Franchised Spas Thrive with Cost-Conscious Consumers Expensive day spas are being pummeled by the recession, but franchised spas and massage centers are growing fast.

Duck into any downtown day spa or destination resort and the Enya might seem to echo a little more loudly than usual. That's because, according to the International Spa Association, America's appetite for blueberry pore-refining facials, seaweed body wraps, reflexology and hot stone massages has been a casualty of the recession. After a decade of unprecedented growth, and a couple of stellar years--spa visits jumped by nearly 16 percent in 2008 alone--the industry was hit hard, losing 10 percent of its business in 2009 and 5 million square feet of real estate between mid 2009 and 2010. "We're the industry that's first to feel a recession and the last to recover," says Hannelore Leavy, chairwoman of the Day Spa Association advisory board. "Spa services are still a luxury and not absolutely necessary. People tend to hold back."

But a closer look shows that Americans haven't quite suppressed their penchant for pampering. While destination and upscale day spas have taken a brutal waxing, the relatively new franchised massage and day-spa sector has been busy keeping the nation rubbed down and exfoliated. Franchised spas, which include more than a dozen concepts, with more being launched each month, have refined their business model over the last few years and picked up a huge base of cost-conscious consumers. Most companies are reporting double-digit growth in sales, huge increases in new franchises and big upticks in repeat visits. Most of the franchise concepts have positioned themselves for exponential growth when credit markets finally loosen up.

It's tempting to think that these lower-cost services are doing well at the expense of pricier spas, but the truth is a little more complicated. Spa culture has seeped into mainstream America in the past 20 years. What was almost a taboo service, massage today is considered a routine part of sports and wellness. In fact, a September study sponsored by the National Institutes of Health found that even a single massage has positive biological effects, which include lower levels of stress hormones, boosts to the immune system and increases in a hormone associated with contentment. Meanwhile, beauty treatments, once the domain of elites, now are standard at day spas and midpriced resorts, which perform body wraps by the millions. The new spa franchises, Leavy notes, haven't cannibalized day and resort spas; they're acting as spa service evangelists.

"We've always wanted to bring spa services to the common person and tell them they're not for the rich and famous like in the '70s and '80s," she says. "And we've succeeded--awareness of spa services for health and well-being has grown tremendously. Franchises like Massage Envy make it affordable, and eventually clients will want to go to a real day spa or destination spa. These franchises are breeding a spa lifestyle."

And the franchised day spas give consumers a wide choice of services and styles, including full-service day spas, massage-focused chains, even a youth-oriented fully automated spa that does away with aestheticians and massage therapists altogether.

The reigning queen of spa franchises--the one that direct competitors call the market pioneer--is Massage Envy, which has 634 locations and more than 800,000 monthly members. When it opened in 2002, the Scottsdale, Ariz.-based franchise focused solely on massage therapy, but during the last year, Massage Envy, and most other spa franchises, have added services like Murad Rapid Exfoliator Anti-Aging Facial ($59 to $69) and the Clarifying Enzyme Acne Facial ($59 to $69). The facilities aren't as opulent as a destination spa, but cost and convenience are the attractions.

"Customers feel we're delivering service comparable in quality to other day spas for half or a third of the price," says David Humphrey, CEO of Massage Envy. "They love the convenience. If you have a chronic back problem or overdid it exercising or have a tremendous tension headache, you don't want to call a day spa and make an appointment for 4 in the afternoon next Wednesday. You want to go now or tonight. That's what we offer."

Mark Siebert, CEO of the iFranchise Group, says Massage Envy's influence on the industry can't be understated. "The success of Massage Envy has had a halo effect on other competitors--a rising tide lifts all boats," he says. "For example, we're seeing some companies getting into this with more high-end offerings. It's like the early days of fast food. Later we saw the spinoff of fast-casual. Massage Envy was a product for the masses. Now we're seeing more upscale full-service spas."

The main player on the high end is Woodhouse Day Spa, a full-service day spa franchise in Victoria, Texas, with 26 locations. "We like to call ourselves a destination spa in your back yard," says Jeni Garrett, CEO and founder of Woodhouse, which opened in 2001 and will move into Mexico and India in the next year. The spas, an average 4,500 square feet in size, offer deep tissue massages ($70 to $110), seaweed wraps ($90 to $170) and facials ($70 to $100), all based on Ayurvedic medicine. It seems like a gamble in a sector dominated by discount services, but so far the franchise has a customer retention rate of 80 percent and client visits jumped 29 percent in 2009.

Despite the upscale offerings, Garrett insists that Woodhouse is not a substitute for the destination spas that built the industry. "Those guests who go to destination spas go to Woodhouse spas. We're the only comparable offering they can go to on a regular basis," she says. "We complement and reinforce what destination spas do for our clients."

Woodhouse is the only high-end day spa franchise, though there are a few nascent competitors in the offing. But spas in the middle ground are proliferating--and fighting to distinguish themselves. Elements Therapeutic Massage, based in Highlands Ranch, Colo. and offered by the group that created Fitness Together, is differentiating its 80 locations by focusing on massage. "If you think about our competitors, they have become a more reasonable version of going to day spa. Massage Envy is now focusing on putting plumbing and sinks and aestheticians in their studios to do facial-type services," says Elements CEO Jeff Jervik. "I think that's good that they're trying to find other sources of revenue, but what it does do is take your eye off your core competencies. What we focus on is true therapeutic massage. We specialize in providing massage that is tailored to individual clients and their needs."

Hand and Stone Massage and Facial Spa--of Hamilton, N.J., with 34 spas and 14 more slated to open by February--is taking the opposite tack. "We very consciously fall above the massage clinic concept," says CEO Todd Leff, former president and CEO of AAMCO Transmission. He plans to open 30 to 40 units per year until Hand and Stone reaches 250 to 300 stores. "Our goal is to rival the look and feel of the high-end day spa at a price 30 to 40 percent less in a retail shopping environment. Our goal is to create a demand in the middle market, attracting folks with no spa experience or people who have done it at a resort."

Planet Beach was one of the largest tanning franchises in the country, but noticing the increasing drumbeat against UV tanning five years ago, the 300-plus-location concept began slowly converting its tanning operations into fully automated Contempo Spas. For a $99 monthly membership fee, Planet Beach clients have unlimited use of services such as a Mystic Tan spray tan booth and a gallery of futuristic gadgets like a hydromassage bed, luminous facial machine, teeth-whitening light and a sauna capsule. Now two-thirds of their units are fully automated.

Steve Smith, CEO and founder of Planet Beach, says his Marrero, La., company has found a sweet spot. "A little over a year ago, a Massage Envy moved in right next to the store I own," he says. "Our concepts are so different, it was like they never moved in. The price we charge for complete access is cheap compared to even lower-priced franchises like Massage Envy, and way less than traditional day spas."

Indeed, when his first 20 stores changed over to the Contempo Spa model, quarterly revenues jumped 47 percent.

Of course, everyone is wondering what the future of this sector looks like. With so many concepts growing so rapidly, it's hard to imagine that they won't reach saturation relatively quickly.

Hand and Stone's Leff says there will be an inevitable shakeout. "This industry didn't exist five years ago in franchising and I think two or three winners will emerge. The rest will fall away," he says. Naturally, he predicts his concept will survive. "I think we will be a second, very clear alternative brand to Massage Envy."

Edith Wiseman, vice president of client solutions for industry analyst FranData, doesn't see the concepts going bust soon. "All indications show there is continued growth, not as quick as in 2007-2008, of course, but the concepts are experiencing growth. They're discontinuing 3 percent to 5 percent of units, which is less than some other industries are experiencing," she says. "Consumers are still excited about these concepts."

Siebert of iFranchise expects the sector to diverge into even more niches. "What we typically see is that franchising follows a pattern. Someone comes out with a unique idea that they popularize, then we see other people putting their own spin on them or specializing," he says. "It's harder to be a knockoff than doing something unique."

Whatever companies come out on top, it's likely that the low-cost spa and franchise model in general is going to be a long-term winner.

"That groundwork has been laid," says Humphrey of Massage Envy. "In the past, health meant the absence of disease. Now people recognize health has an emotional component, and the two go hand and hand. Until people developed that awareness, massage was viewed as a fluffy luxury. We didn't understand the genuine wellness benefits and real physiological health issues. Now we're definitely in the mainstream."