Great Clips Franchise Clipping Along

Date AddedAugust 31, 2009 01:01:26 AM

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CEO Ray Barton and his sister Rhoda Olsen, company president, have continued to grow their Edina-based hair care company through the recession and aim for sales of $1 billion.
Great Clips CEO Ray Barton circled the crowded banquet room at Bear Path Golf and County Club recently, glad-handing franchisees and vendors, checking up on silent auction items, and clearly in his element as host of the company's annual charity golfing event. His sister and Great Clips president, Rhoda Olsen, leaned into a conversation and smiled, intent on catching every word over the din.
The siblings have become pros at working rooms. After 25 years of encouraging entrepreneurs to buy into Great Clips Inc. franchises, they've built the Edina-based company into the nation's biggest hair care brand, with more than 2,700 salons. Even a recession that has clipped profits at high-end beauty salons and put many independents out of business hasn't hurt their stride. The chain has posted 17 quarters of same-store sales growth, including a 4 percent gain in the first quarter this year, according to Olsen. Salon revenues are expected to hit $750 million this year, and the company forecasts franchise fees to rise 6 percent, to $50.4 million.
"The recession is definitely an opportunity," said Barton, 60. "We're aggressively pursuing sites, we're aggressively adding franchisees."
Now Barton and Olsen have set their sights on a new mark: ringing up $1 billion in salon sales within five years.
But growth in the fragmented $55 billion hair care industry won't necessarily come easy. The two are well aware that, particularly at their discount end of the segment, consumers make choices based on convenience and price, rather than brand loyalty.
"We don't like the fact that people don't know the difference between Great Clips and Supercuts, and that they go to whichever one's on the right-hand side of the road," said Olsen, 56. "That's pretty annoying. We know that happens."

Not that they're humorless about it. When someone made a nod to the "fantastic" weather for the Great Clips golf tournament, which raised a record Great Clips CEO Ray Barton circled the crowded banquet room at Bear Path Golf and County Club recently, glad-handing franchisees and vendors, checking up on silent auction items, and clearly in his element as host of the company's annual charity golfing event. His sister and Great Clips president, Rhoda Olsen, leaned into a conversation and smiled, intent on catching every word over the din.
The siblings have become pros at working rooms. After 25 years of encouraging entrepreneurs to buy into Great Clips Inc. franchises, they've built the Edina-based company into the nation's biggest hair care brand, with more than 2,700 salons. Even a recession that has clipped profits at high-end beauty salons and put many independents out of business hasn't hurt their stride. The chain has posted 17 quarters of same-store sales growth, including a 4 percent gain in the first quarter this year, according to Olsen. Salon revenues are expected to hit $750 million this year, and the company forecasts franchise fees to rise 6 percent, to $50.4 million.
"The recession is definitely an opportunity," said Barton, 60. "We're aggressively pursuing sites, we're aggressively adding franchisees."
Now Barton and Olsen have set their sights on a new mark: ringing up $1 billion in salon sales within five years.
But growth in the fragmented $55 billion hair care industry won't necessarily come easy. The two are well aware that, particularly at their discount end of the segment, consumers make choices based on convenience and price, rather than brand loyalty.
"We don't like the fact that people don't know the difference between Great Clips and Supercuts, and that they go to whichever one's on the right-hand side of the road," said Olsen, 56. "That's pretty annoying. We know that happens."
$300,000 for Children's Hospitals and Clinics of Minnesota, Olsen chided playfully: "In our office, we never say 'fantastic' or 'super.' You can say, 'incredible.' Or better yet, 'great.'"
Luring 'switchers'
The siblings have spent years focusing on ways to make the Great Clips brand stand out. Until the early part of this decade, the company grew because every value-priced salon was growing.
But six years ago, with Fantastic Sams, Supercuts, Sports Clips and others gaining ground, Great Clips embarked on a six-month study to figure out what consumers wanted and how salons were delivering. The company found salons used 33 measures to run their business. But, said Barton, only a couple really counted. Great Clips turned those into three goals. Market share and profits got back on track.
Longtime franchise owner Roger Ledebuhr said the renewed focus worked.
"You go into any Great Clips and you'll see the same menu of services," said Ledebuhr, whose wife, Marilu opened the first Great Clips franchise with Barton's wife in 1983. The couple still own 17 stores. "There are no tanning beds or any other thing because corporate won't allow it. Great Clips is very disciplined that way."
Market share figures are hard to come by, but Great Clips' research breaks it down this way: Neighborhood salons have about a quarter of the market; barbershops and at-home hair cuts take another 17 to 18 percent each; upscale salons have about 12 percent. The value-priced salons have a 20 to 22 percent slice.
Barton and Olsen say 40 percent of the market is up for grabs. "Switchers" -- who don't seem to be loyal to any company -- are most sought-after. Across the industry, "second-time visits are embarrassingly low," said Ledebuhr.
Analyst Erika Maschmeyer, of Robert W. Baird & Co. in Chicago, said her research shows consumers are deferring salon visits by one to four weeks because of the recession, and many are trading down.
"Great Clips is probably benefiting from a very cautious consumer," said Maschmeyer, who covers Regis and Sally Beauty Holdings. "Expensive haircuts are not a need."
The average price of a Great Clips haircut is $13 for an adult and $10 for a child.