FDD Talk: 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 2019 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 2019 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 2019 FDD

• Section V – Presentation and analysis of Supercuts’ financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• average, median, highest, and lowest gross sales during the 12-month period ending June 30, 2019 for the top third, middle third, bottom third, and all 1,636 franchised Supercuts Stores operating throughout the United States that were open for at least 1 full year as of June 30, 2019

• average, median, highest, and lowest gross sales during the 12-month period ending June 30, 2019 for the top third, middle third, bottom third, and all 355 Supercuts-owned Stores operating throughout the United States that were open for at least 1 full year as of June 30, 2019

• average, median, highest, and lowest gross sales during the 12-month period ending June 30, 2019 for the top third, middle third, bottom third, and all 620 transferred Supercuts Stores (i.e. Supercuts-owned Stores as of July 1, 2018 that were then sold to franchisees at some point after July 1, 2018) operating throughout the United States that were open for at least 1 full year as of June 30, 2019

• 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, 2019 for the top third, middle third, bottom third, and all 355 Supercuts-owned Stores operating throughout the United States that were open for at least 1 full year as of June 30, 2019

Section I – Background Information

18 Things You Need to Know About the Supercuts Franchise

Reinvents Marketing Approach With Humorous Brand Campaign Featuring Bald Spokesman

1.  In early July 2019, Supercuts announced the launch of a new brand campaign, part of its larger shift and investment in strategic marketing. The upcoming campaign stars highly accomplished actor Michael Kelly, who reminds us all to appreciate our most undervalued asset: our hair. The cross-channel campaign, created in partnership with TBWA\Chiat\Day Los Angeles, includes a series of films that leverage Kelly’s humor to highlight Supercuts’ own love of hair.

2.  Fueled by the insight that many men are caring more about their appearance than ever before, actor Michael Kelly humorously speaks to the importance of taking care of your hair – from the perspective of someone who no longer has it.

3.  The campaign underscores Supercuts’ commitment to providing the best salon experience at an affordable price. In fact, Supercuts stylists receive more initial training than others in the category. Every Supercuts stylist attends a paid, week-long program called “Hair Stylist Academy,” where they are taught a proprietary technique for cutting that delivers consistent, efficient results, but still allows for flexibility and creativity.

4.  Most of the training Supercuts stylists receive is conducted by a team of skilled Supercuts Artistic Directors whose entire job is committed to inspiring stylists and honing the quality and consistency of each Supercuts haircut or other services. Supercuts stylists also receive “on-demand” training through a mobile application so that they are skilled at delivering all the latest men’s and women’s hair trends.

5.  According to James Townsend, CMO of Regis Corporation (Supercuts’ parent company), “Supercuts has always challenged the notion that quality haircuts do not have to come at a high price. Right now, it’s as true as ever. While other brands in the category lean on gimmicks or price tactics, we’re laser focused on delivering the highest quality haircuts, from stylists who benefit from our amazing training and support ecosystem. We’re introducing an awesome new voice for the brand, and what better way to kick things off than with the unmatched talent and humor of Michael Kelly.”

6.  The campaign is part of a larger shift by Supercuts and parent company Regis to invest in marketing, technology, and merchandise that meet the needs of today’s consumer. In June 2019, Regis introduced a new technology, Opensalon App and Opensalon on Google, which enables customers to book salon services directly through Google Search and Google Maps via desktop or mobile devices, making appointment scheduling and check-in easier.

7.  Last year, Supercuts announced a multi-year partnership with Major League Baseball, a sport with cultural cachet and a media environment that strongly over-indexes with value-salon customers. These changes are part of an effort to reinvigorate the brand’s creative approach to marketing communications to resonate with consumers, and to establish the brand voice – and humor – in the value-salon category.

8.  The new brand work began airing nationwide starting July 9 across TV, digital, pre-roll, social, and radio. Supercuts’ website and other owned channels also received a refreshed look with new models who reflect the modern haircut trends and style of today’s consumers.

9.  Renato Fernandez, chief creative officer of TBWA\Chiat\Day Los Angeles, added, “This campaign allowed our agency to do what we love most: Identify the soul and voice of a brand that differentiates its business within its category. What we found in Supercuts was a playful, fun tonality that enabled us to bring humor to the concept of not taking your hair, or the value that Supercuts offers for granted, while still having a bit of fun connecting with the next generation of men who may face this reality one day.”

Parent Company Sells Several Supercuts Salons

10.  In mid-June 2019, Regis Corporation, parent company of Supercuts, announced the profitable sale and transfer of 96 of its California-based Supercuts salons to the Moxie Management Group (Moxie), a portfolio company of a Spanos Barber Jesse & Co. (SBJ) managed fund.

11.  Eric Bakken, executive vice president, president of franchise for Regis Corporation, said, “We are delighted to broaden our successful relationship with the Moxie Group to facilitate the continued growth of our Supercuts brand in California. Moxie and SBJ not only bring proven experience with the Supercuts brand but also have an impressive record of performance with several other retail and consumer-focused companies. High-quality partnerships like this will help us grow and strengthen the Supercuts brand and our franchise portfolio.”

12.  Michael Stajer, CEO of Moxie, added, “We are excited to be meaningfully expanding our relationship with Regis. Our partnership with both Regis and SBJ will allow us to continue to expand our footprint throughout the U.S. while we carry-on Supercuts’ 40+ year heritage of providing affordable, high-quality haircuts in a convenient setting.”

13.  Hugh Sawyer, president and chief executive officer of Regis Corporation, commented, “We have been undergoing a multi-year strategic transformation at Regis, and an important element of that transformation is accelerating the growth of our asset-light franchise portfolio where it supports shareholder value and an emerging strategy for our business.”

Company History

14.  Supercuts was founded in 1975 by Geoffrey M. Rappaport and Frank E. Emmett in the San Francisco Bay Area of California. Emmett and Rappaport wanted to rework the business of cutting hair and turn it into something more streamlined and affordable. The idea behind Supercuts was to provide an inexpensive and quick haircut, without appointment and available to everyone – men, women, and children.

15.  To achieve this goal, Emmett and Rappaport developed an efficient hair-cutting technique that reduced the time required to complete a haircut to 20 minutes. The technique was simple enough that any hair stylist could learn it easily.

16.  After refining the Supercuts business model, Rappaport and Emmett opened the first Supercuts, which was an immediate success. Within a few years, Rappaport and Emmett opened additional stores and by 1978 they were ready to start franchising the Supercuts concept. Supercuts grew rapidly over the next decade and by the end of the 1980s, the chain had grown to the second largest of its kind in the country, trailing only Memphis-based Fantastic Sams.

17.  In 1987, a group of Chicago-based venture capitalists operating under the name Knightsbridge Partners purchased Supercuts from Emmett and Rappaport. For a while, Supercuts continued to grow successfully, but hit a rough patch in the mid-1990s. However, in 1996, the Regis Corporation – the largest operator of hair salons in the world – acquired Supercuts and steered the company into a new direction. Today, Supercuts is one of the largest hair salon franchises in the U.S.

Entrepreneur’s Franchise 500

18.  Supercuts ranked No. 26 on Entrepreneur’s 2020 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 2019 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 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2019

• Outlets at the Start of the Year:  1,715
• Outlets at the End of the Year:  2,322
• Net Change:  +607

Company-Owned

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

2019

• Outlets at the Start of the Year:  891
• Outlets at the End of the Year:  373
• Net Change:  -518

Section V – Financial Performance Representations (Item 19, 2019 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, 2019 for 1,636 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, 2018, 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, 2019, the end of the 12-month period for which the numbers were calculated).

• As of June 30, 2019, there were an additional 686 franchised Supercuts Stores operating throughout the United States. However, those Stores’ gross sales are not included in the calculation with the other 1,636 franchised Supercuts Stores because (i) as of July 1, 2018, 66 of those 686 Stores were not open at all (meaning they were not open for a full year as of June 30, 2019): and (ii) the remaining 620 Stores were Supercuts-owned Stores as of July 1, 2018 that were then sold to franchisees at some point after July 1, 2018 (referred to in this Item 19 as “Transferred Stores”) and therefore were not franchised Supercuts Stores for the entire 12-month measurement period ending June 30, 2019. The average and median total gross sales during the 12-month period ending June 30, 2019 for these 620 Transferred Stores are presented below.

• The following information has been compiled from the figures reported on sales and royalty statements submitted by the franchisees of these 1,636 franchised Stores described below. 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 355 Supercuts Stores owned and operated by Supercuts, the franchisor, as of June 30, 2019.

• The 1,636 franchised Stores included in this financial performance representation are located in the following states:

1.  Alabama (27)
2.  Arkansas (19)
3.  Arizona (51)
4.  California (337)
5.  Connecticut (8)
6.  Colorado (29)
7.  District of Columbia (1)
8.  Florida (86)
9.  Georgia (40)
10.  Idaho (14)
11.  Illinois (50)
12.  Indiana (12)
13.  Iowa (17)
14.  Kansas (8)
15.  Kentucky (8)
16.  Louisiana (22)
17.  Maine (16)
18.  Maryland (10)
19.  Massachusetts (96)
20.  Michigan (17)
21.  Missouri (24)
22.  Mississippi (7)
23.  Nebraska (19)
24.  Nevada (13)
25.  New Hampshire (26)
26.  New Jersey (44)
27.  New Mexico (16)
28.  New York (12)
29.  North Carolina (35)
30.  North Dakota (1)
31.  Ohio (26)
32.  Oklahoma (60)
33.  Oregon (19)
34.  Pennsylvania (108)
35.  Rhode Island (1)
36.  South Carolina (17)
37.  South Dakota (2)
38.  Tennessee (20)
39.  Texas (208)
40.  Utah (8)
41.  Vermont (5)
42.  Virginia (26)
43.  Washington (52)
44.  West Virginia (7)
45.  Wisconsin (9)
46.  Wyoming (3)

Top One-Third (545 Stores)