In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Merle Norman Cosmetics franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Merle Norman Cosmetics franchise, based on Item 7 of the company’s 2020 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Merle Norman Cosmetics franchise, based on Items 5 and 6 of the company’s 2020 FDD
- Section IV – Number of franchised and company-owned Merle Norman Cosmetics outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD
- Section V – Presentation and analysis of Merle Norman Cosmetics’ financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:
- 2019 average, median, high, and low dollar amounts of purchases of Merle Norman Cosmetics products, and the retail value of those purchases, by franchised Merle Norman Cosmetics studios that operated in regional mall locations in the United States under the New Design during the one-year period from January 1, 2019 through December 31, 2019
- 2019 average, median, high, and low dollar amounts of purchases of Merle Norman Cosmetics products, and the retail value of those purchases, by franchised Merle Norman Cosmetics studios that operated in non-mall locations in the United States under the New Design during the one-year period from January 1, 2019 through December 31, 2019
- 2019 actual dollar amount of purchases of Merle Norman Cosmetics products by the company-owned Merle Norman Cosmetics studio that operated in a regional mall location in the United States under the New Design during the one-year period from January 1, 2019 through December 31, 2019
Section I – Background Information
18 Things You Need to Know About the Merle Norman Cosmetics Franchise
Produces Hand Sanitizer to Give Back to Local Communities During Ongoing COVID-19 Pandemic
1. At the beginning of June 2020, Merle Norman Cosmetics stepped in to play a crucial role in combating the ongoing COVID-19 crisis by producing a sorely needed item: hand sanitizer. The brand said that it was producing World Health Organization approved hand sanitizers not only in its stores, but also online where the brand is currently experiencing six times the usual volume in sales. The increase in online sales is significant, as it shows that Merle Norman products are in demand even in uncertain times, and the brand’s loyal following of customers will continue to support franchise owners as they wait for things to return to normal.
2. Whatever the new normal looks like, Merle Norman Cosmetics is committed to helping its franchise owners thrive in business. This is shown through the brand’s offering of a proven business model designed to maximize franchisees’ return on investment and its studio floor plans that vary in startup costs and are designed to fit most every location and budget. Moreover, Merle Norman franchise owners do not have to pay any franchise or royalty fees, and the company reimburses up to 60 percent for local marketing and advertising costs. Additionally, Merle Norman supplies studios with sample and demonstration products so customers can “try before they buy.”
3. Becoming a Merle Norman franchisee means owning and operating a modern cosmetics studio with products from an iconic brand. Not only is Merle Norman Cosmetics’ beauty supply franchise an affordable opportunity, but whether a studio is in a busy shopping center or a stand-alone in a small town, the brand’s proven business model is easy to run and easy to scale.
4. Even better, franchisees do not have to have any retail experience to invest in a Merle Norman Cosmetics franchise. The company is committed to investing in its franchise owners’ education and training, so they are equipped to own and operate a studio from day one. Merle Norman’s education programs cover all aspects of studio ownership, including best business practices, marketing strategies, skincare consultation, and makeup artistry.
5. Additionally, with Merle Norman’s comprehensive artistry training program, it’s easy to learn how to apply the brand’s products like a pro. While studios offer time-tested products, Merle Norman has modernized them to evolve to the desires and demands of today’s customer. Franchise owners will also learn valuable skills to ensure customers are satisfied with their service and expertise.
6. Travis Richards, member of the board of directors and vice president of franchising, said, “Some of our best studio owners have come from a second or third career. We’ve found that studio owners who are focused on education and helping somebody else – for example, school teachers or retired school teachers, nurses, flight attendants – have become very good owners because they’re organized, really understand customer service and want to help their communities.”
Uses TikTok to Introduce Brand to Younger Generation of Cosmetic and Skincare Fans
7. In early October 2020, Merle Norman Cosmetics said that it was embracing TikTok and using the popular social media platform to connect with customers. Utilizing TikTok allows Merle Norman Cosmetics to keep up with the latest trends and technology. With more than 800 million active users worldwide, TikTok is one of the fastest growing social media platforms in the world.
8. Individual Merle Norman cosmetics studio locations like Greenwood, Indiana, who dub themselves the “Merle Girls,” began using TikTok to update customers during the height of the pandemic, reminding them that they offered online ordering and curbside pickup. Other influencers who tag themselves as #merlegirl makeup enthusiasts, have been posting makeup tutorials using their favorite Merle Norman products.
9. Founded by pioneering businesswoman Merle Norman from her kitchen, the brand’s products have been made in the U.S. since 1931 and manufactured in the same Westchester, California plant built by Norman herself in 1952. Merle Norman Cosmetics has changed with the times over the years and using TikTok to connect with a new generation of customers exhibits the company’s adaptability and innovation.
10. “For beauty content creators, TikTok provides a fun space for playing with beauty products and experimenting with your look. The last time I checked, #makeuptutorial had 3 billion views, #eyemakeuptutorial 60.2 million and #skincareroutine had 191 million views,” says beauty industry pro Jo Jones in a Get the Gloss article, “How This Beauty Expert Got Hooked on TikTok.”
11. Now more than ever, people are looking for a pick me up and time for self-care, and Merle Norman is at the forefront of connecting with customers where they are sharing their beauty favorites and seeking new products to try. Merle Norman Cosmetics is poised for growth throughout the country. The brand anticipates adding at least 42 new studio franchise units this year.
Products Win Awards from Top Beauty and Style Publications
12. In mid-November 2020, Merle Norman Cosmetics announced that InStyle and Allure recognized Merle Norman products in their awards round ups. Allure Magazine recognized Merle Norman’s Soft Touch Eye Pencil in its 2020 Best of Beauty Award category for Best Color Range. The eye pencil was chosen from more than 10,000 products reviewed for the prestigious award. Allure will be promoting the awards to its 14 million plus social media followers and subscribers.
13. InStyle, which has more than 9 million social media followers and subscribers, recognized Merle Norman’s Ultra Rich Hand Cream in the magazine’s 2020 Reader’s Choice Award in the Editor’s Pick category.
14. Travis Richards, member of the board of directors and executive at Merle Norman, said, “Our products are always going to stand the test of time. We invest in brand new technology and our products are on par or better than the most prestigious and expensive brands out there. Today’s consumers look to blogs, YouTubers, and people they’ve never met for advice for their beauty. Our owners and beauty consultants are the best influencers in the industry. Once they come into a Merle Norman and they have a true and honest experience with exceptional products we’ll have the loyalty of that customer and their friends for life.”
15. Merle Norman Cosmetics was founded in 1931 by Merle Norman and her nephew J.B. Nethercutt in Santa Monica, California. Norman had a background in chemistry and medicine and set out to create her own skin-enhancing products. She experimented in her own kitchen and developed a skin care line called the “3 Steps to Beauty.” The three products she created were the Powder Base, Cleansing Cream, and Miracol, which became the cornerstones of Norman’s business and are still sold by the brand today. After sharing her products with friends and family, Norman decided to open a proper cosmetics studio.
16. A few years later, in 1934, Norman started franchising when several of her loyal customers asked about opening their own studios. By the end of that year, there were nearly 100 independently-owned studios throughout the U.S. By the next decade, Merle Norman Cosmetics expanded internationally, starting with Thailand.
17. The company continued to grow over the next few decades and in 1963, Norman stepped down from the brand and turned control over to her nephew J.B. Nethercutt. The company is still run by the Nethercutt family today. Merle Norman has continued to expand both domestically and internationally.
Entrepreneur’s Franchise 500
18. Merle Norman Cosmetics ranked No. 366 on Entrepreneur’s 2020 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Merle Norman Cosmetics franchise costs, based on Item 7 of the company’s 2020 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Merle Norman Cosmetics’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 1,146
- Outlets at the End of the Year: 1,090
- Net Change: -56
- Outlets at the Start of the Year: 1,090
- Outlets at the End of the Year: 1,064
- Net Change: -26
- Outlets at the Start of the Year: 1,064
- Outlets at the End of the Year: 1,002
- Net Change: -62
- Outlets at the Start of the Year: 3
- Outlets at the End of the Year: 3
- Net Change: 0
- Outlets at the Start of the Year: 3
- Outlets at the End of the Year: 2
- Net Change: -1
- Outlets at the Start of the Year: 2
- Outlets at the End of the Year: 1
- Net Change: -1
Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis
- 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.
- Since 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; large screen digital monitor with preformatted video and audio content; and a cash wrap area in matching finish.
- Existing Studios are not required to implement the New Design; however, a total of 599 franchised Studios (36 Studios in regional malls and 563 Studios in non-mall locations) operated in the United States under the New Design during the one-year period from January 1, 2019 through December 31, 2019. This financial performance representation relates only to those 599 New Design Studios.
- 29 franchised Studios (5 Studios in regional malls and 24 Studios in non-mall locations) are not included in the financial performance representation as they closed during the 12-month period. None closed after less than 12 months of operation.
- Additionally, no Studios within an existing business operated in the United States under the New Design closed during the one-year period from January 1, 2019 through December 31, 2019.
- 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 products 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 599 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 2019.
- 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.
- A small number of Studio Owners who operate multiple Studios may regularly, or frequently, order MN products for all of their Studios through one Studio, so that the purchases recorded on MNC’s records for each of these Studios do not accurately reflect the purchases of MN products for each Studio.
- With respect to the New Design Studios included in this financial performance representation, where MNC has determined that such activity is occurring, the purchases of each such Studio are, for purposes of this financial performance representation, calculated by aggregating all purchases by that Studio Owner and allocating purchases of MN products to each Studio owned by that Studio Owner in the ratio of the purchases of all United States Studios of the same type and location to total purchases of all Studios in the United States.
- 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.
1. Regional Mall Locations
a. Purchases from MNC Per Studio