Supercuts 2005 Annual Report Download - page 5

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Background:
Based in Minneapolis, Minnesota, the Company’s primary business is owning, operating and franchising hair and retail product salons. In
the last three years, the Company began acquiring and operating a limited number of beauty schools in North America and internationally.
Additionally, in December 2004, the Company acquired Hair Club for Men and Women, a leading provider of hair restoration services. The
Company’s worldwide operations include 10,879 company-owned and franchise salons, 90 hair restoration centers and 24 beauty schools at
June 30, 2005. Each of the Company’s salon concepts offer similar salon products and services, concentrate on the mass-market consumer
marketplace and generally display similar economic characteristics. The Company’s recently acquired beauty school locations offer similar
education services to students. Services are marketed to potential students pursuing post-secondary education alternatives. The Company’s hair
restoration centers offer three hair restoration solutions; hair systems, hair transplants and hair therapy, which are targeted at the mass-market
consumer.
The Company is organized to manage its operations based on significant lines of business—salons, beauty schools and hair restoration
centers. Salon operations are managed based on geographical location—North America and International. The Company’s North American
salon operations include 6,551 corporate salons and 2,310 franchise salons. The Company’s international operations include 426 corporate
salons and 1,592 franchise salons operating throughout Europe, primarily in the United Kingdom, France, Italy and Spain. The Company’s
worldwide salon locations operate under concepts such as Supercuts, Jean Louis David, Vidal Sassoon, Regis Salons, MasterCuts, Trade
Secret, SmartStyle and Cost Cutters. During fiscal year 2005, the number of customer visits at the Company’s corporate salons approximated
100 million. The Company had approximately 55,000 corporate employees worldwide during fiscal year 2005.
Industry Overview:
Management estimates that annual revenues of the hair care industry are $53 billion in the United States and $150 billion worldwide. The
hair salon, hair restoration and beauty school industries are each highly fragmented with the vast majority of locations independently owned
and operated. However, the influence of chains, both franchise and company-owned, has increased substantially in all three industries.
Management believes that chains will continue to have a significant influence on these markets and will continue to increase their presence.
Management also believes that the demand for salon services, professional products and hair restoration services will continue to increase as
the overall population continues to focus on personal health and beauty, as well as convenience.
Salon Business Strategy:
The Company’s goal is to provide high quality, affordable hair care services and products to a wide range of mass-market customers that
enable the Company to expand in a controlled manner. The key elements of the Company’
s strategy to achieve these goals are taking advantage
of (1) growth opportunities, (2) economies of scale and (3) maintaining centralized control over salon operations in order to ensure
(i) consistent, quality services and (ii) a superior selection of high quality, professional products. Each of these elements is discussed below.
Salon Growth Opportunities . The Company’s salon expansion strategy focuses on organic (new salon construction and same-store
sales growth of existing salons) and salon acquisition growth.
Organic Growth . The Company executes its organic growth strategy through a combination of new construction of company-
owned and franchise salons, as well as same-store sales increases. The square footage requirements related to opening new salons allow
the Company great flexibility in securing real estate for new salons.
4