Find here China Paradigm episode 107. In this interview, Johnny Chang tells us about the spa industry in China and his business Spa Solutions.
Full transcript below:
Today I am joined by Johnny Chang, founder and CEO of Spa Solutions since 2003. That’s over 17 years of providing solutions in the hotel and regular spa industry in China. Can you believe that? Did you imagine that you would have this company for nearly 20 years when you started in 2003? I believe we never see how far we can bring us to start a business. You’re a beauty therapist, an ITEC accreditation – I am not sure if I’m pronouncing it correctly – and a professional lecturer. You participated in a lot of activities in the industry. I didn’t know there were so many awards in the Chinese spa and wellness market, but you are also a guest lecturer for Ding Jong hotel and management, for instance. You speak at many events; IMF London and that is more about cosmetics, right; Asia, Hong Kong. Cosmetics and hospitality and we are going to try to understand how they interconnect with each other in this interview. Your customers in the Chinese spa and wellness market are very prestigious, you have worked with Ritz Carlton, JW Marriott, Sofitel among many others. To tell people who are listening to us more about what you do, your concept is to provide consulting and training to the spa industry in China to get more efficient, more selective, and to be sober and picky on the people working within the spa and their efficiency. I believe the spa industry was coming from peoples’ craftsmanship. People were loving the spa, but not maybe thinking too much about economics and you are helping them to understand the business and economics of the spa industry in China. So, you provide strategic business planning, brand strategy, packaging as well and I am curious to know why you provide packaging; concept positioning, and other professional services that are needed for current, existing spa and future spa and of course, on the high-end level where the training and the relationship are key. Thanks for being with us, Johnny.
For the spa industry in China, why should 19% of revenue come from Spa retail sales?
Revenue mostly comes from retail sales (like skincare products, bathing suits etc.) and also treatments (massages etc.). But as soon as retail sales make up about 19% of revenue then your business will probably be safe.
You mention personalization and protocol – these being two factors for running a successful business in the spa industry in China, can you expand a little bit on these?
Personalization is having bespoke treatment solutions for each client. Knowing as much as possible about the client’s needs or circumstances. Down to how much sleep they had the night before or what they will be doing in the afternoon after the treatment and then having as wide an array of products as possible to be able to treat them.
Why is the quality of the spa service in Asia better than in the West?
There is more of a culture of spa treatments in Asia than in the West. In some senses, the spa industry in China is much more developed.
How is the coronavirus outbreak impacting the spa industry in China short term and long term?
The spa industry in China has been hit quite badly. Most spas were shut down for 2-3 months. They only started opening again in May really. Only about 60% of the spas have actually reopened so there was a huge loss in revenue in the industry. So now many spas are offering huge discounts. So, the hotel spa industry in China has found it easier to hang on but many of the street side spas and nail bars have closed for good. Currently, the spas that have opened again are offering many immune-boosting packages which are selling very well. But also, while spas were closed down many of them engaged in training for their staff.
In general, if you could segment the Chinese spa and wellness market how would you do it? Could you give us some analysis on the market segmentation of the spa industry in China?
So, you have day spas and hotel spas which are becoming quite similar because consumers are becoming increasingly demanding and now day spas are trying to compete with the services which traditionally would only have been offered by hotels. Generally, those in the hotel spa industry in China have much better equipment.
What equipment could raise the efficiency of spa businesses and make them more competitive in the spa industry in China?
Slimming treatment machines are massively popular, using effective machines can reduce labor costs because it only requires one person to know how to use it but it can be very expensive ranging from 100,000 to 500,000 yuan but these machines are much more effective in terms of treatment and so you can attract more customers and get better reviews.
Are there any other segments in the market of the spa industry in China?
There are also medical spas that do some invasive procedures like nip & tuck operations, botox, etc. They are regulated and are licensed businesses. Injections of collagen in places like this will cost you easily 10,000 RMB.
Tell us a little about the pricing system in the hotel spa industry in China.
At hotels the prices range from 1,000-2,000 per treatment. Day spas, particularly the nice ones are roughly the same as the hotel spas in terms of price. Hotel spas will charge a 10% service charge.
So, with the segmentation of the spa industry in China into big chain spas vs stand-alone spas. What impact are the chains having on the Chinese spa and wellness market?
Pretty big, in fact some hotels including JW Marriott outsource their spa services to spa chains.
How are the independent spa chains impacting the spa industry in China?
Greenmassage, Dragonfly etc were hurt by covid but are still surviving and others like K-11 are doing really well at the moment.
How does a spa service business structure look like? Revenue streams and costs?
Because of regulations in the spa industry in China, you cannot sell a membership card for a spa, so those in the hotel spa industry in China will sell gym membership cards and allows customers to use a certain amount of spa treatments. Spas often hire around 8 or 9 employees. Real estate and staff are the biggest costs. The treatment makes up around 80% of the revenue. And retail makes up about 20%. The best hotels will have about 35% of retail sales. Retail sales have a much higher margin so the more of those you can do the healthier your business will be. There are hotels in Hong Kong where retail sales can be as much as 60% of their revenue.
How much do spas make on average in China?
A few years ago, the very top players in the hotel spa industry in China would have been making about 1 million + RMB per month but now with the relative saturation of the Chinese spa and wellness market, most spas would be making around 250,000 RMB per month. And for those in the non-hotel spa industry in China it would around this or less.
What are some key features a spa needs to have to survive in the spa industry in China?
For famous hotels engaged in the hotel spa industry in China, who are well known because of their spa treatments, they often won’t have to pay for inventory in advance which means they can afford to pay higher commissions to staff on retail sales
Does it make more sense to view the spa industry in China as a retail business rather than a treatment business?
Yes, I think it could be looked at in that way. Essentially its about knowing how to deal with your guests and sell to them based on their unique demands and preferences.
Is there anything to the idea that the spa industry in China could be segmented geographically?
Yes, also the culture of the cities also has a big influence on the way spas works. For example, Guangzhou and Shenzhen are quite close geographically but the way people consume spa products/services are totally different. It would be big mistake for firms not to look into this. There are also many cities on Tier emerging 1 and Tier 2 which offer lots of potential in those places to grow the Chinese spa and wellness market.
You claim you can improve spa sales by 70% after just one week’s training – This is really a Spa Solutions quick fix. Can you explain that a little more, please?
Its about holding onto and creating repeat customers. They are much more valuable to the company. Really listening to them and catering to them will ensure you make them repeat customers.
Are the prices of products in spas in China much higher than if they were to buy these products in specialized cosmetics stores on the high street or online?
They’re about the same in terms of price. The difference is in service quality.
Any problems that need to be addressed in the spa industry in China?
Many spas have international certification but certifications don’t matter if you don’t understand how important the guest experience is. But the situation is changing and improving.
Is formal training by cosmetic brands required in the spa industry in China in order for them to sell their cosmetic products?
It happens but not as much as in the West. Also, some of the people who are giving the training are not trained to an adequate level either.
What training does Spa Solutions offer big brands in terms of integration with spa services?
Teaching them the importance of personalization is probably the most vital aspect.
How can technology help the spa industry in China?
Incorporating certain types of music into treatments has seen a lot of growth recently in both gyms and in the Chinese spa and wellness market.
What does the profile of a customer of typical premium hotel spa or medical spa in the Chinese spa and wellness market look like?
In terms of high-end consumers, a lot of the younger generation are spending much more money on their lifestyle, but also older people will spend a lot on lifestyle so age group or culture don’t really seem to matter too much in the spa industry in China.
Are spas adapting their offers based on the different weather climates existing in different geographical areas in China?
Yes, the thing with personalization is that you must find out what are their genuine needs and then you can sell to them and make them repeat customers.
Matthieu David: Thanks very much for taking the time to talk with us today.
