After 30 years in franchising, Todd Leff has seen the ups and downs of the economy. As CEO of Hand & Stone Massage and Facial Spa, Todd believes that staying true to their brand is the key to their growth over the last decade. We sat down to discuss their journey, the impact of COVID on their franchisees, and why Todd thinks the brand will come out even stronger from the last few months.
Dave Knox: What is the backstory of Hand & Stone Massage and Facial Spa?
Todd Leff: When I joined the company in 2009, it was a startup with 26 locations. The idea was to create a spa environment in a retail shopping environment. We believed that by making it more affordable and more convenient, we could drive demand at the middle market where spa services had not been greatly adopted. We set out to design that model and have used franchising as the distribution system. Over the last 11 years, we have recruited a world-class franchising team and find ourselves today having grown to 475 Hand & Stone locations across 30 states in the U.S. and two provinces in Canada. We have also been named the number one in the spa category by Entrepreneur Magazine and top 10 by Forbes Best Franchises to buy.
Where we are unique is in the underlying box and the fact that we do massage, skincare, and waxing all under one roof. We also strive to be more consumer-centric experience, all of the things that surround the underlying service. The service itself, doing a massage or doing a facial, a lot of folks can do that, but it's all of the other pieces around it that creates the actual experience, which is where Hand & Stone differentiates itself.
Knox: What is the biggest lesson that you have learned as the business has grown from 26 locations to nearly 500 location?
Leff: I think the biggest lesson is you have to stay focused and true to the core underlying pinnings of the brand. And in our case, that is convenience, affordability, and professionalism. So everything you do, you have to consider within that lens. We obviously get pushed by franchisees and even consumers, "Hey, why don't you add this service or why don't you do nails or something else?" And we look at it within that lens of our brand. And so, for example, doing nails, well, that brings in chemicals, it creates other challenges in the industry in the model. And we decided that's not a good fit for us. We have to stay kind of true to these three core objectives for the brand. That's the best way that we have kept the business on track and just continually to refine within the model that we had developed.
Knox: While the model was initially just services, you have expanded into retail in recent years. How did that move fit under those three objectives of the brand?
Leff: It was a very thought through strategic initiative. Around 2010, we really started to see a challenge in hiring massage therapists. And at the time the business did not do facials, that was not in the model. We investigated the skincare industry, in particular facials, really in depth and found that not only is there a great employee there, which would help us reduce some of our risk of only relying on massage therapist, but it also opened up the business for a tremendous retail component, which is to sell skincare product. And so almost all the product that we are selling is related to the skincare services that we are performing.
And when we launched skincare in 2010, obviously it was a new service for us. Today, between skincare services and products represent over 32% of the annual revenue for the average franchisee. It has really become an important component of the overall spa business because it also creates stickiness. They want to get a great service from an aesthetician with the right product and the right advice. But because we use only several very narrow lines of skincare product that are really geared to the professional market, that the customer has to return to the spa in order to continue up with the regimen and that particular skincare line. It creates this return to the business either for another skincare treatment or just to repurchase the retail product.
Knox: As you think about innovation, how do you evaluate an opportunity to expand your services like skincare vs pass on something like nails?
Leff: We go through this all the time. We have launched several new services and the first test is always if they fit within the three core objectives of the brand. We start with affordability. We often look at services that have been launched at higher end spas and try to figure out how can we bring that to the middle market. We're always examining if the service can be brought to the middle market with an affordable price point? Then we look at convenience. How much time does it take to do the service and does it fit out pattern, which is generally 60 minute services. Is this a service we can have booked online? Are there too many moving components to it? Is it fairly easy to educate the consumer from a marketing end about what the service is and what the value is going to be? And finally, with professionalism and making sure it really does work within our system.
Knox: As a national brand built through local entrepreneurs, what is the role of the franchisor?
Leff: The role of the franchisor is to set the overall brand standards. I cannot think of any more important example as we have just gone through with the COVID-19. Between March 15th and April 1st, we closed either voluntarily or by state order all 475 locations. As a franchisor, we had to really use our resources to develop the standards when we reopened. How are we going to need to change the model? How are we going to need to train aestheticians and therapists on new sanitation and on new safety techniques? All of this really needed to come from the national organization, from the franchisor, and then how are we going to police it and make sure it's being done down at the spa level. We even had to look at the marketing of it and how our in house advertising agency would update that messaging. In all of those ways you have to continue to support the evolution of the individual unit, as well as the brand as a whole.
Knox: Until COVID, Hand & Stone had not seen a single franchise location close in four years, which is a rarity in franchising. What do you think is going to happen over the next 12 months as your 475 franchisees reopen?
Leff: Quite frankly, when COVID hit, in mid-March I told my management team, "Let's be prepared that 25 to 50 locations might never reopen." And I will tell you, they had a lot more confidence than I did. And they said, "No, that's not going to happen." And as we sit today, we only have one location in the entire system that is not reopened that could be reopened right now. We do have 14 in California that just are not permitted by the state government to reopen, but we believe all of them will reopen. But other than that, we have one location based on financial reasons that has not yet reopened and we think we will be resold to a new owner. That really shows the resiliency of the brand and our franchisees.
We are going to see changes. One that we accelerated when this started is contactless or contact light experience around everything but the hands-on service. All of the intake forms, all of the checkout process, all of the membership management, all of that is now being done via digital forms. We had been working on it but this accelerated that significantly. We accelerated our online booking platform and the functionality there again, so that consumers didn't have to call in to the spa. Now everything is booked via online at a really granular level customization.
Knox: Beyond these changes, what do you see for the next decade for the business?
Leff: I have been in franchising for 30 years now, and these cycles have held up very consistently. What happens is when we have a recession, when we have layoffs at the kind of upper middle market and executive level, we see an increase in interest in owning franchises and developing your own business. Over the next three years, we are going to see an increased interest in entrepreneurship not just because of the employment situation but also because I think some people are going to be concerned about travel and will want to stay closer to home by owning their own business. We are also going to see a decrease in the real estate costs that we are paying, because I think you are going to see a number of open spaces in a lot of the shopping centers that we are going into. And on the consumer side, I was here right during the downturn from the recession that we went through in'09 and'10, as long as we can keep it affordable to the consumer, we are going to see a continued increase in our comparable store sales. In the last downturn, people actually traded down to the model, so instead of paying $150 for a massage, they could become a member of Hand & Stone and pay $59 a month and get a massage every month. We are going to be really well positioned over the next couple of years.