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FDD Talk: Retail Value of Purchases from Merle Norman Cosmetics for New Design Studios (2013 FDD)

by Franchise Chatter on March 9, 2014

in Franchise Earnings, Retail Franchise

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Highlights of Merle Norman Cosmetics’ Item 19 Financial Performance Representations (2013 FDD)

  • Merle Norman Cosmetics (MNC) does not receive from its Studio Owners any statements regarding the dollar amount of a Studio Owner’s retail sales of Merle Norman (MN) products, nor does MNC receive from its Studio Owners any statements regarding a Studio Owner’s total sales, expenses, costs, or profits.
  • Merle Norman CosmeticsSince MNC does not have this information, this financial performance representation only provides information as to the dollar amount of purchases of MN products by New Design Studios and the retail value of those purchases.
  • Studio Owners are permitted to sell other merchandise (in addition to MN Products) and to offer other services (in addition to free makeover lessons using the lesson material provided by MNC). While MNC has not formally surveyed its Studio System, MNC believes that virtually all Studios sell merchandise in addition to MN products and/or offer other services.
  • Accordingly, the dollar amounts listed below as the “Retail Value of Purchases from MNC” are not intended to represent the total sales volume of any New Design Studio(s). MNC is unable to estimate what percentage MN Products comprise of a Studio’s total sales.
  • In 1998, MNC completed the development of the New Design, the most significant elements of which include an “open-sell” layout where merchandise is displayed for easy viewing and access; a design that supports either customer self-service or beauty consultant-assisted service; perimeter wall fixtures; consultation areas consisting of tables and stools; a tester area; a graphic image display/focal wall; and a cash wrap area in matching finish.
  • Existing Studios are not required to implement the New Design; however, as of December 31, 2012, 714 U.S. Studios had implemented the New Design.
  • A total of 696 Studios (85 Studios in regional malls and 611 Studios in non-mall locations) operated in the United States under the New Design during the one-year period from January 1, 2012 through December 31, 2012. This financial performance representation relates only to those 696 New Design Studios.
  • For each cosmetic product MNC sells to its Studio Owners, MNC establishes a suggested retail price. The wholesale price paid to MNC varies from product to product, ranging from 40% to 50% of the suggested retail price so that the gross profit percentage on individual products ranges from 50% to 60%.
  • The percentage gross profit that a particular Studio will realize during any period of operations from its sales of MN products will depend on whether the Studio Owner adheres to the suggested retail prices and on the mix of product the Studio sells.
  • The information for “Retail Value of Purchases from MNC” is based on the assumption that sales of all MN Products by the 696 New Design Studios included in this financial performance representation were at the suggested retail price, and that the mix of sales of each such Studio was the same as the mix of sales by MNC to its Studios during calendar year 2012.
  • Based on these assumptions, each Studio would have a gross profit percentage of 48%.
  • Studio Owners are not required to purchase any specified amount of MN Products from MNC, other than the initial order of MN Products.
  • The Studios included in this financial performance representation that are located in regional malls include Studios in super regional malls and regional malls. The Studios included in this financial performance representation that are located in non-mall locations operate in a variety of retail settings, including community shopping centers, neighborhood centers, strip centers, office complexes, and central business districts.

Regional Mall Locations

Purchases from MNC Per Studio

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