All Eyes on Med Spas
Despite their plethora of beautifying treatments, med spa services have often been viewed as the ugly duckling of the beauty industry — especially when it comes to investing.
That is changing. Last year, Millennial med spa Ever/Body, which offers laser facials, Botox, HydraFacial, fillers and laser hair removal, raised a $38 million Series B from a mix of investors including Tiger Global Management, Addition and Fifth Wall and later a $55.5 million Series C funding.
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This year, Upkeep, an app that allows users to find, book and pay for med spa treatments, secured $2 million in seed funding, and most recently, private equity firm KKR took a “notable” minority stake in SkinSpirit, the largest provider of Botox and filler in the country.
At the time of the deal, SkinSpirit’s founder and chief executive officer Lynn Heublein noted that during her almost two decades in the business, she has never seen as much investment interest in the category as now.
“Because it’s very fragmented, there is opportunity for someone to emerge as the provider of choice for people who are looking for a high level of expertise and artistry from their medical aesthetics provider,” she said.
According to Lindsay Carlson, a managing director at investment bank William Blair, increasing consumer demand is the main reason why investors are betting on the category’s long-term growth prospects despite mounting fears that a recession could be on its way to the U.S. next year, while inflation remains stubbornly high.
“You’re seeing an expanding addressable market. You’ve got men and women as young as 18 first coming into the med spa channel and looking for treatments and there’s an opportunity to provide them multiple services over time and it’s very, very sticky,” she said. “You’re pretty much a client for life. There’s a real LTV, there’s very high customer loyalty, despite the market backdrop that we’re seeing and concerns of recession.”
At the same time, services such as injectables are becoming a much less taboo subject. “I feel like people are so much more open and willing to share information about not only how to improve, but how to look your best and how to feel confident about yourself and if it’s getting Botox or getting fillers or tweaking this or that,” Carlson added.
In particular, she sees multiservice models doing particularly well as they have “real scalability.”
Tara Hyland, a vice president at private equity firm Main Post Partners that has invested in sugaring and tanning salon Sugared + Bronzed, told Beauty Inc that investors are starting to realize that there’s a lot of growth in this category.
“The financial profiles of these businesses and the recurring revenue that comes from the consumers who are increasingly hooked on the results from services, pairs well for a strong outcome and a long lasting business model that can be very successful,” she said.
BeautyHealth, best known for its HydraFacial that sucks gunk out of pores, is also riding high on this wave. Having went public through a SPAC in May 2021, it reported net sales of $88.8 million in its most recent quarter and raised its full year guidance.
Now, it has lofty ambitions to double net sales by 2025, to the range of $600 million and $700 million.
“Med spas are a large and high-growth market. We see the med spa channel booming in the U.S. as consumers look for a single point of access for beauty and health treatments,” said president and CEO Andrew Stanleick, citing AmSpa data showing that the number of medical spas in the U.S. increased 19 percent to 8,841 this year.
In another sign of the health of the sector, he also pointed to data from the U.S. Bureau of Labor Statistics showing that skin-care specialist jobs are expected to grow 17 percent by 2030, outpacing job growth in other categories.
“We are seeing and benefiting from this growth directly,” he said. “The number of med spa Hydrafacial treatments has grown 26 percent year-over-year, making med spa our most productive treatment channel in the U.S. and key to our continued growth. Despite the macro environment, we continue to see healthy demand in our med spa channel which is showing no signs of a slowdown.”
At the same time, laser facial specialist Skin Laundry is looking to double its footprint on the back of increased demand for its services. Not including its licensing agreement in the Middle East, the El Segundo, California-based company, which was launched by Yen Reis back in 2013 and is best known for its 15-minute laser facial, has 25 clinics and plans to double this figure by mid-2023.
Hyland concluded that there is an an element of the lipstick effect to this industry — referring to the index coined by beauty mogul Leonard A. Lauder based on his theory that beauty sales increase during tough economic times — despite the fact there’s an obvious price discrepancy between lipstick and beauty services.
“It’s becoming more of a ritual giving consumers an element of self care and efficacy that they may not be able to get from product alone,” she said.
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