
• Manufacturers procedures for operation and maintenance of tanning devices.
• Emergency procedures.
• Acute and chronic effects of UVR.
• Electromagnetic spectrum with emphasis within the 200-400-nanometer range.

In addition to these training topics, salon owners also will be asked to produce a list of the facilitys operators who have been trained in accordance with state rules, and that list should be available at the tanning facility.

A New Hampshire legislative committee delayed a decision on a bill affecting indoor tanning so it could further study the issue and cast a vote during its 2004 session.

In a March hearing before the House of Representatives Executive Departments and Administration Committee, two ITA representatives and one salon owner said House Bill 729written without input from the tanning industrywould add a costly annual licensing program for salons while mirroring current FDA performance standards and, in some cases, conflicting with FDA rules. In addition, the bill would require that salons post two additional warning signs, require salons to make sure customers wear eyewear and place additional restrictions on minors who wish to tan.

The ITA hired a local lobbying firm to represent the industrys interests. The committee had planned to meet at least once more before the next session begins.

A North Carolina bill that would increase restrictions on the use and operation of tanning facilities and equipment in that state was entangled in several controversial health issues and could die on the House floor, the ITA reports.

Senate Bill 657 passed in the Senate but was never considered by the House of Representatives. One section of the proposed regulations required consent statements be signed by the parent or legal guardian of minors before the minors are allowed to tan.

According to John Overstreet, the ITAs executive director, abortion opponents seized the opportunity to suggest legislation requiring similar consent for abortions. Rather than address the issue of abortion, the Legislature let the entire bill die.

To obtain information on Bill 657, visit www.ncleg.net and enter S657 under Bill Look-Up.

Gov. Bob Taft signed a budget bill June 26 that requires sales tax to be charged for tanning services. In addition to tanning services, House Bill 95 changes the Revised Code to mandate taxation on other personal care services including skincare, applications of cosmetics, manicuring, pedicuring, hair removal, tattooing, body piercing, massage and other similar services. Services offered by physicians or the cutting, coloring or styling of an individuals hair would not be included.

The new taxation is for fiscal year 2004 and will be part of the main operating budget for fiscal years 2004 and 2005.

The Ohio State Board of Cosmetology has no enforcement responsibility with the sales tax.

The Oregon Department of Human Services Radiation Protection Services has revised its requirements for salon training, according to Phil Wilson, health physicist for the Oregon tanning program.

According to the new rules, state salon owners now have one year from the date of registration to comply with staff formal training requirements. Prior to the change, salons were required to have state-approved training completed as part of the initial licensing steps. Although the new rule mostly affects new salons, it will help relieve some of the initial procedural requirements for opening a tanning salon in Oregon.

The state definition of formal training is a course of instruction reviewed and approved by the states tanning program and conducted or presented under formal classroom conditions by a qualified expert possessing adequate knowledge and experience to offer a curriculum, associated training and certification testing pertaining to and associated with the correct use of tanning equipment. Currently, operator training must cover ultraviolet radiation and effects on the skin, photosensitivity, FDA and Oregon regulations, eye protection, and equipment maintenance. The National Tanning Training Institute offers such a state approved training program.

Additionally, salons with five or more tanning devices must have at least two employees certified to be compliant with state rules. This was expanded from four devices.

In the previous rules, specific guidelines discussed tanning facilities using token timer-control systems. Due to current remote-timer requirements and operational standards, this reference has been omitted.

Also, the states tanning program will continue to maintain a listing of approved sanitizers for salon use. Operators are required by the state to use products that sanitize to a safe level of microorganisms. The revised rules state more clearly that protective eyewear and tanning-device sanitizers must be registered by the Environmental Protection Agency and approved by the state tanning agency before being used in tanning facilities throughout Oregon.

The Conference of Radiation Control Program Directors (CRCPD), a national organization made up of directors of the radiation control programs of each state, is currently working on a version of Draft Part BB, Recommended Regulations For Indoor Tanning Facilities. These recommendations, if approved, will be a set of model regulations available to any state or local authority to use as a starting point for local rules.

The recommended rules being considered will offer, for the first time, suggestions about formal training for salon operators.

Specifically, language being considered will define formal training as a course of instruction pre-approved by the states.

It is suggested that the training be delivered in one of three ways:

1) conducted or presented under formal classroom conditions,
2) via a correspondence program or
3) through a computer based program by a person possessing adequate knowledge and experience to offer the curriculum.

Now that youve made your way across the chessboard, you should be ready to take on 2004. By understanding the different pieces that make up the complex tanning chess match, you now can employ your own strategy for a successful tanning season.