FDD Talk 2018: Supercuts Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Supercuts franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Supercuts franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Supercuts franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Supercuts outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Supercuts’ financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• average, median, highest, and lowest gross sales during the 12-month period ending June 30, 2018 for the top third, middle third, bottom third, and all 1,595 franchised Supercuts Stores operating throughout the United States that were open for at least 1 full year as of June 30, 2018

• average, median, highest, and lowest gross sales during the 12-month period ending June 30, 2018 for the top third, middle third, bottom third, and all 887 Supercuts-owned Stores operating throughout the United States that were open for at least 1 full year as of June 30, 2018

• average service sales, product sales, total revenues, labor, occupancy, product costs, continuing franchise fees, advertising, other expenses, total expenses, and operating cash flow during the 12-month period ending June 30, 2018 for the top third, middle third, bottom third, and all 887 Supercuts-owned Stores operating throughout the United States that were open for at least 1 full year as of June 30, 2018

Section I – Background Information

15 Things You Need to Know About the Supercuts Franchise

Franchise Group Acquires Large Number of Supercuts Salons

1.  At the beginning of September 2018, the Super C Group, which is backed by Vision Growth Partners, agreed to acquire 65 Michigan-based Supercuts salons from the brand’s parent company, the Regis Corporation. Vision Growth Partners, a lower end, middle-market private equity company, and the managing partner of the Super C Group, is led by Michael Sarafa. The group specializes in the acquisition of service-oriented retail businesses.

2.  The acquisitions, along with several planned new store openings, is expected to bring the total number of franchised Supercuts locations in Michigan to 85, which includes other franchisees. With the acquisitions, the Super C Group is now the largest Supercuts franchisee in the Midwest.

3.  Sarafa said, “We are very excited to enter the salon space in a significant way in our home state of Michigan. Regis is a great partner with great employees, and we look forward to growing the Supercuts brand and building a culture of teamwork and success.”

4.  The salons being acquired by the Super C Group are currently branded as BoRics, Hair Master, or Fiesta Salons. All of the stores will be remodeled and converted into the Supercuts brand. The agreement also includes 13 existing Supercuts corporate stores. In addition to the salons that are being acquired and converted to Supercuts, the Super C Group will open 10 new locations, also in Michigan, over the next several years.

5.  Eric Bakken, president of franchise for Regis Corporation, said, “Vision Growth Partners and the Super C Group bring a wealth of knowledge and experience to the multi-unit space. We think they are the ideal partner to help us significantly grow the Supercuts brand in Michigan.”

6.  The Super C Group intends to retain all of the approximately 400 store employees. Adrian Shayota, a member of the Super C Group, has been named as director of operations. Lisa Dennison, the current regional manager for Regis’ Michigan stores, joined the Super C Group in September. The store acquisitions will take place in small groups and will be completed by the spring of 2019.

Signs Multi-Year Agreement With Minnesota Twins

7.  At the beginning of October 2018, Supercuts announced that it had entered a Target Field industry exclusive, multi-year sponsorship with the Minnesota Twins to be the Official Hair Salon, Official Hair Stylists, and a proud partner of Minnesota’s favorite baseball team.

8.  Hugh Sawyer, president and CEO of Regis Corporation, Supercuts’ parent company, said, “We are delighted to partner with our hometown team, the Minnesota Twins. The Supercuts sponsorship will include in-stadium signage, in-game promotions, radio, digital advertising, and a strong website and social media presence. Next season, we hope Twins fans will come and visit the Supercuts seating section we have sponsored in the ballpark’s right field.”

9.  The partnership begins prior to the start of the Twins’ 2019 season and builds upon Supercuts’ existing national relationship with Major League Baseball. At the beginning of 2018, Supercuts became the Official Hairstylists of Major League Baseball, New York Yankees, Boston Red Sox, and Houston Astros. Regis Corporation, the parent company of Supercuts, currently has more than 8,000 franchised and company-owned salons in North America.

Company History

10.  Supercuts was started in 1975 by Frank Emmett and Geoffrey Rappaport in the San Francisco Bay Area. Emmett and Rappaport came up with the idea to make haircuts inexpensive, quick, hassle free, and available to everyone (men, women, and children). Instead of replicating the business model of traditional high-end salons and barbershops, Emmett and Rappaport developed a salon concept that was suited to national expansion.

11.  In addition to quick and affordable haircuts, Emmett and Rappaport wanted to offer other services – such as shampoo, blow-drying, and styling – individually, allowing the customer to pick and choose what services they wanted.

12.  To make their idea work, Emmett and Rappaport developed a standard framework for all Supercuts stores to follow. They also developed a hair-cutting technique that only took about 20 minutes from start to finish. Emmett and Rappaport made sure that their new technique could easily be taught to any stylist, creating consistent service across any location.

13.  Within a few years, Emmett and Rappaport had opened several additional Supercuts salons and started  franchising the concept in 1979. By the late 1980s, there were over 500 Supercuts salons across the United States. In 1987, Emmett and Rappaport sold Supercuts to a group of Chicago-based venture capitalists operating under the name Knightsbridge Partners.

14.  Over the next decade, under the leadership of Knightsbridge Partners, Supercuts underwent several highs and lows. Eventually, in 1996, Supercuts was acquired by the Regis Corporation, which is still the brand’s parent company today. Supercuts has turned into one of the leading hair salon franchises in the U.S. with international locations in Canada and Western Europe.

Entrepreneur’s Franchise 500

15.  Supercuts ranked No. 14 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Supercuts franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Supercuts’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  1,373
• Outlets at the End of the Year:  1,562
• Net Change:  +189

2017

• Outlets at the Start of the Year:  1,562
• Outlets at the End of the Year:  1,671
• Net Change:  +109

2018

• Outlets at the Start of the Year:  1,671
• Outlets at the End of the Year:  1,715
• Net Change:  +44

Company-Owned

2016

• Outlets at the Start of the Year:  1,056
• Outlets at the End of the Year:  1,017
• Net Change:  -39

2017

• Outlets at the Start of the Year:  1,017
• Outlets at the End of the Year:  946
• Net Change:  -71

2018

• Outlets at the Start of the Year:  946
• Outlets at the End of the Year:  891
• Net Change:  -55

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

Part 1 – Average and Median Store Gross Sales Information

• For purposes of this financial performance representation, “gross sales” is defined as total gross revenue (net of customer discounts) derived from operating a Supercuts Store (including merchandise and services sales), whether from cash or credit sales, and without regard to the payment source or collection costs, but excluding taxes added to the sales price and collected from customers and less bona fide refunds.

A.  Gross Sales of Franchised Supercuts Stores

• The first portion of the following financial performance representation discloses historical average and median Store gross sales during the 12-month period ending June 30, 2018 for 1,595 franchised Supercuts Stores operating throughout the United States.

• The Stores whose gross sales were included in order to calculate the average and median were open as of July 1, 2017, the beginning of the period for which the numbers were calculated (meaning that the Stores were open for at least 1 full year as of June 30, 2018, the end of the 12-month period for which the numbers were calculated).

• As of June 30, 2018, there were an additional 4 franchised Supercuts Stores operating throughout the United States. However, those Stores’ gross sales were not included in this calculation because they were not open at all as of July 1, 2017, the beginning of the 12-month period for which the numbers were calculated.

• The following information has been compiled from the figures reported on sales and royalty statements submitted by the franchisees of these 1,595 franchised Stores. While Supercuts believes this information to be accurate and complete, it has not independently audited this information or otherwise verified its accuracy.

• The numbers reported for these franchised Stores do not include the operating results of any of the 887 Supercuts Stores owned and operated by Supercuts, the franchisor, as of June 30, 2018.

• The 1,595 franchised Stores included in this financial performance representation are located in the following states:

1.  Alabama (27)
2.  Arkansas (18)
3.  Arizona (50)
4.  California (314)
5.  Connecticut (7)
6.  Colorado (31)
7.  District of Columbia (1)
8.  Florida (86)
9.  Georgia (40)
10.  Idaho (13)
11.  Illinois (54)
12.  Indiana (11)
13.  Iowa (14)
14.  Kansas (8)
15.  Kentucky (7)
16.  Louisiana (21)
17.  Maine (18)
18.  Maryland (12)
19.  Massachusetts (94)
20.  Michigan (16)
21.  Minnesota (4)
22.  Missouri (25)
23.  Mississippi (6)
24.  Nebraska (18)
25.  Nevada (9)
26.  New Hampshire (26)
27.  New Jersey (42)
28.  New Mexico (17)
29.  New York (11)
30.  North Carolina (29)
31.  North Dakota (1)
32.  Ohio (24)
33.  Oklahoma (65)
34.  Oregon (22)
35.  Pennsylvania (105)
36.  Rhode Island (1)
37.  South Carolina (17)
38.  South Dakota (2)
39.  Tennessee (21)
40.  Texas (198)
41.  Utah (7)
42.  Vermont (4)
43.  Virginia (28)
44.  Washington (53)
45.  West Virginia (6)
46.  Wisconsin (9)
47.  Wyoming (3)

Top One-Third (532 Stores)

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