Sally Beauty Supply 2013 Annual Report Download - page 28

Supply and BSG, respectively, (in each case, in our stores or online) to a broad potential customer base
that includes retail consumers, salons and barbershops in the U.S.
Differentiated Customer Value Proposition
We believe that our stores have a competitive advantage over those of our competitors due to our stores’
convenient location, broad selection of professional beauty products (including leading third-party branded
and exclusive-label merchandise), high levels of in-stock merchandise, knowledgeable salespeople and
competitive pricing. Our merchandise mix includes a comprehensive selection of ethnic products, which is
tailored by store based on market demographics and category performance. We believe that the wide
selection of these products at our stores further differentiates Sally Beauty Supply from its competitors. In
addition, as discussed above, Sally Beauty Supply also offers a customer loyalty program called the Beauty
Club, whereby members receive special, member discounts on products and are eligible for Beauty Club
e-mail newsletters and exclusive direct mail flyers with additional promotional offerings, beauty tips and
new product information for a nominal annual fee. Our BSG professional distributor sales consultants
benefit from their customers having access to the BSG store systems as customers have the ability to pick
up the products they need between sales visits from professional distributor sales consultants. We believe
that our differentiated customer value proposition and strong brands drive customer loyalty and high
repeat traffic, contributing to our consistent historical financial performance.
Attractive Store Economics
We believe that our stores generate attractive returns on invested capital. In the U.S. and Canada, the
capital requirements to open a Sally Beauty Supply or BSG store, excluding inventory, average
approximately $70,000 and $80,000, respectively. Sally Beauty Supply stores average approximately
1,700 square feet and BSG stores average approximately 2,600 square feet in size in the U.S. and Canada.
Domestically, our stores are typically located within strip shopping centers. Strong average sales per square
foot combined with minimal staffing requirements, low rent expense and limited initial capital outlay
typically result in positive contribution margins within a few months of opening, and cash payback on
investment within approximately two years. Due to such attractive investment returns and relatively high
operating profit contributions per store, during the past five fiscal years Sally Beauty Supply and BSG have
opened an aggregate of 536 and 173 net new stores, respectively, excluding the effect of acquisitions.
Outside the U.S. and Canada, our store format, sizes and capital requirements vary by marketplace, but we
believe these stores also generate compelling unit economics.
Experienced Management Team with a Proven Track Record
Our senior management team, led by our President and Chief Executive Officer Gary Winterhalter,
possesses a unique combination of management skills and experience in the beauty supply market. Our
team also has a strong track record of successfully identifying and integrating acquisitions, which continues
to be an important part of our overall strategy.
Our Strategy
We believe there are significant opportunities to increase our sales and profitability through the further
implementation of our operating strategy and by growing our store base in existing and contiguous
marketplaces, both organically and through strategic acquisitions. Key elements of our growth strategy are
to:
Increase Sales Productivity of Our Stores
We intend to grow same store sales by focusing on improving our merchandise mix, introducing new
products, growing our exclusive-label product sales and enhancing our customer loyalty programs. We plan
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