The afternoon opens with a sound bite from Social Scientist Marc Smith; to continue on the “device” strategy, he shared many of the existing apps that can help people live healthier lives.  He also touched on the peer pressure in social networks, obvious in the success of FourSquare, etc.  Smith suggests perhaps spas should offer a “keep yourself well” badge; better to pay them in pixels than pennies!

FRANCHISING PANEL

Pete Ellis welcomed our afternoon panel, which addressed a topic still new to our industry, franchising.  Panelists were Jeni Garrett, Founder & CEO of Woodhouse Spas, USA; C.K. Low, M.D. Skin Essentials, Malaysia; CG Funk, VP Industry Relations & Product Dev. Massage Envy USA; Randal Eastman, VP Dragonfly Therapeutic Retreats, China.

Just a few years ago, it would have been hard to imagine the growth now apparent in spa franchising, and not just in the US.  The four panelists represented 3 different countries.  Ellis began by asking each panelist to sum up the size and scope of their current operations.

• Dragonfly has been franchising for 6 years; currently has 18 locations, with 2 more to open shortly.
• Skin Essentials has 16 company-owned, and 45 franchised outlets, throughout Malaysia.
• Woodhouse Spas follow a 5000 square foot model, and their menus feature 35 different services with Chinese and Ayurvedic influences.  They have been franchising for 8 years and now have 25 locations in the US, with their first international unit scheduled to open in Punjab, India this year.  They hope to have 100 international locations in the next 10 years.
• Massage Envy has 679 massage clinics, 354 of those are spas that also offer skincare, in 43 states, and have sold 910 franchise licenses.  They follow a membership model and just reached their millionth member a month ago.  Their network revenue in 2010 was $652 million.

If you just gasped while reading that last statistic, you’re not alone.  When CG Funk reported these numbers, there was an audible gasp in the ballroom.

Ellis asked the panelists to also describe their requirements for purchasing a franchise license; not surprisingly, the U.S.-based companies had more clearly-defined parameters:

• Woodhouse franchise licenses cost US$45k, and the ongoing licensing fee is 6% of sales.  There is an additional 2% advertising fee, of which 1.75% must be spent in the local market.  Applicants need to have a net worth of about US$500k, half of which is in liquid assets.
• Massage Envy looks for individuals with business, management, and sales experience, and who have the personality that will work within the policies, procedures and systems they have set up.  They also look for a strong financial background, with at least US$500k net worth, US$150k liquid credit, and a minimum credit score 680.
• Dragonfly franchises also charge a 6% royalty on sales, and look for individuals with US$200k-US$300k net worth.
• C.K. Low of Skin Essentials remarked that “Malaysians not good at following!  Our 16 company-owned stores contribute 75% of our sales, and the other 45 only contribute 25%.”  The company does not charge a franchising royalty; they sell their proprietary products to the franchisees and make an override on those sales.

The panelists were then asked to share any decisions they had made that turned out to be mistakes.  Once again, C.K. Low gave us a laugh by saying that his mistake was to start franchising in Malaysia.  He felt that Skin Essentials has given out territories that they can’t now take back, and they have franchisees who don’t follow the guidelines.  Eastman of Dragonfly reports a similar history; many of their franchisees were passionate customers, and they were granted territories without clear milestones.  Consequently, the franchises have not developed their markets appropriately.  Dragonfly is now more restrictive and has more requirements.

CG Funk of Massage Envy shared their two biggest mistakes; with their membership model, the early franchisees had their clients pay for a whole year up front, and then spent all of the money!  Now that money is taken out of client accounts monthly.  The other was to continue to operate for too long with a too-small software company they had outgrown, and that they should have changed a few years earlier.   Garrett of Woodhouse said their biggest mistake was taking themselves too seriously; they had to learn that the clients want to have some fun.

When asked about managing franchisee relationships and standards, CG Funk shared that “We focus on the relationships, since there is so little onsite oversight.  Successful franchisees are those that follow the system, but they follow you because of inspiration and support, not because of a heavy hand.”  She also remarked that success depends on innovation; for instance Massage Envy just launched an IPhone app that allows clients to pick the type of massage they want and indicate where they’re tight, and then all of that information is transmitted to the store with the appointment request.  Last year, 22% of Massage Envy’s clients were first timers for massage.

INSIDER’S CHINA PANEL

This panel was moderated by Tony Cheung, M.D. of PA Wellness Consultancy, and featured Xiang Xiu Lui, Director of Spa Moment; Maggie Xia, President of China Beauty Industry; Ji Qing Xie, Director of Beauty World International; and Tong Liu, CEO of Mege Union Intl Group.  The panelists all spoke in Mandarin and Tony Cheung translated for the delegation.

Currently, Xiang Xiu Liu’s Spa Moment employs 1500 people in 100 spas over 26 provinces, and Liu’s company supplies 5000 operators in China, so there are clearly some large players.  They feel their main expansion obstacles are staffing, but they are getting some government support and help with recruiting and use of the internet.  The group also reported that they are largely self-financed, although they are starting to see investment interest from developers and property companies.  Chinese spa brands have not yet expanded beyond China, but I’m sure it won’t be long before they do.  Xiang Xiu Lui told us that “In China, there is enormous opportunity to deliver wellness. And you’re all welcome to come!”

GROUP POLLING

Using hand-held devices, the delegation engaged in some group polling.  Here are some of the notable results:

• Delegation geography: 46% from Asia, 29% from NA, 21% from Europe, 3.8% Australia
• Over 60% said gross revenues for 2011 would be somewhat or significantly greater than 2010
• Over 70% said 2011 profits would outweigh 2010
• Industry segments that would produce the greatest growth: 46% said preventive medicine, 22% beauty & cosmetic, 19% alternative med therapies
• Expansion plans: 30% said China, 22% other countries in SE Asia, 14% Europe
• 28% said training and education was the greatest challenge facing spa industry today
• Social media campaigns have: 42% driven a modest improvement in customers & sales, 16% major improvements, 27% don’t engage at all
• Group buying or online deal sites: 59% don’t participate, 28% driven a modest improvement
• Who should determine industry definitions, standards, & best practices: 75% professional industry associations, not governments, consumers, or educational institutions

JOHN HARDY/GREEN SCHOOL

Jeff Matthews of Mandara, a GSS co-chair, introduces former jeweler John Hardy.  Hardy, a Canadian, grew up an undiagnosed dyslexic in a tiny village in Canada, and had difficulties in school.  When he grew up, he “ran away” to Bali, met his wife, built a jewelry business and then sold it 5 years ago.  Along the way, he went to see the movie An Inconvenient Truth, and “it ruined his life.”  Hardy has 4 kids and decided to spend the rest of his life trying to make an incremental change in their prospects for the future; thus was born The Green School.

The school is a collection of buildings, all built from bamboo, in the jungle in central Bali.  There are no walls, or right angles; kids pick their lunch from the school gardens; discarded car windows and windshields are backed with white paper to become whiteboards, and “the kids are smiling, happy kids create incredible possibilities for learning.”  The school currently has 280 kids from pre-school through grade 10, and is expanded to grades 11 & 12 in the next year.  According to Hardy, they’ve made plenty of mistakes in the first five years, but now their internationally qualified teachers and a growing student body (10% local Balinese children) and reputation are moving the school into the black.   For more information visit greenschool.org.

INDONESIAN GOVERNMENT PERSPECTIVE

The last speaker of the day was the Indonesian Director General of Marketing from the Ministry of Culture and Tourism, Dr. Sapta Nirwandar.  Dr. Nirwandar welcomed us and shared the Indonesian government’s perspective on the spa and wellness sector, which was that they are both rooted in the Indonesian wellness culture, evolved from thousands of years of Hindu, Buddhist and Muslim traditions.

Dr. Nirwandar said that wellness tourism and the spa sector are both growing in Indonesia; they have an expanding middle class who seek stress management, as well as the role that spas play as a key tourist attraction.  Indonesia needs to further develop both public and private sector infrastructure to support continued growth, but the official view is that spas are good for job creation and help to increase the conservation of Indonesian culture by emphasizing its traditions and use of organic products.

That closed the program for the day; the evening featured a gala beach party at the Westin Resort.  The delegation wore white with splashes of color, and enjoyed appetizers, drinks and dinner and Indonesian Kecak dancers among the palm trees and lanterns by the beach.