Prediction - The Death of Hundreds of Nails, Hair, Lashes, Facials & Medical Aesthetic Places. Here Are 7 Reasons Why Your Packages Are In Danger:
Before getting to the 7 reasons why, here's the sad and happy truth.
Hundreds of businesses in beauty services and medical aesthetics are going to close down.
The sad part is that thousands of people are going to get scammed with unfulfilled packages. Many businesses are cashing out profits - the $3000 you paid for your package - even before they fulfill the service to you.
The happy part?
Those businesses deserve to close down anyway. They're not actually doing anyone any good by running a "soft ponzi".
So what's a "soft ponzi" and why do I call them that?
Here's how the typical beauty business operates:
- They sell $50,000 of services and packages a month
- They use the $50,000 to pay rent, manpower (including the owners), machines, products, marketing, and other business expenses.
- They fulfill $30,000 of services.
- At first, it's fine and everybody is able to redeem their packages.
- At some point, it gets harder because there are too many unfulfilled packages owed.
- Eventually, they shut down and run away with your money
And the definition of a ponzi scheme (aka pyramid scheme)?
A fraudulent investment operation where the operator, typically a charismatic individual, pays returns to its initial investors from funds received from new investors. As such, the scheme collapses when the number of new investors dries up.
In the "soft ponzi", the early buyers of packages get subsidised and discounted packages (eg. $50 facials), which are paid for by future people who get scammed.
If you are not one of those early buyers, you are at higher risk of getting scammed if the business closes down.
Don't you also think it's crazy that this is something so prevalent? And that if you read the news you'll regularly see these "soft ponzi" places closing down?
To be fair, many of the owners started out as good people wanting to run a legitimate business. But they chose to copy the wrong business model.
Why does this happen and why do I say hundreds more are going to close down?
Here are the 7 reasons why I predict MANY are going to close down:
1. Package Debt
Package debt occurs when businesses sell packages. When someone sells you 10 sessions for $2,000 but you only did one session the day you purchased, they accumulate $1,800 of package debt.
As someone who has bought and sold businesses and looked at many businesses in the beauty space, it's a fact that the majority of businesses that sell packages accumulate package debt over time.
You might feel like you're getting a good deal when you buy a package that "doesn't expire", but you should instead see it as a package that can expire anytime.
The typical thing that happens is a business sells $100,000 a month, mostly in packages. If they only fulfil $70,000 a month, they start accumulating $30,000 of package debt. Because businesses optimise themselves for sales, they prioritise these two groups of people:
- Someone who buys packages over and over even when their packages haven't finished
- New trials who haven't bought a package
When going to beauty salons, you will may have a positive experience at the start. But, when you stop buying more packages (and they accumulated enough package debt), it gets hard for you to book a slot.
At some point, a business with enough package debt will break. The dirtiest part is that these businesses have pushy sales consultants who will sell you a package even if they know that are going to close down.
2. Temporary Bridging Loan (TBL)
If you're not from Singapore, you might not know that TBL is a scheme that the government has provided as economic support during Covid-19. The government takes up to 90% of the risk share when the banks lend businesses money.
Despite this being a good scheme that helps many businesses, it's also going to make beauty businesses close down at some point.
Because most beauty businesses have terrible economics in the first place. They accumulate package debt at a discounted rate, which makes it hard for them survive in the long run.
TBL is delaying the inevitable.
So what happens when their current 3-year lease they signed for in 2020 expires? Do you think they're going to be ethical and extend the lease to continue fulfilling your packages?
Well - Look at the marketplace and news and you'll see how many of these places act.
3. Low Penalties For Closing Down & Opening Elsewhere
Another widely known fact in the beauty industry. Businesses can sell these huge packages to people, accumulate $2,000,000 or more in package debt, and then shut down their company.
Since companies are usually Pte. Ltd. in Singapore, they have limited liability and no one can come for them for their personal assets.
The system encourages entrepreneurship and business which is good.
But, someone unethical can exploit that. They can close the place down, and move their machines, staff, and dirty tricks to another location. They slap on a new brand and "poof!", now they can start making money again.
4. It's Competitive. And Most Businesses Suck at Marketing.
As someone who has invested over $500,000 of my own money in marketing and marketing education, I can tell you that the aesthetics industry is extremely competitive for advertising.
Because of the hard-selling model that businesses use, they can spend a lot of money on advertisements.
If more and more money is spent on marketing, the money is going to come from somewhere. And that place is from selling packages and accumulating package debt.
Also, if you look at the marketing that most businesses are doing - they're what I'll call "Me Too!" or "One Up!" marketing. Here are some examples:
- "Best Facial In Singapore To Brighten Your Skin Instantly!" - Who doesn't say a variation of this? It's basically all the same thing.
- "20,000 Sit-Ups in 30min" -> "30,000 Sit-Ups in 30min" -> -> "70,000 Sit-Ups in 30min" - This is "One Up!" marketing. Just shouting that they're better without proof.
So what happens when these things come together?
More money is spent on boring and non-unique marketing. More package debt is accumulated.
Eventually, they crumble when they can't keep up with the competition.
5. The Great Resignation
The marketplace has changed. More people are leaving their jobs now. Manpower costs are going up.
If you have read this far down, you're pretty smart and i'll leave you with some questions to figure it out for yourself:
- Can they afford to pay the higher costs for manpower without increasing package debt?
- Where is the money for training and hiring new talent coming from if a business barely making money?
- Will beauty businesses with shaky economics and package debts survive?
6. Negative Word of Mouth
People have friends. When businesses do unethical things like hard-selling, negative word of mouth is generated.
When someone has a bad experience, they are likely to influence their friends to not visit the place.
In the early days, this can be disguised easily through fake Reviews (yes - a ton of our competitors have fake Google reviews). When it's a new brand with strong Google Reviews, people trust it.
But Singapore is a small country. When word starts spreading, it is a matter of time before the truth about how they do business gets exposed. When this happens, it gets harder for them to attract new customers.
7. Consumers Are Getting More Sophisticated
That's you if you're reading this. People are starting to care about the truth. Of how things work.
With the rise of social media, information is flowing faster than ever before. Businesses that hard-sell packages and closed down are being exposed for what they really are - a Scam.
When people catch on, businesses that have been doing this for years will start to crumble because:
a) People stop buying packages
b) The hard-selling model is no longer as effective since people are now more aware
c) Businesses close down as they cannot keep up with the rising costs, loans and package debts.
So there you have it - my prediction of the death of hundreds of nails, hair, lashes, facials and medical aesthetics places.
Here's who this is bad for:
- The person who is unable to say no to the big packages and keeps accumulating more and more sessions
- The poor uncle and auntie you'll read about that got scammed at one of these places
- The ethical beauty artist who wants to make a living the proper way.
But at the end of the day, it's actually a good thing that many of these businesses close down. Because they were going to close down anyway. If it drags on, more people will get scammed from unfulfilled packages.
No one wants these businesses around anyway. I can't be the only one that detests the predatory salespeople standing outside of shops approaching their "preys" with a "free gift", in hopes of selling them snake oil, right?
So here's how we can all play our part:
- If you're in the industry, especially if you're a medical doctor, vote with your feet. Work in a business that does things (eg. sales) ethically. You studied medical ethics for a reason.
- If you're a consumer of such services, say NO to hard-selling. By saying yes, you're supporting that business and enabling them to hard-sell someone else's mum. You're voting for those businesses with your wallet.
- Forsake the last 2 sessions of your package if you have to, you're going to spend an hour or two in the locked room getting pressured to buy more. Or at least understand that you're trading your precious time to be in a situation you don't want to be in... so that you can utilise the sessions you already paid for. Be smart and get out of that trap at some point.
- If you insist on signing a package somewhere, do your own research properly before you commit. Up your research game and read this article: Are you making these 3 research mistakes when looking at reviews for beauty and medical aesthetic services?
- If you're an influential person, make sure you're recommending a place that does business ethically and doesn't hard-sell.
If you liked reading this article, you might like our next article: "The Beauty Industry Is Broken And How You Can Help To Fix It"
Read some of our previous articles
Frequently Asked Questions
We're on a mission to make hard-selling and big packages a thing of the past. We believe it's possible for an ethical aesthetics business to do well and want others to do the same.
We strongly believe in collaborating with other businesses and having "co-opetition". Feel free to email email@example.com and let me know what you'll like help with.
You have two choices - the first is to forfeit the last few sessions so you don't have to sit through the pain of getting pressure sold to, struggle with booking your final appointments and worrying about whether they'll screw up your facial.
If you're not willing to do that, then the second way is to keep going and coming up with reasons such as telling them firmly that you'll only decide when you're down to your final session.