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?

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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?

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Here are the 7 reasons why I predict MANY are going to close down:

1. Package Debt

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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.

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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.

Why?

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.

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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.

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4. It's Competitive. And Most Businesses Suck at Marketing.

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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.

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Eventually, they crumble when they can't keep up with the competition.

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