It Is Time To Dispel The Myth That Massage Therapy Franchises Are Causing Low Wage Rates For Therapists
What Is Really Going On Inside The Economics Of Massage Therapy
For those of you who were present for the Massage Summit last week, you are already aware that massage therapy wage rates were at the top of a short list of concerns held by industry stake-holders. At one point, one attendee directly confronted the panelist representing the region’s largest massage franchise and suggested that the drop in wage rates over the past decade had been caused by franchise massage providers. Many in the room were inclined to agree with this assertion. In fact, this is a very commonly held perception in the massage world and, yet, it happens to be an economic impossibility and, therefore, not true.
By a stroke of coincidence, a thousand miles away from St. Louis, a massage therapy instructor by the name of Sandy Fritz from Lapeer, Michigan posted an accurate analysis of the wage rate debacle on her Facebook page. Ms. Fritz is well known to the massage therapy industry on a national level. She is the Director of Education at Health Enrichment Center School of Therapeutic Massage in Lapeer. Ms. Fritz aptly points out that data from the American Massage Therapy Association (AMTA) clearly shows that less than 10% of the massage therapy market is occupied by franchises. This is simply too small of slice of the pie to dominate a market factor as significant as wage rates. We happen to agree with her.
In order to control wage rates in an open market, a company would have to control a very large number of the available jobs serving that market. While franchises make up less than 10% of the massage therapy market across the nation, they control a larger market share in urban areas like St. Louis. Labor rates move up and down just like the prices of goods and services do – all subject to the law of supply and demand. When labor supply is plentiful as it was in the massage therapy labor market prior to 2005, wage rates plummet. In fact, and this was pointed out in the conversation at the Summit, by 2005 the vocational education boom of the 1990s and early 2000s had caused a “bubble”, or an oversupply of massage therapists that peaked in 2005. According to Associated Bodyworker and Massage Professionals (ABMP), over 71,000 students received massage therapy certificates in 2005. This was twice as many as there had been in the mid to late 90s. This oversupply caused considerable competition for massage therapy jobs that brought wages rates crashing down due to ordinary free market forces. So if we are to blame anyone for the the decline in wage rates, we must blame vocational schools that were looking for anyone with a pulse to take a place in a massage program. Not all schools did this, and in fact, a variety of massage programs tried to push back against the notion that any body will do when it comes to this profession.
From 2005 to 2015, however, the bubble began to collapse as low wage rates caused students to look elsewhere for viable careers. In the last decade, the number of students has shrunk by 50% creating the current labor shortage. Despite this growing labor shortage, wage rates have been slow to rise. In the St. Louis region, most massage therapy spas and clinics are reporting that they have to turn business away because they do not have the massage therapists to meet consumer demand.
It should be noted that not all of the 71,000 massage school graduates in 2005 made it to licensure. One of the side effects of the vocational education boom of the 1990s and early 2000s was that many of these students had poor qualification, some even being functionally illiterate, and were put in seats in schools simply to provide the school with federal student aid revenue. Many of these schools have been put out of business since the vocational education boom for these predatory practices. Also during that time, many, many exception massage therapists came into the profession. Be that as it may, the massage therapy education boom left a lot of graduates who were strapped with student debt snapping at anything that resembled an income. These desperate graduates bid down the wage rates in the early 2000s. Franchises simply had nothing to do with this initial wage rate collapse.
One of the nation’s largest massage therapy providers, Massage Envy, was founded as the bubble of cheap labor was swelling in 2002. At that time, massage therapist were everywhere and cheap to hire. Because of this cheap labor supply, companies like Massage Envy were able to bring massage therapy services to nearly everyone. In fact, low wage rates allowed franchises to drop prices which had a profound democratizing effect on the consumer market. Massage therapy was no longer only for the elite. It became a service eagerly consumed by the middle class. This has, in turn, allowed the industry to engage a whole new customer demographic. AMTA data shows that around 20% of all Americans have had a professional massage. This figure has jumped four points in just the last several years. The large marketing budgets and low price points brought to the market by the franchises have helped massage therapy enter the mainstream consumer market. Franchises have provided a “normalized” appearance to the industry by using company uniforms, slick computer and web platforms and well branded brick-and-mortar presentations to win customer confidence.
While franchises have grown the consumer base, they have indirectly participated in creating a "perfect storm" of market conditions that have kept wages rates low even though it is becoming increasingly inconvenient to their business models that this happens. But they are certainly not alone in this. Independent massage therapy providers have had every bit as much to do with the economic dynamics that have stagnated wage rates as the franchises have.
Nearly 60% of all massage therapy services are delivered by independent massage therapists and small massage therapy providers. In fact, massage therapy remains one of the most independent and inherently entrepreneurial businesses in the consumer services sector. The driving force behind this independence is brought about by a combination of factors.
First, massage therapy has a very low cost and expense profile. Anyone with a license and a $300 portable massage table can go into business for themselves, at least part time. You do not even need an office if you do out-calls. Company’s like Soothe and Zeel are exploiting the low overhead and portability of the massage services by creating app-based Uber-style dispatching to mobilize independent therapists. In the age of Facebook, any independent massage therapist can have top-shelf marketing and build a client base for next to no cost.
The down side of the nimbleness, portability and low-cost of start-up is that independent massage therapists have been able to cut their prices for massage therapy services to meet or beat the low price points of franchises. When you also consider that the majority of massage therapists work part-time and quite often use massage therapy as income augmentation to a more lucrative primary career, they are in the economic position to be highly competition resistant. In other words, while the franchises struggle to maintain national marketing campaigns and are perpetually searching for labor that will work for their lower wage rates, independent massage therapists can match their prices and still make a good living because they are keeping all or nearly all of their revenue. When the franchises leveraged naturally occurring wages in the early 2000s to drop prices and take market share, independent massage therapists and small clinics were able to match them. In fact, franchises have to spend considerably more to compete with independent massage therapy providers and not the other way around. As an industry, massage therapy is rather unusual in that it still very much favors the little guy.
When the labor bubble burst and massage therapists become increasingly difficult to come by while consumer demand continued grow, the logical response for the franchises should have been to raise prices. First of all, if you are turning customers away, your prices are too low. Free market dynamics dictate that supply should always try to match demand and vice versa. If you only have 100 apples and there are 200 customers, you increase your price so as to sell to those customers who are willing to get one of the few apples available at the highest price possible. Those who do not want to pay the higher price will drop out of the bidding. The seller normally keeps raising the price to the highest point that can be had and still sell all of the product that has for sale. This is microeconomics 101.
This is fundamental market dynamics. When you have too many apples put them on sale. When you do not have enough, raise the price to get top dollar for what you have.
In the massage therapy market, at present, however, this is not happening. If a franchise captures its original market share by using a $50 per hour price point, after overhead there might only be $15 or $20 available in the business model for employee compensation. In 2005, massage therapists were abundant and willing to take steady employment for that wage rate. Independent massage therapists, however, could match the franchise price and the therapist working strictly in room rented from a chiropractor might retain $30 or $35 per hour or more after overhead. A therapist working at home or doing only out-calls with no overhead at all might keep all $50. This is a living wage and if the massage therapist has a day job, there is no urgent pressure for them to raise prices. This has become a huge problem for franchises. In order to raise wage rates to compete in a tight labor supply market, franchises need to raise prices to be able to compete for labor supply. One would think that this would be easily done given that majority of the competitors for a franchise are independent massage therapists who were not crazy about dropping prices in the first place. In fact, if the market conditions become dire enough and franchises are forced into price hikes, independents might be able to take back some market share by keeping their prices where they currently are. It is the independent and low-overhead massage therapy providers as a group that currently have an advantage in the competition for labor. They can hold the line on prices. This competitive pressure has, at least in part, prevented franchises from making needed price increases and has the market, at least in St. Louis, locked in a stand-off.
One could argue that while it is the vocational education boom that caused wages to drop due to oversupply, it is the competitiveness of the independent massage therapists who have trapped franchises in conditions wherein they cannot raise prices or wage rates. The truth is, that larger business models have always struggled in the massage therapy market because massage therapy services must be purchased by the hour and the only way to reduce costs in a service industry is to find cheaper labor. With only $15 per hour to spend in order to hire trained service professionals, a franchise owner can find herself at the bottom a poorly populated labor pool. In fact, this is precisely what is happening. The massage therapy profession is currently being seen as a lot of hard work for low pay by prospective students looking for a career. The massage therapy profession is currently failing to offer a perceived value proposition to potential workers that makes it worth investing a year and thousands of dollars on training. It is this failing value proposition that has cut off the flow of new students, cause, in part, school closings, and threatens to make the current labor shortage into a complete catastrophe. In some cities, $15 per hour is minimum wage. The franchise business models that were built on the availability of cheap labor in the early 2000s are now up against the wall and the their independent competitors are about to give them the any room to move.
The problem is that this sort of market deadlock can cause disaster for an the entire industry. As the students dry up and the massage schools close this can get to the point that massage education becomes difficult to come by. For example, Students seeking massage therapy training from Springfield, Missouri currently have to drive to either Columbia or St. Louis to find a school because a once quite successful school in that city has closed. HAC has a number of students who drive more than 100 miles one way to get to school. Ten years ago, in St. Louis there were seven or eight fully accredited massage therapy programs. Now there are only two. This year those two schools combined will only graduate about 100 students. That is less than the number of employees needed by the Massage Envy franchise right now. If the students keep staying away because the profession remains unappealing, massage therapy could largely greatly diminish in this region. Some believe that this will just create greater opportunity for independence providers, but in the long haul this is not true. Smaller, less organized massage providers will never meet the customers lost by the larger providers who have made massage therapy highly accessible to customers. In short, massage therapy could slide back into the obscurity from which it originally came as consumers find more accessible and cheaper sources of health and wellness support and stress relief.
HAC is, by far, the largest massage therapy training school in the region. It has remained large and healthy by training massage therapists for independent practice based on a broad range of holistic and complimentary wellness practices beyond massage. We are not a vocational school. We never have been. And yet, we understand that the massage therapy industry itself is now threatened by these market conditions. We called for the massage therapy summit in February of 2017 to bring all the players in this business together so that they might be made to understand that their respective futures actually depend on each other. With hundreds of clients being turned away every week, no true competitive market condition exists in this region. HAC has asserted that the regional players need to adopt a “blue ocean strategy” whereby all players, independent providers, franchises, small chains and local single clinics join together to increase public awareness of the benefits of massage for health and wellness, to collectively correct market anomalies that threaten the whole eco-system and generate abundance for all. It is going to take collaboration to resolve these issues, but if there was ever a profession that should be naturally up to the challenge of working together it is this one.
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