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More accountability in wellness/spa investments and operations needed

Laszlo Puczko, Group Managing Director, Resources for Leisure Assets  Jul 27, 2016

It may seem to be relatively straightforward to talk about accountability and investment in spas or wellness centers.

Reality however proves otherwise. Interestingly, the industry has not yet accepted a definition for spa, or for wellness centers (or different types of spas). According to the International SPA Association "Spas are places devoted to overall well-being through a variety of professional services that encourage the renewal of mind, body and spirit." Although ISPA's relevant terminologies are often referred to, these are not global definitions. Still, at least there are some descriptions available for spas. Wellness centers represent an even less clear arena.

There are several interpretations of what a spa or wellness center can actually be. The International Wellness, Spa and Travel Monitor for example enlists and collects information about some 15+ different types. Cultural traditions, natural resources and historic events all have contributed to this proliferated typologies.

This fuzzy landscape is not particularly helpful in creating a clear the framework for hospitality and real estate developments or for operational management. Ultimately, it's critical that a development identify exactly what facilities, services and products constitute the spa or wellness center so that the pathway to managing the investment and creating the accountability is transparent and clear for all stakeholders.


From our point of view, spaces dedicated to spas and wellness centers should be considered as a standalone business and profit center with measurable financials. This has seen the owners and project stakeholders we work with gain a better understanding of what to expect from the investment and the impact it will have on the project as a whole.

Furthermore, owners and the owner representatives are now demanding more and more transparency and better performance information to aid analysis of the operations. This gives them more control and influence in the project because of the lack of relevant market intelligence and knowledge of what to compare their investment with. How to benchmark it and how to select the relevant competitors?

Spas or wellness centers range from beauty oriented units through thermal water based centers to medical spas with highly specialized medical equipment. All have very different CAPEX requirements and consequently different ROI opportunities. To make the comparison or benchmarking even more complicated, hotel owners or developers can include rather different elements to what they consider as a spa, e.g. are outdoor pools, exercise equipment or the yoga studio part of the spa? Hence, why I have stated you need to understand what your spa/wellness center actually represents. Why many destination spas have difficulties to provide the expected returns? Why thermal water based spa hotels (or hotels with spas) can indicate the expected returns only if TRevPAR (i.e. combined) figures were considered?

The categorization and service approach can make all the difference. Benchmarks often take place based on physical attributions. Investment and development plans look at the proposed spa or wellness unit as a spatial unit that occupies certain percentage from the floor space. Marketers, however, can confirm that guests look more and more for serviscapes, value proposition and experiences and less and less for spaces with a 'spa' label on them. Of course, this begs the question: how to put a price tag on experiences?

The wellbeing expectations of several customer segments of today are driving a higher demand for hotel, real-estate and especially mixed-use service provisions that meet a wide range of health, lifestyle and wellbeing needs of the guest. Or guest from the local area or residents who visit the hotel spa or wellness center. We can see new products (as well as hotel brands) on the market that opt out from fitting in the industry standards. They do NOT want to have a spa. They invite and foster guests to do their preferred wellness or lifestyle regime at their own leisure, place and time. Which may not be the designated spa unit but can be in the hotel room, or outdoors. A running or jogging concierge, anyone?

Architect and spa designers often look at the allocated spaces in new development as a means of self-actualization or art. This can result in design-led development where the tangible (visual) elements and not the intangible benefits are charged for. Are these units e developed to bring return? Maybe. Is this investment a necessary unit of the development? Does this unit perform measuring the space it occupies?
Can these units become the differentiating points or are these considered as development accessories and developers (and architects) only ticking the box of having one?

Say we plan to have a city hotel. Architects plan several treatment rooms for facial and body treatments, wet areas with pools and steam, etc. Spreadsheets indicate the forecasted spa revenue. Hotel operators budget the revenue from cross selling. Search for a spa operator takes place and the hotel opens with a branded spa or wellness unit. Does this process sound familiar? Who is going to be accountable for the spa investment?

Fragmentation of the industry can be seen in how most investments are prepared. There are numerous consultants working on the feasibility and other plans. Hotel consultants look at the hotel components, spa consultants model the spa P&L. How do these elements come together? It depends on who is responsible for the whole development. In a prudent development model the spa or wellness center should bring a return on its own. This should theoretically be the case for a hotel spa as well as a wellness unit in a real-estate development. In a large scale project with several components (e.g. MICE, golf, water sports, residential, shopping), however, the spa or wellness unit contributes to the market position (and sales) of the development and not necessarily does it bring direct returns.

The Uniform System of Accounts for the Lodging Industry does not offer too much assistance in helping create financial transparency either. Although being the rule of thumb or essential measure of any hotel performance, it does not devote the necessary attention to spa or wellness operations. It is therefore not a surprise that spa or wellness center costs are listed under the undistributed expenses. Such an approach leaves accountability, performance measurement or transparency weaker if it cannot sufficiently be supported by in-house data.

This leads us to discussion of the transparency of operating performance. The difficulties of benchmarking in the development phase also appears during operations. Is the spa performance compared to the performance of other departments? Does the hotel apply a rigorous performance analysis system for the spa, too? Since many spas are outsourced or run under independent management, performance analysis can only be limited. The lack of performance analysis and bench marking can hide the under-performance of the spa - from the owner's perspective. This can be the case even when the spa performs well - again, from the operator's perspective.

Most city hotel development plans an approximate 5-20% capture rate depending on the hotel type and spa/wellness proposition. If this is a resort property, they may forecast 30%. These figures can be seen in most spreadsheets. One may ask, however: what does this mean in terms of spa or wellness development ROI? It is widely anticipated that spas in five-star hotels, in particular, can influence brand positioning, up-selling and trading across other departments. These spas can also generate a reasonable stand-alone operating profit if the spa or wellness center is well-planned, accurately marketed and operated correctly. Spas, especially in city or business hotels are often seen as providers of options for travelling partners who might otherwise be reluctant to accompany their spouses on a business trip. Offering diverse activity and service venues for the double occupancy market can generate additional revenue streams for hotels as well as brand differentiation.

The performance and consequently the value of the whole investment can very much depend on the objectives of the spa designer and operator. The interests of the designer and operator may not be the same as the interests of the property owner, therefore the performance measuring or the lack of it can become critical. Operators tend to expect owners to prepare spa spaces according to the actual spa brand's ID or philosophy. The spa operator brings its SOP and leaves if the spa performance does not meet its own targets. Then the owner is left with a space which could be rather difficult and costly to reopen under a different spa brand or to redevelop as a new function. As a contrast several hotel companies and brands tend to create their very own spa brands, too (e.g. Hilton, Starwood or Four Seasons). Hotel and real estate developments need to re-consider their approach in relation to spa or wellness center performance forecasting and measurement. Owners now see that these spa or wellness units could actually become major loss generating and rather costly 'toys' in the books of a hotel or resort.

Well known spa operators should also get more prepared since owners gain more knowledge and understanding of what a spa or wellness center can and should actually contribute to the balance sheet. Negotiations are becoming tougher and operators are expected to bring more than their SOPs to the business.

The smart revolution, the Internet of Things as well as the well-being orientation of guests push hotel as well as real estate owners to re-think development concepts. Departmental performance measurement may only bring limited information about the actual performance of a certain service element. In more well-being focused properties the performance measurement should apply a more complex and holistic approach. Just consider: where would you allocate the costs related to the running concierge - spa or payroll or? Wearable technology will push the blurring of wellness activities within a property therefore creating further confusion in accountability.

In summary, accountability starts with detailed analysis and clear definition of the relevant spas or wellness center facilities, activities, services and products. Defining the operational and detailed financial objectives will create a naturally transparent blue print that will go a long way to eliminating many of the questions and fuzziness. Hospitality and real estate owners, developers and operators need to triangulate their performance measuring approaches and tools to achieve a more fitting solution that can furnish them with more accountable data and information.

More accountability in wellness/spa investments and operations needed

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