Hotel spas: Revenue up but profit margins slightly down

(Hotel spas: Revenue up but profit margins slightly down)

For the second consecutive year, hotel spa revenue and profits increased at a pace greater than other non-rooms department sources of hotel revenue in 2012, according to the recent edition of PKF Consulting USA's Trends in the Hotel Spa Industry report. However, total spa department profit margins were down in 2012 because of continuing high labor costs. 

Spa department revenue increased by 5.0 percent at the properties in the survey sample, according to the research. For reference purposes, this compares to the 2.3-percent increase in food and beverage revenue, the second largest source of revenue for most hotels.

“Due to its historical stigma as a luxurious amenity, spa revenue initially lagged behind the growth of other revenue sources during the early stages of the recovery,” said Andrea Foster, VP and national director of spa and wellness consulting for PKFC.  “However, the 2012 increase in spa revenue is a trend we anticipated would occur. There has been a notable focus shift to wellness, specifically taking better care of ourselves for improved health and quality of life, of which spas are an important part.”

Earlier this month we saw evidence that the once-lagging resort market was making a comeback, showing revenue per available room and average daily rate levels above 2007 peak, higher NOI and improved transaction volume, according to Jones Lang LaSalle's Hotels and Hospitality Group. 

With resorts often come spas, and according to the PKF report, spas located in both urban hotels and resort properties enjoyed increases in revenue during 2012, though each achieved their growth in different ways. Urban hotels were able to get more guests into the spa and increase prices as well. The net result was a 7.2-percent gain in revenue, according to PKF. On the other hand, resort spa revenue grew by 3.8 percent. 

Massage, skin care, and body work treatments continue to generate the most revenue at hotel spas. Combined, these services represented 72.6 percent of total spa revenue at the properties in the survey and grew by 4.7 percent in 2012.

How does spa revenue contribute to total hotel sales? According to the 2012 STR HOST Almanac data reported at September's Hotel Data Conference, spa treatments represented 2.5 percent of total sales for hotels reporting spa revenue in 2012, retail represented 0.3 percent and "other" (membership fees, personal training fees, etc.) were 1.8 percent of total sales. 

“Data from the 2013 PKF Spa Trends report indicates that hotel spas continue to seek customers from the local community to supplement revenues from guests at the property. The combined revenue from facility use and membership fees, fitness and personal training, and health and wellness services increased by 4.6 percent in 2012. These are revenue sources most frequently associated with local patrons,” PKF's Foster said.

“Growth in revenue is certainly welcome news, but the increase in business volume also carries with it an increase in expenses,” said Foster. “While revenues were growing at 5.0 percent in 2012, total spa department expenses grew by 5.2 percent.  Accordingly, spa department profit margins declined slightly from 21.6 percent in 2011 to 21.4 percent in 2012.”

Labor costs are the single greatest expense within hotel spa departments. The combined costs of salaries, wages, bonuses and payroll-related expenses (benefits) equaled 58.6 percent of total department revenue in 2012, or 74.5 percent of total departmental expense. Because of the high levels of personal service required at spas, labor costs increased by a relatively strong 5.7 percent from 2011 to 2012.

“Fortunately for hotel spa operators, many spa technicians work as independent contractors and therefore are not necessarily eligible to receive a full package of benefits. Payroll-related expenses within hotel spas averaged 22.8 percent of total labor costs in 2012 compared to an average of 29.6 percent for all hotel employees,” said Foster.

Trends in the Hotel Spa Industry is PKFC’s annual survey of hotel-operated spa departments in the United States.  A total of 125 hotels submitted data for 20 of the most important revenue and expense categories within their spa departments.  The report allows hotel spa owners and operators to benchmark their revenue and expense ratios on a per-available-room, per-occupied-room, per-square-foot, and per-treatment-room basis. Not included in the survey sample were day spas, destination spas, or leased spa operations.

Pictured at right is the The Spa at Mandarin Oriental Las Vegas.