From 2013 to 2014, labor costs increased by 2.9 percent. The cost of goods sold grew by 5.3 percent, but retail sales increased by just 4.1 percent. All other department expenses were limited to just a 0.6 percent increase.
However, with revenues growing greater than expenses in 2014, hotel spa departments posted a healthy 10.5 percent increase in department profits. Benefiting from the stronger gains in revenue, urban spas enjoyed a 13.1 percent boost on the bottom-line, which is greater than the 9.8 percent profit gain achieved by resort hotel spas.
Spa department profit margins averaged 25.4 percent for the overall sample. Resort hotels (28.1 percent) were more efficient than urban hotels (18.4 percent) in converting spa revenues to profits. Higher wages in the nation’s major cities contributed to a greater labor cost burden at urban hotel spas.
The Halo Effect
Hotel spas may truly be a minor operated department. In the hotels that manage their own spas, spa department revenue accounted for just 3.9 percent of total hotel revenue in 2014. However, there is anecdotal evidence that the benefit of having a hotel spa can go beyond dollars and cents.
The presence of a spa helps solidify a property’s status as luxury and upper-upscale. Comparing the performance of spa properties with comparable hotels in our Trends database, we find that the spa hotel sample had a higher ADR in 2014, and was able to increase their room rates to a greater degree.
Operating a spa also enhances the attraction of the hotel to certain demand segments. Although it may not be used by all conventioneers, the presence of an on-site spa and associated fitness facilities is a must for most meeting planners. Further, a spa helps position the property as a healthy hotel with all the associated menus and amenities, which can be a draw as more and more travelers want to maintain their healthy lifestyle while on the road.
For now, favorable economic and demographic trends foretell a very bright future for hotel spas. Occupancy rates at the upper-priced lodging segments in which most hotel spas operate are forecast to achieve all-time record levels 2015 through 2017. Increased guest counts, combined with a growing desire for healthy experiences while traveling, should result in a continuation of solid gains in spa department revenues and profits.
About the Authors
Robert Mandelbaum is director of research information services for PKF Hospitality Research, a CBRE Company (www.pkfc.com). Andrea Foster is managing director for PKF Consulting, a CBRE Company, and also leads the firm’s spa and wellness consulting practice. To purchase a copy of the 2015 Trends in the Hotel Spa Industry report, please visit store.pkfc.com.
