Looking Fit 09/2004: The Bottom Line: The State Of The Industry Report '04

The Bottom Line
The State Of The Industry Report ’04

by Judie Bizzozero

As we look ahead to the start of another tanning season, LOOKING FIT® presents its annual State of the Industry Report. This special section examines the variables that made up this past season and evaluates the well-being of the industry while providing insight into the 2005 tanning season. This comprehensive analysis explains how factors including the economy, industry demographics, equipment, tanning salon, emerging trends and, last but not least, regulations all affect the indoor tanning market.

As in years past, the following is constructed from interviews and conversations with salon owners, manufacturers and distributors. Additionally, we used statistics gathered through our Tanning ToursSM, the Top 250 Salons issues, industry trade expos and symposiums, the National Tanning Training Institute and the magazine itself.

For many salons, 2004 was a pivotal make-or-break year for their business plans since the last two seasons were average to slightly above average. While salon owners had high hopes for a great 2004 season, many concede that it was a somewhat disappointing season filled with quirky twists. Weather, war and economic woes all contributed to a decrease in foot traffic and a decrease in retail spending.

Defining An Industry

Industry statistics place the indoor tanning market right around the $5 billion mark. That’s not bad for an industry nearing the ripe old age of 30. The industry has stood strong through the last three to four years of economic uncertainties that have plagued many other industries worldwide. Salon owners hoped that the 2004 season would be the year to slip out of the economic noose. Unfortunately, a still-weakened economy, war in Iraq, international tensions and good old Mother Nature all kept 2004 from being a breakout year.

Just like last year, manufacturers and suppliers reported increases in sales, while the majority of salon owners reported only average to slightly increased numbers. Once again, we can assume that while the industry grew in certain segments, it did not make huge strides in terms of overall growth.

Identifying The Customer

Labeled a fad in the late 1970s, indoor tanning has outlasted disco and leg warmers, leisure suits and platform shoes. Today’s tanning salons not only provide customers with a relaxing way to achieve golden tans, they also have become skincare specialists. To be successful, salon owners must identify customer demographics specific to their location—in other words, analyze the market to determine the potential number of tanners in an area.

As of press time, there were approximately 294 million people living in the United States. Traditionally, an estimated 10 percent of the U.S. population tan indoors. That means that in 2004, 29 million Americans will tan indoors, up from 28 million in 2002. In some areas of the country, such as the Midwest and Southeast, the number will be significantly higher because of the higher number of tanning salons.

The profile of the average indoor tanner has remained constant over the industry’s inception nearly 30 years ago. 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. Continuing to be one of the fastest-growing segments is women ages 16-19. While male clientele account for 30 percent, there is a growing interest in professional skincare services and products for men. Additionally, tanners over the age of 55 comprise an important segment because they have different tanning goals and skincare needs.

Tanning is becoming a true lifestyle in the United States, and people go to tanning salons to obtain a tan in a controlled and relaxed atmosphere. They also turn to the tanning salon professional to advise them on skincare products that will enhance and lengthen their tanning experience. The industry’s customer demographic contains one of the highest servicebased spending groups—a combination of the baby boomer generation and the maturing Generation X group. Salon owners that increase the number of tanners in their salons can capture additional revenue from this group.

The Marketplace

As mentioned in last year’s industry report, opening a salon is no small investment. It requires about $225,000 or more in initial investment to properly outfit a standard 10-bed salon in today’s market. In 1982, the initial investment was about $30,000. In order to compete in today’s marketplace, a salon must provide outstanding service with top-of-the-line equipment and be aesthetically appealing in order to retain customers and capture new ones.

Today’s 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; 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.

Indoor tanning has attracted interest from mainstream businesses studying the tanning-salon market and venturing into this lucrative arena. This new breed of salon owner has created a heightened awareness of the business of indoor tanning. From health clubs to spas, tanning is emerging all over the business world.

Many of these businesses start with an addition of tanning to their existing operations. As they experience the success and acceptance of tanning by their customers, some are opting to open freestanding tanning salons as well. And while some tanning salons view this as competition, it only emphasizes the fact that tanning is a viable industry worthy of the respect of other markets.

Additionally, more salon owners are taking a proactive approach to education and requiring employees to be certified. This is happening nationwide and is a direct result of the industry promoting sensible, moderate and responsible tanning practices. A record number of salon operators also participate in ongoing training and also provide educational materials to their clients. To illustrate this, 94 percent of salons had certification in 2004; 91 percent in 2003; 85 percent in 2002; and 82 percent in 2001.

The number of commercial tanning locations remained constant in 2004. In addition to the estimated 20,000 locations that concentrate strictly on tanning, there are another 30,000 locations such as health clubs, spas, video stores and beauty salons that offer indoor tanning. While those facilities may offer one or two tanning units, they still impact the market.

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 salon where they tan.

While the majority of freestanding tanning salons have 10 beds or less, the industry saw a shift in business tactics as a number of savvy salon chains acquired smaller facilities, improved them, made them bigger and added them into their tanning fold. Industry experts predict this consolidation trend will continue in larger markets but not in smaller, rural markets that don’t have the populous to support bigger salons.

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. In 2003, the Northeast extended its busy season into the summer due to cold and rainy weather.

This season, Florida and the Northeast continue to grow at record pace. Why? The Northeast is experiencing a population explosion. There is a huge demand for tanning because it provides a respite from the harried pace of life. This season also witnessed a number of larger, mega salons opening their doors in the Northeast.

A Closer Look

Tanning salons have come a long way since the late 1970s when many housed four or five tanning beds and one or two lotion lines and catered to a couple of hundred customers. By the mid-’90s, a typical tanning salon had a customer database of 1,700 and featured six tanning units—four units in the 24- and 26-lamp range, a standup and perhaps a high-pressure unit. Five years ago, the average salon featured eight units ranging between 28 and 30 lamps, and possibly a standup unit and/or high-pressure.

Today’s average tanning salon has a customer database of roughly 2,400 customers and houses—on average—a minimum of 10 pieces of equipment. Savvy salons provide three to five levels of tanning so customers can choose their tanning lifestyle. A typical 10-bed salon may feature six base units, two premium units, an upgrade and a standup. Take note that this is a conservative estimate since there are a large number of mega-salons that house 20 or more tanning units in one location.

While the average tanning salon has a minimum of 10 units, salons with fewer than 10 beds continue to represent a large part of the industry. The reason for this can be attributed to growth within the beauty industry, where one or two tanning beds often are added to their existing services, and the continued interest in tanning in rural communities that don’t have the need for 20-bed tanning salons.

Statistics for 2004 closely mirror last year’s with the percentage of salons with one to five units remaining around 15 percent, six to 10 units at 42 percent, 11-15 units at 12 percent, and those with more than 16 units at more than 21 percent.

Equipment remains one of the most important and expensive purchases a salon owner will make. 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 more than 200,000 tanning units operating in the U.S. field today. By averaging the cost of a tanning bed at around $7,000, it equates to roughly $1.4 billion worth of equipment tanning the U.S. population.

The 2004 tanning season saw an increase in combination beds. Additionally, high-pressure equipment has experienced a rebirth thanks to improved technology and increased tanning performance.

Selecting the right equipment mix can be tricky to the first-time salon owner. Therefore, it is important to identify your customers’ desires and provide the correct mix of equipment to satisfy their needs. Offering a mix of session times can equate to more tanning sessions throughout the day and the potential for increased profits. Traditionally, the most popular session time was 20 minutes due to tanners’ desires for longer, more relaxing tanning experiences. However, this year industry veterans agree that the 15-minute tan became the favorite. This can be attributed to a number of factors; however, the primary one points to technological advancements in equipment that provide for a better tan in less time.

Europeans still influence the U.S. tanning market. The industry continues to see sales in tanning units evolve from 24-lamp units to 48-lamp units and more. Today’s equipment manufacturers focus on lamp placement and the output on the UV spectrum rather than bombarding the tanner with increased wattage and heat. Industry veterans continue to assert that one doesn’t need a 200-lamp bed to increase performance, rather a photometrically engineered bed that delivers results.

The past few years have brought better aesthetics and technological improvements to equipment. Today’s units are strikingly handsome and come with enhanced features such as ergonomically correct positioning, sound systems, cooling mists and aromatherapy mists.

According to equipment makers, the past three to four years have experienced steady growth due in large part to new salons coming into the market and veteran salons upgrading equipment as technology evolves. The past few years also gave way to salons expanding locations, however the uncertain economy affected many expansion plans in 2004. Only 84 percent of salons planned expansions in 2004. That number was down 6 percent from last year.

Looking ahead to 2005, the time is ripe for salons to make a competitive move by upgrading equipment, adding ancillary services and attracting new customers. Experts agree that to be competitive, salons must invest back into their businesses and upgrade equipment. If they don’t, they will lose customers and possibly be out of business within a few years.

Looking at the bottom line, salons nationwide experienced many peaks and valleys. While many reported that tanning sessions were down, they also reported that their revenues were up. There are a number of possibilities for this situation.

One reason is an increase in lotion sales. Lotion sales remained steady, with 49 percent of salons reaping 10 percent to 24 percent of their overall monthly revenue from lotion sales. In 2003, 46 percent earned that. Only 12 percent of salons reported that lotions accounted for 30 percent or more of their monthly sales. This number was down from 14 percent in 2003. Salon owners attributed the rise to better manufacturer and distributor training symposiums and in-store selling strategies. In 2004, approximately 88 percent of salons paid their employees commission on lotions sales. This is a great way to motivate employees and add to salon profits.

Another factor for increased profits and decreased sessions might be the fact that consumers aren’t tanning as often because equipment technology has improved to allow for better results.

Yet another explanation could be that salons are getting smarter about selling and not lowering their prices in a knee-jerk reaction to competition. The days of selling sessions are waning as salon owners are realizing that it’s all about dollars per customer per year. For example, is it wise to sell 30 tans for $30? No, because the sessions don’t expire and they stay active until they are used. The right move is to sell a monthly package for $40 and give the customer a couple of free upgrades to a bigger bed. This gives the customer something for their purchase, and the salon hasn’t compromised its profit margin.

People who really enjoy tanning will always spend money on tanning, and smart salon owners need to create a buying environment. In 2004, 50 percent of salons reported an average single session price as $7; only 4 percent charged $5 or less. Comparatively, in 2000 49 percent reported an average single session price of $7; however, 25 percent charged $5 or less. The decrease in price wars has leveled out the playing field for salons nationwide.

Emerging Trends

While many believe the concept of sunless tanning has popped onto the indoor tanning map this year, LOOKING FIT® has followed the sunless phenomenon since 1999 and was the first magazine to identify it as one of the fastest-growing segments of the indoor tanning industry in 2000. The past four years have spawned technological advancements in product formulation and welcomed a plethora of companies offering UV-free products and equipment.

Sunless products provide immediate gratification because they provide a cosmetic, tanned look without UV exposure. Sunless has become an important player because it offers indoor tanning salons a new way to build their businesses and increase profits. Sunless tanning has opened up a limitless market, satisfying not only the tanning enthusiast but individuals who otherwise choose not to tan—indoors or outdoors—or who cannot achieve a tan.

Sunless provides a new service to existing clients looking to enhance their traditional tanning sessions and may be the catalyst that will attract more non-tanners to the indoor tanning ranks. As the general public continues its quest to look good and feel good, sunless will become a fast and effective choice.

Salons that recognize this can boost profits by offering their clients sunless services as 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.

Salons that have added sunless services report an increase in traditional UV tanning sessions because clients discover that the brown they get from UV-tanning is beautifully complemented by the golden brown achieved from a sunless tanning session. Some salon operators state that use of traditional tanning units increased as much as 30 percent after they introduced sunless services.

Innovative delivery systems and customized sunless solutions have made interesting inroads over the past few years. Today’s stand-up sunless units feature sophisticated designs and advanced technologies that provide an even, all-over tan to customers. Clients enjoy the privacy of the spray-on booths as well as the results, while salon owners welcome automated systems that don’t consume employees’ time with cleaning and setup.

While these units generally are much more expensive— anywhere from $20,000 to $50,000—estimated figures reveal that this segment is growing at a phenomenal rate. According to industry insiders, the number of stand-up sunless units placed in professional tanning salons has grown about 200 percent over the past four years. In fact, it is estimated that more than 2,500 stand-up units will be in place nationwide by Dec. 31.

For salons not ready to make such a large investment, airbrush tanning provides an affordable way to offer sunless. Handheld units can be purchased for less than $1,000 and provide salons with portable compressor units and sunless solutions that allow them to get up and running immediately. Companies supplying these units and solutions report phenomenal demand this season and anticipate the interest to continue.

Airbrush tanning appeals 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 stand-up units, customers don’t seem to mind. Salons can apply airbrush applications right at the front counter in a matter of minutes. Yet, salons that offer full-body airbrushing should have a private room or designated area in the salon reserved for this service.

Emerging from the airbrush concept is one of the fastest-growing segments of sunless tanning—turbine-powered tanning that allows for a full-body sunless application in less than five minutes. The concept is vastly different than the airbrush units on the market today—in fact, it’s not an airbrush at all. The machine is driven by a turbine motor rather than a compressor seen in most airbrush systems. The turbine motor delivers a high volume of low-pressure “soft” airflow instead of a concentrated high-pressure blast found in compressor-based airbrush systems.

The combination of high volume and low pressure results in a faster application time, which is what tanners want, as well as quicker returns on investment, which is what salon owners want. It is a very soft kind of air that deposits the solution much more efficiently on the skin. This allows a customer to receive a terrific-looking tan with incredible body detailing in less than five minutes.

Industry insiders agree that the No. 1 feature that the turbo system brings to the sunless table is speed because it produces a much larger fan pattern, puts out a lot more solution and gives salons the opportunity to make incredible profits. Another driving force is the fact that a turbine-powered system dramatically decreases operator fatigue.

Additionally, the cost of a turbine-powered system is not that much more than a traditional airbrush system and can pay for itself in very little time. The bottom line is that it provides a quicker tan and that translates to more money for the salon.

Whichever method of delivery a salon chooses, there is no debate that sunless tanning provides a faster, even and more consistent color thanks to advancements in technology. Once those customers use sunless, they most likely will purchase moisturizers and skincare products as well. But salons should not overlook their core UV-tanning customers. Many traditional tanners will use spray-on units for a quick fix or even a nice change to their tanning regime. Remember to market sunless as a complement to UV tanning and watch the customer base and profits grow.

The Bottom Line

It requires about $225,000 or more in initial investment to properly outfit a standard 10-bed salon in today’s market. Industry statistics reveal that the average lease or loan transaction for equipment remains right around $35,000, higher than the $15,000 ballpark four years ago.

Estimates for the 2004 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. Approximately 85 percent of equipment sales are financed in some shape or form through banks, leasing companies, equipment manufacturers or personal savings. Roughly 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 bad debt was down in 2003 and 2002, the multiyear economic slump finally came home to roost in 2004. Lenders report that bad debt increased mainly from poorly run tanning facilities; however, they are confident that the economy is recovering and the American public will start spending in 2005.

Experts cite an influx of financially strong people entering the industry who have been successful in other businesses. They agree that the only way the industry will grow dramatically is if there is an improvement in professional management of the salon owners. That means salon owners must make a long-term commitment to the industry through a sound business plan. More professionally run salons will lead to the ability to present a better financial picture of the industry to lenders. It also will allow salon owners the ability to educate the public and grow the industry.

Regulatory Roundup

The addition or revision of tanning rules at the state level has all too often become an anticipated trend across the country. What does this mean for the indoor tanning industry? Quite simply, we as an industry must become more active in anticipating and joining together to monitor tanning rules being confirmed at an alarming rate. The following is a recap of some of the changes as well as updates on proposed amendments or rule revisions that occurred in 2004.

California: Assembly Bill 2193 was defeated without debate on the Senate floor by a 9-19 vote. The bill would have made it illegal for anyone under 18 years old to tan without a doctor’s or surgeon’s prescription. The fine for each violation would have been as much as $2,500 per day.

The bill would have made California the nation’s first state to enact such a ban. Under existing state law, 14- to 18-year-olds may tan indoors only with parental consent. The Senate did agree to reconsider the bill, clearing the way for the sponsor of the legislation to take up the bill in the future if its supporters want a second vote.

Florida: In late June, Gov. Jeb Bush signed Senate Bill 2448 that gives a fee reprieve to a majority of the state’s 1,700 licensed tanning salons. More than a year ago, the Joint Administrations Procedures Committee, Florida’s 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.

Instead, SB 2448 amends Chapter 381.89 of the Florida Statutes so salon owners would not have to worry about fee increases. The bill allows the Bureau of Facility Programs to charge a licensing fee of between $0 and $250 per device. This allows the tanning program to continue with its existing fee structure, according to bureau staff.

Michigan: House Bill 5144 would create a new Public Health Code to license and regulate tanning facilities. Among other issues, the bill would require a written warning for tanners; parental or legal guardian approval for clients under 18; posting of warning signs; reporting of all tanning injuries; and creation of civil fines of up to $500 per violation.

New Hampshire: New Hampshire enacted new tanning regulations that become effective Jan. 1, 2005. House Bill 729-FN was passed into law April 22. In addition to addressing licensing requirements, age-related parental consent and other procedural issues, the rules require that operators complete a state-approved training program. Each salon is responsible for maintaining a list of the facility’s operators who have been trained in accordance with the rules.

Specifically, the new rules call for operators to receive training in the requirements of the state rules, proper use of exposure schedules, recognition of injuries and emergency procedures, proper use of protective eyewear, skin-typing and more.

New Hampshire’s board of barbering, cosmetology and esthetics will regulate tanning in the state. One tanning salon owner will be appointed by the governor to serve on board.

New Jersey: Assembly Bill 976 would require tanning facilities to conspicuously post warning signs that state “the dangers of using tanning equipment.” The signage would be required to state that “indoor tanning can be hazardous to a person’s health and may cause skin cancer and long-term eye damage.” Additionally, the signage would state, “indoor tanning has no known health benefits and that prolonged exposure to UVA and UVB rays may cause damage to the skin and eyes.” The bill further provides specifications as to the placement and location of the signage as well as required language.

North Carolina: Senate Bill 657 would toughen existing rules dealing with age requirements and warning language, and would require operators to abide by session times posted on the equipment with no variations.

Ohio: The emergence of frosted acrylics in tanning beds prompted the Ohio State Board of Cosmetology to change its regulations. Discussions first began in April 2003 after a tanning inspector found a salon with frosted acrylics in its beds. This raised several problems, in that the lamps could not easily be checked for compatibility against the manufacturers’ lamp lists.

Article 4713-19-04 (K) of the state administrative code, effective May 1, reads as follows: “Each tanning bed shall have the UV bulbs installed such that the bulb information is readily available for the Board inspector to verify that information on the bulb matches the manufacturer’s recommended bulb list. For any tanning device that does not meet this requirement the owner shall remove the shielding in order that the inspector can easily verify UV bulb compatibility.”

Pennsylvania: House Bill 109 would create state tanning rules that provide for registration of persons operating a tanning facility, require warning signs, demand operational procedures and impose penalties for noncompliance.

Wisconsin: Assembly Bill 572, similar to California Bill 2193, would limit the use of tanning devices to persons at least 18 years of age and would require tanning-facility customers to present photographic identification that indicates age.

National Changes: late last year, the Food and Drug Administration (FDA) requested and was given the go-ahead to develop amendments to the U.S. performance standard for sunlamp products. This came after the FDA’s Technical Electronic Product Radiation Safety Standards Committee (TEPRSSC) heard proposals in October for rule changes associated with indoor tanning.

Usually moving at a slower rate than state regulations, federal laws are far reaching and can affect salon operations in all states. Current federal rules being considered for change include:

• Revised warning labels.
• Addition of warning labels to all indoor tanning purchasing information.
• Modification of the definition of a manufacturer.
• More stringent limits on eyewear effectiveness.
• Adoption of a maximum timer setting of 3 MEDs.
• Implementation of a coding system for sunlamps.

The FDA must first submit a proposal for public comment prior to any final acceptance. As of press time, a public comment period had not been established.

To assist the industry in maintaining an awareness of potential rules affecting indoor tanning operations, salon owners across the Unites States must stay attentive to proposed changes at the most local level.

CRCPD: 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.

Although each state has the authority to draft and execute rules as its sees fit, most local authorities have stayed fairly consistent over the years in regard to mandated salon operations. In addition to licensing and registration requirements, operational areas typically covered by state and local regulations pertain to warning signs, protective eyewear, record-keeping, age limits, training and licensing requirements.

Obviously, monitoring indoor tanning rules and regulations that commence at the local level is an enormous undertaking. In addition to 50 state governments, the National Association of Towns and Townships reports approximately 39,000 general-purpose local governments in the United States that all have added authority to include tanning rules.

New laws are not always initiated through a traditional state agency, which adds to the challenges of tracking proposed rules. A range of departments including offices of cosmetology, radiation safety, health and consumer affairs oversee today’s active tanning rules.