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Since the late 1970s, Americans have been stepping “indoors” in search of that perfect, sun-kissed glow.
Indoor tanning became widespread in the 1980s, and today, boasts a loyal customer base of more than 28 million Americans, according to the American Academy of Dermatology. In 2012, the tanning industry is expected to rake in an estimated $4.9 billion in revenue.
However, adverse economic conditions, coupled with rising health concerns, have cast a shadow on the industry. In the five years to 2012, revenue for the tanning industry is expected to decline an average of 1.0% per year. Demand for indoor tanning, a discretionary beauty service, is reliant on per capita disposable income, consumer confidence and the unemployment rate. With the advent of the Great Recession and the unemployment spike, consumers found themselves with less disposable income, and were therefore less likely to frequent salons. Instead, consumers chose to tan outdoors or purchase inexpensive sunless tanning products available at local drugstores. As a result of these trends, industry revenue declined 3.3% and 6.1% during 2008 and 2009.
Merchandise sales fared the worst during the downturn and were typically the hardest-hit category for tanning salons. Salons generally sell pre- and post-tanning products, cosmetics and clothing items, providing an important secondary revenue stream for industry firms and typically generate between 10.0% and 24.0% of a salon’s revenue. However, as consumers increasingly tightened their purse strings during the recession, more chose inexpensive substitutes available at the local drugstore.
Health concerns about excessive UV exposure have also slowed growth for the tanning industry. Each year, about two million Americans are diagnosed with skin cancer, a trend that has prompted greater demand for sunless tanning. Sunless options, such as spray-tan booths and custom airbrushing have been high-growth segments for the industry over the past decade. Changing state and federal regulations are further encouraging this trend. In July 2010, the “Tan Tax,” which places a 10.0% tax on the use of tanning beds, went into effect. The tax excludes sunless tanning booths and the sale of tanning lotions. Additionally, in October 2011, California became the first state to ban indoor tanning for minors. More recently, in May 2012, Vermont became the second state to pass a similar ban on adolescent salon usage.
Although the national unemployment rate remains stubbornly high, economic indicators have begun to slowly improve, leading to a slight rebound for the industry. In the three years to 2012, per capita disposable income is estimated to rise an average of 1.0% per year, while consumer confidence increased from 66.3% in 2009 to an expected 74.0% in 2012. In turn, tanning salon sales have turned around because consumers now have more disposable income to indulge in discretionary tanning services. In 2012, revenue for the tanning industry is expected to rise 2.0%.
Over the next five years to 2017, the industry can expect slightly sunnier conditions, with revenue projected to rise at an annualized rate of 1.0% to an estimated $5.2 billion. Over the course of the next five years, the national unemployment rate is forecast to decline to 6.0%, leading to greater disposable income growth and boosting spending on discretionary beauty services like indoor tanning. However, the passage of more state regulations aimed at reducing adolescent access to tanning will likely challenge the industry. A number of other states are considering whether to follow the lead of California and Vermont, a trend that may mitigate the industry’s revenue growth during the coming years. Adolescents are a significant market for the industry: About 2.3 million teens tan indoors each year, according to the American Academy of Dermatology. To prevent losing this sizeable market and to draw in new customers, tanning salons are expected to focus increasingly on sunless tanning options and to diversify their service offerings. In particular, many operators will continue adding spa services, including massages, body wraps, facials, manicures and pedicures. Spa services can increase average revenue per customer and widen a tanning salon’s customer base by attracting clients who do not typically tan indoors. Most importantly, spa services will help alleviate the industry’s seasonal downturn, which lasts from November to January, and help tanning salons shine even during the winter months.
is a Senior Analyst at industry research firm, IBISWorld, headquartered in Santa Monica, CA. Specializing in the tanning industry and other consumer service industries, Ms. Moldvay authors market research reports analyzing industry trends, top competitors and providing key industry statistics and forecasts. She frequently interviews for the New York Times, Wall Street Journal, and L.A. Times and has been published in The American Bankers Association Magazine. Ms. Moldvay received her Bachelor’s degree in Economics from Occidental College.
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