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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD
- Section V – Presentation and analysis of Cost Cutters’ financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:
- average, median, highest, and lowest gross sales during the 8-month period from July 1, 2019 through February 29, 2020 for the top third, middle third, bottom third, and all 351 franchised Cost Cutters Businesses operating throughout the United States that were open from July 1, 2019 (the beginning of Cost Cutters’ last fiscal year) through February 29, 2020, the month ending before the declaration of the COVID-19 pandemic
- average, median, highest, and lowest gross sales during the 8-month period from July 1, 2019 through February 29, 2020 for the top third, middle third, bottom third, and all 139 company-owned Cost Cutters Businesses operating throughout the United States that were open from July 1, 2019 through February 29, 2020
- average, median, highest, and lowest gross sales during the 8-month period from July 1, 2019 through February 29, 2020 for the top third, middle third, bottom third, and all 180 transferred Cost Cutters Businesses (i.e. company-owned stores as of July 1, 2019 that were then sold to franchisees at some point after July 1, 2019) operating throughout the United States that were open from July 1, 2019 through February 29, 2020
Section I – Background Information
17 Things You Need to Know About the Cost Cutters Family Hair Care Franchise
Parent Company Integrates New POS Software for Instant Payouts to Salon Stylists
1. In late June 2020, XTM, a global fintech company providing mobile banking and payment solutions around the world, announced that it had completed the technology build enabling automated data collection from Regis Corporation’s point of sale (POS) and salon management platform, and facilitating instant earnings payouts to the Today card and digital wallet. Regis Corporation has more than 7,000 franchised, owned, or held ownership interests in salons throughout North America and is the largest hair salon chain in the world. Some of Regis’ brands include Cost Cutters, Supercuts, SmartStyle, Roosters, and First Choice Haircutters.
2. The solution allows all Regis Corporation franchisee salon owners the ability to completely automate the payout of gratuities and earnings using the Today instant payments solution. At the end of each shift, the XTM platform automates the collection of all earnings data and transfers funds to the stylists’ Today digital wallets and prepaid card, in real-time.
3. In just a few weeks, XTM on-boarded 235 franchise locations representing thousands of issued and activated Today cards with significant daily loads. As of June 15, 2020, approximately 68% of the Regis salon portfolio locations have re-opened from hibernation caused by the COVID-19 pandemic and XTM is receiving a growing number of commitments from more franchise locations across Canada and the US.
4. Marilyn Schaffer, CEO of XTM, said, “With the risks associated with handling and distributing cash amid COVID-19, our solution just works for the many Regis franchise owners looking to simplify and completely automate their gratuity and earnings disbursement process. Our POS integration removes any friction, making the transition to cashless disbursements, quick, easy and efficient.”
5. Luther Winchell, Regis Corp. franchise owner of 26 salons, added, “We are all trying to create a safe environment for our customers and staff. XTM’s solution allows us to eliminate the need to handle cash, keep same day payouts and reduce time spent managing disbursements to our hard-working stylists.”
Parent Company Announces Leadership Transition
6. In early September 2020, Regis Corporation, parent company of Cost Cutters and several other hair cutting and hair styling brands, announced that Hugh Sawyer, chairman, president, and chief executive officer, would retire from active management and his current roles, effective October 5, 2020.
7. Felipe Athayde, most recently president, Americas of Popeyes Louisiana Kitchen, owned by Restaurant Brands International, succeeded Sawyer as CEO and president and joined the company’s board of directors. The board has elected Daniel Beltzman, current Regis director, to the role of chairman of the board, also effective upon Sawyer’s retirement. Sawyer will remain with Regis as an executive advisor through September 2021 to support the transition.
8. Athayde brings nearly a decade of multi-brand and multi-unit experience, both domestically and internationally, a proven track record of franchise growth and success, and a deep understanding of the asset-light franchise model. Athayde has held positions of increasing responsibility at Restaurant Brands International, including senior management roles at Burger King, Tim Hortons, and Popeyes, with expertise in strategy and brand development, finance, operations, marketing, and sales.
9. Most recently, Athayde served as president, Americas of Popeyes Louisiana Kitchen, where he led the successful revitalization of the brand resulting in some of the largest all-time quarterly comparable store sales increases in the industry, as well as the recovery of Popeyes following the COVID-19 pandemic. Additionally, he oversaw one of the biggest product launches in the industry – the Popeyes Chicken Sandwich – and has a track record of developing high-performance teams and implementing business-wide technology upgrades.
10. Virginia Gambale, Regis’ lead independent director, said, “Over the last three and a half years, Hugh developed and executed a transformational strategy that has positioned Regis for its next chapter of growth and development. Under Hugh’s leadership, we have substantially completed our refranchising effort, invested in new technology, realigned our portfolio to focus on our core brands, upgraded our marketing and digital education programs, eliminated nonessential costs and successfully amended our revolving credit facility to provide the long-term flexibility needed to navigate the uncertainties caused by the COVID-19 pandemic. We are grateful for Hugh’s efforts and wish him all the best in his retirement after a successful 44-year career.”
11. Gambale continued, “We are pleased to welcome Felipe to Regis as our next CEO and President following a comprehensive search process. With a proven track record of growing franchised businesses and a demonstrated ability to execute strategic change, Felipe is the ideal person to assume this role at a pivotal time for Regis. We look forward to an exciting next chapter of growth under Felipe’s leadership.”
12. “It has been a privilege to serve our constituents and the millions of customers who utilize our services,” said Sawyer. “I am proud of the progress made by our team during my tenure and confident Felipe will apply his years of franchise and brand leadership experience to enable Regis and our franchise partners to capitalize on the significant opportunities ahead. I look forward to working with him and the Board to facilitate a successful transition to a longer-term growth phase.”
13. Athayde added, “I have long known and admired Regis as a leader in the beauty space and I am honored to assume the role of CEO and President. With some of the most iconic brands in North America, a strong network of franchisees and innovative customer-facing technology, Regis is well positioned for growth, even in the current environment. I look forward to working closely with the senior management team, the Board and Regis’ talented franchisees and employees to build on the Company’s momentum and further enhance the customer experience across Regis’ brands.”
14. Gambale concluded, “We are pleased that Daniel Beltzman is stepping into the Chairman role, reflecting the depth of talent on Regis’ Board and our commitment to Regis’ continued transformation. Daniel has been a valued member of our Board for the last eight years and his business experience and acumen make him the right person to assume this position.”
15. Cost Cutters Family Hair Care was founded in 1982 by Joe Francis in Minneapolis, Minnesota. Francis had previously started The Barbers Hairstyling for Men salon in 1963. Eventually, Francis began franchising The Barbers and expanded his services to women. A few decades later, Francis wanted to expand his hair cutting services to entire families and developed the idea for Cost Cutters. The concept was a success and by the end of the first year, Cost Cutters had 12 salons.
16. Cost Cutters grew rapidly over the next few years and by the end of the 1980s, there were 300 locations around the United States. As this growth continued, The Barbers, Inc., the parent company of Cost Cutters and Francis’ other brands, caught the eye of the Regis Corporation. In 1999, the Regis Corporation acquired the entire franchise system. Regis is now the largest hair salon franchisor in the world and there are numerous company-owned and franchised Cost Cutters Family Hair Care salons around the country.
Entrepreneur’s Franchise 500
17. 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 2020 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 2020 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 376
- Outlets at the End of the Year: 372
- Net Change: -4
- Outlets at the Start of the Year: 372
- Outlets at the End of the Year: 380
- Net Change: +8
- Outlets at the Start of the Year: 380
- Outlets at the End of the Year: 537
- Net Change: +157
- Outlets at the Start of the Year: 241
- Outlets at the End of the Year: 217
- Net Change: -24
- Outlets at the Start of the Year: 217
- Outlets at the End of the Year: 204
- Net Change: -13
- Outlets at the Start of the Year: 204
- Outlets at the End of the Year: 127
- Net Change: -77
Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis
- On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic and associated government orders forced substantially all franchised and company-owned Cost Cutters Businesses to close temporarily or to operate on a significantly-limited basis from March 1, 2020, through June 30, 2020, which is the end of Cost Cutters’ fiscal year. Therefore, this Item 19 does not include the financial performance of any franchised or company-owned Cost Cutters Businesses during the period from March 1, 2020, through June 30, 2020.
- The financial performance representations in this Item 19 disclose actual historical average and median store gross sales of franchised and company-owned Cost Cutters Businesses during the 8-month period from July 1, 2019 (the beginning of Cost Cutters’ last fiscal year), through February 29, 2020, the month ending before the declaration of the COVID-19 pandemic (the “Covered Period”).
- 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.
Part 1 – Gross Sales of Franchised Cost Cutters Businesses
- This subsection discloses historical average and median store gross sales during the Covered Period for 351 franchised Cost Cutters Businesses operating throughout the United States. (Historical financial performance information for Cost Cutters Businesses owned and operated by Regis Corp., the franchisor’s affiliate, follows afterward.)
- The franchised Cost Cutters Businesses whose gross sales were included in order to calculate the average and median were open as of July 1, 2019, the beginning of the period for which the numbers were calculated (meaning that the Stores were open for at least 8 months as of February 29, 2020, the end of the Covered Period).
- As of July 1, 2019, there were an additional 19 franchised Cost Cutters Businesses operating throughout the United States. However, these franchised Cost Cutters Businesses’ gross sales were not included in this calculation because prior to February 29, 2020, they closed and therefore, in each case, were not open as franchised Cost Cutters Businesses for the full Covered Period. One of these franchised stores was closed after not being open for 12 months.
- The following information has been compiled from the figures reported on sales and royalty statements submitted by the franchisees of these 351 franchised Cost Cutters Businesses described above. 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 139 company-owned Cost Cutters Businesses as of February 29, 2020.
Top One-Third (116 Stores)