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

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

• Section II – Estimated initial investment for a Cost Cutters 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 Cost Cutters franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned Cost Cutters 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 Cost Cutters’ 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 347 franchised Cost Cutters Businesses 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 201 Cost Cutters-owned Businesses 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 201 Cost Cutters-owned Businesses operating throughout the United States that were open for at least 1 full year as of June 30, 2019

Section I – Background Information

16 Things You Need to Know About the Cost Cutters Family Hair Care Franchise

Parent Company Sells 133 Salons to Alline Salon Group

1.  In mid-December 2019, Regis Corporation, parent company of Cost Cutters Family Hair Care, announced that it had entered into an agreement for the sale and conversion of an additional 133 company-owned salons located in the state of Pennsylvania and surrounding areas to the Alline Salon Group, formerly known as Super C Group.

2.  The salons being acquired are currently branded as Holiday Hair, Famous Hair, Best Cuts, CityLooks, Style America, and BoRics Hair Care. One hundred and five of the salons will be under the Holiday Hair banner and the balance will be converted to the Regis Cost Cutters brand. The transition and conversion began early December and will continue into early 2020.

3.  Eric Bakken, executive vice president, president – franchise of Regis Corporation, said, “We are pleased to expand our relationship with the Alline Salon Group. Our partnership now covers Michigan, Ohio and Pennsylvania and three brands: Supercuts, Cost Cutters and Holiday Hair. The Alline Salon Group has created an excellent culture and built a team of proven leaders. We are optimistic about our future together.”

4.  In late 2018, the Alline Salon Group purchased and converted 66 stores in Michigan to Supercuts. In early 2019, the company purchased and successfully converted 190 salons in Ohio to Cost Cutters and Supercuts, making it the largest Cost Cutters and Supercuts franchisee for Regis. With this sale, Alline will also be Regis Corporation’s largest franchisee and the sole Holiday Hair franchisee.

5.  Michael Sarafa, managing partner of Alline Salon Group, added, “The Pennsylvania transaction marks the culmination of an 18-month process that resulted in the conversion or purchase of 389 salons which will operate under the Supercuts, Cost Cutters and Holiday Hair brands. The brand diversity offers Alline the opportunity to play in every segment of the hair industry with enough scale and size to offer competitive pay packages and career paths for stylists with different techniques and skill sets.”

6.  Mr. Sarafa added, “As the largest franchisee in the Regis family of salons, we are positioned to become the employer brand of choice in the hair care industry. The focus in these salons will continue to be the relationships with long-standing clientele. Our aim is to build a culture of service that will transform the industry and capture more market share.”

7.  According to Hugh Sawyer, president and chief executive officer of Regis Corporation, “Growing with competent multi-unit operators, like the Alline Salon Group, strengthens our franchise portfolio and further accelerates our strategy to convert to a capital-light, technology enabled franchise business.”

8.  Mr. Sawyer added, “Regis has a pipeline of 970 salons to be transitioned to franchisees in various stages of negotiation. Although the process is inherently dynamic, our pipeline represents approximately 50% of our remaining company-owned salon portfolio when taking into account expected closures of approximately 380 under-performing locations.”

Parent Company Partners with Google to Streamline Interactions with Customers

9.  In mid-June 2019, Cost Cutters Family Hair Care’s parent company, the Regis Corporation, partnered with Google to improve and streamline the salon discovery and customer booking experience. The integration is powered by Opensalon, Regis’ proprietary platform that allows Google users to book salon services directly through Google Search and Google Maps.

10.  This new integration provides booking times and enables customers to reserve and check in for various salon services via mobile devices or desktops with both the company’s franchised and company-owned salons. These services are now available for several Regis brands, including Cost Cutters.

11.  Easy online booking is a must-have for customer-focused service businesses with tens of millions of potential monthly Google views for the Regis Corporation’s owned and franchised salons. The integration is expected to greatly improve the customer experience by simplifying scheduling, minimizing salon wait times, and encouraging discovery and use of its salons and services.

12.  Google users who search for one of the many Regis brands available on Opensalon will be able to immediately view nearby locations and base level pricing, auto-populate their personal information, book a service, and navigate to the location – all with a few clicks or taps.

13.  According to Chad Kapadia, chief technology officer and head of product engineering for Regis Corporation, “As we continue to leverage technology to transform our business, we are constantly working on innovative new ideas to improve our customers’ experience with our portfolio of salons. Regis’ partnership with Google as well as our new Opensalon platform will fundamentally change the way we interact with, and service our customers, offering a seamless experience. Regis will continue to proactively roll out new technologies and features bringing convenience to our customers’ fingertips and facilitating a high-quality salon experience.”

Company History

14.  Cost Cutters Family Hair Care was founded in 1982 by Joe Francis in Minneapolis, Minnesota. Before opening the first Cost Cutters, Francis started The Barbers Hairstyling for Men salon in 1963. A few years later, Francis also began styling women’s hair. Over the years, Francis continued to expand his services and decided that Cost Cutters would offer hair care services for the entire family. Francis’ concept was a hit and within the first year, Cost Cutters opened 12 locations.

15.  Over the next few years, Cost Cutters grew quickly and by the end of the 1980s there were 300 salons open around the United States. This growth continued into the 1990s and in 1998, the Regis Corporation, one of the world’s largest owners of hair salon chains, purchased Cost Cutters Family Hair Care. Today, there are over 500 company-owned and franchised Cost Cutters Family Hair Care salons around the country.

Entrepreneur’s Franchise 500

16.  Cost Cutters Family Hair Care ranked No. 244 on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Cost Cutters 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 Cost Cutters’ 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

2016

• Outlets at the Start of the Year:  395
• Outlets at the End of the Year:  377
• Net Change:  -18

2017

• Outlets at the Start of the Year:  377
• Outlets at the End of the Year:  372
• Net Change:  -5

2018

• Outlets at the Start of the Year:  372
• Outlets at the End of the Year:  380
• Net Change:  +8

Company-Owned

2016

• Outlets at the Start of the Year:  258
• Outlets at the End of the Year:  241
• Net Change:  -17

2017

• Outlets at the Start of the Year:  241
• Outlets at the End of the Year:  217
• Net Change:  -24

2018

• Outlets at the Start of the Year:  217
• Outlets at the End of the Year:  204
• Net Change:  -13

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 Cost Cutters Business (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 Cost Cutters Businesses

• The first portion of the following financial performance representation discloses historical average and median Cost Cutters Business gross sales during the 12-month period ending June 30, 2019 for 347 franchised Cost Cutters Businesses operating throughout the United States.

• The franchised Cost Cutters Businesses 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 these franchised Cost Cutters Businesses 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 33 franchised Cost Cutters Businesses operating throughout the United States. However, those Cost Cutters Businesses’ gross sales were not included in this calculation because they were not open at all as of July 1, 2018, 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 347 franchised Cost Cutters Businesses. While Cost Cutters 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 Cost Cutters Businesses do not include the operating results of any of the 201 Cost Cutters Businesses owned and operated by Regis Corp., the franchisor, as of June 30, 2019.

• The 347 franchised Cost Cutters Businesses included in this financial performance representation are located in the following states:

1.  Alabama (9)
2.  Arizona (2)
3.  California (17)
4.  Connecticut (14)
5.  Florida (1)
6.  Iowa (47)
7.  Idaho (5)
8.  Illinois (19)
9.  Indiana (4)
10.  Kentucky (19)
11.  Massachusetts (14)
12.  Michigan (10)
13.  Minnesota (25)
14.  Missouri (8)
15.  Nebraska (23)
16.  North Carolina (3)
17.  North Dakota (5)
18.  South Carolina (9)
19.  South Dakota (9)
20.  Tennessee (16)
21.  Texas (18)
22.  Virginia (7)
23.  Washington (1)
24.  West Virginia (3)
25.  Wisconsin (69)

Top One-Third (115 Stores)