Supercuts 2006 Annual Report Download - page 5

Background:
Based in Minneapolis, Minnesota, the Company’s primary business is owning, operating and franchising hair and retail product salons.
Over the last four fiscal years, the Company began acquiring and operating beauty schools in North America and internationally. Additionally,
in December 2004, the Company acquired Hair Club for Men and Women, a provider of hair restoration services. The Company’s worldwide
operations include 11,333 company-
owned and franchise salons, 90 hair restoration centers and 54 beauty schools at June 30, 2006. 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 educational 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 7,106 company-owned salons and 2,187 franchise salons operating in the United States and Canada. The Company’s
International operations include 453 company-owned salons and 1,587 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 Regis Salons, Cost Cutters, Jean
Louis David, MasterCuts, SmartStyle, Supercuts, Trade Secret and Vidal Sassoon. During fiscal year 2006, the number of customer visits at the
Company’s company-owned salons approximated 104 million. The Company had approximately 59,000 corporate employees worldwide
during fiscal year 2006.
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.
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