Hair-Care Chains Find Competition Is Razor Sharp

Supercuts and Fantastic Sam’s emerged in the mid-1970s by offering no-appointment-needed, moderately priced haircuts. They were an instant success with both men and women, filling the void left by the disappearing neighborhood barber and beauty shop.

Now, however, as competition has intensified for a share of the $24 billion Americans spend annually on their hair, the franchised haircut chains have turned to increasingly aggressive marketing and new services to attract customers and boost profits.

They are redesigning their salons--abandoning bright colors in favor of subtle grays and mauves. Both companies also have begun to offer hair styling and conditioning (in addition to the standard haircut), and are selling shampoo and conditioning products.

Supercuts even went a step further by hiring Dan Garvey, a nationally recognized stylist, to serve as the company’s education director.

Most visibly, both companies have hit the airwaves with provocative television commercials. The Supercuts commercials feature clips of outrageous hair styles and lively music, while spots for Fantastic Sam’s suggest that a permanent wave may be the perfect cure for a woman’s romantic woes.

While most of the changes, especially the new salon decor, seem to have been embraced by consumers, two recent marketing gimmicks backfired:

- Earlier this year, Fantastic Sam’s made a deal with General Mills to place a coupon for a free children’s haircut on 20 million boxes of Cheerios. When children by the bus and carload appeared at salons, many franchisees rebelled, refusing to honor the coupons and imposing restrictions on redemption. Many complained vehemently to General Mills and Fantastic Sam’s that they lost thousands of dollars by redeeming the coupons. They also argued that they had not been properly informed about the promotion before the boxes hit store shelves in April.

- In a less dramatic marketing flop, Supercuts tried to sell discount coupon books as Christmas “stocking stuffers” to encourage return visits. When most customers said no thanks, Supercuts tried to give them away. Even then, franchise owners said few coupons were ever redeemed.

Beauty industry observers are watching the franchised haircut war with interest. The amount spent on hair care has been increasing for several reasons, according to American Salon’s “Green Book,” an annual report considered the bible of the beauty industry.

As they approach middle age, Baby Boomers are spending more on their appearance. The Green Book says people of all ages are spending more on beauty services because beauty has been redefined to represent good health. And men, who formerly shunned beauty salons, are spending more each year on everything from permanents to manicures. In fact, men make up about 65% of Supercuts’ customers, according to the company.

One big reason that the number of franchised beauty salons has increased is that virtually anyone can start one and be successful. The financial requirements are relatively modest--usually $5,000 to $25,000 for the franchise rights and less than $100,000 for the building and equipment. In exchange for fees and royalties, franchisees receive national and regional advertising support, training, advice and other support services.

Hurting Independents

According to the Green Book, there are 8,000 chain-owned salons in the United States. New York-based Glemby International leads the list, with 1,515 company-owned salons located primarily in upscale department stores. Regis Corp. of Minnesota operates about 1,400 company salons in malls and department stores.

On the franchise side, Supercuts has 550 salons and Fantastic Sam’s about 1,325, including those in Canada, Japan and Australia.

Hair Performers, based in Illinois, has 300 franchised salons. Massachusetts-based Command Performance has about 270 salons. These firms and about a dozen smaller companies are in the midst of expanding, according to the quarterly Franchise Handbook.

Robert Mugnai vice president and publisher of American Salon, the official publication of the 48,000-member National Cosmetology Assn., said he expects to see more franchising in future years.

“I think the franchises are hurting the independents, but not driving them out of business,” Mugnai said.

He said independent salon owners are responding to pressure from franchised salons by expanding the number of services that they offer, hiring better stylists and capitalizing on their individual talents and flair to attract customers.

While many independents may feel threatened by franchises, one Southland barber--whose shop is next to a Supercuts in a Pasadena shopping center--said he benefits from the millions of dollars that the chain spends on advertising.

“They bring a lot of people to the area,” said Rod Otto. But Otto sees the traditional one-chair barbershop ultimately going the way of the American buffalo. “It will eventually be extinct.”

John Lewis, president of Fantastic Sam’s, agrees.

“I see a great increase in the number of franchised units and a slowing in independent businesses,” he said. “People want to go into business for themselves, but they don’t want to reinvent the wheel.”

While declining to offer sales figures, Lewis said Fantastic Sam’s, founded by barber Sam Ross in 1974, is capitalizing on the need for a moderately priced haircut.

Strict Rules

“We are a Chevrolet,” said Lewis. “We are absolutely a middle market company offering an excellent quality haircut and other services at a reasonable price in a wholesome environment.”

Fantastic Sam’s does not set the price of services offered by its salons, but in the Los Angeles area, a haircut and shampoo are available for about $10.

“Overall, it has been a very good business for me,” said Silvia Anorga, who with her husband, Edward, owns Fantastic Sam’s outlets in Pico Rivera, Montebello and East Los Angeles. “I do wish the company would do more,” she said.

Anorga, who also owns three beauty supply stores, said she chafes under the company’s strict rules about which products franchisees may use. “We need more flexibility because there are only three (brands) we can work with,” Anorga said.

Barbara Lieberman, who opened her 11th Fantastic Sam’s salon in St. Louis this week, said she is generally pleased with the support from the company. However, Lieberman, who said she has lost thousands of dollars by redeeming the Cheerios box coupons, said she is still hoping that the promotion will generate repeat business. Gary Grace, who owns 20 Supercuts salons in Hawaii and California and is considered the company’s most successful franchisee, says stylists enjoy working for Supercuts because they don’t have to draw their customers, as they would in an independent salon.

“Many people from small salons say the person who sat in their chair the most was themselves,” said Grace, a former franchise consultant.

San Rafael-based Supercuts and Memphis, Tenn.-based Fantastic Sam’s take totally different approaches in collecting fees from their franchisees. Fantastic Sam’s charges franchisees a flat fee of about $200 a week, while Supercuts’ franchise holders pay a 15% royalty on sales. Supercuts says it can justify the high royalty because its 550 stores generate twice the sales volume of other franchised operations, with about 1.5 million haircuts a month. Supercuts charges $8 for a haircut, although about 20% of the salons are experimenting with a $9 price, according to Betsy Burton, chairman, chief executive and president of Supercuts.

Benefits Offered

“We are the volume leader in this business,” said Burton, who helped arrange a purchase of Supercuts from its founders in 1987 by a group of investors, including herself. “We offer (franchisees) the largest return on investment in the industry.”

Burton would not disclose the level of that return on investment, but said nationwide sales volume is expected to increase to $150 million in 1989 from $140 million in 1988. “We intend to double in size in the next five years,” Burton said. “I think you’ll begin to see some consolidation in the industry--the big will get bigger.”

Burton said one of the most serious problems for the franchises is the dearth of new stylists. She said government grants that enabled many cosmetology students to go to school have dried up in recent years.

To attract employees, Supercuts, which pays about $5 an hour to beginning stylists, offers a variety of benefits, including paid vacations, health insurance and educational seminars.

The company also has encouraged franchisees to abandon the old orange and royal blue colors and change to a new sophisticated gray and mauve theme.

“Supercuts was on its way out because it was outdated,” said Peggy Newkirk, who manages several stores for Gary Grace. Years ago, “we had so many customers it didn’t matter if we kept the old ones,” she said.

But in recent years, as more salons began competing for the moderate-price haircut business, Supercuts fell behind. Now, Newkirk said, her stylists have been given new tools and much more freedom to create the best look for a client.

On a recent weekday morning, eight men were in her salon. Four were in the chairs and four more were waiting on a comfortable grape-colored couch.

“I come here because it’s the quickest and most convenient,” said Mark Empey, a 26-year-old student at Art Center School of Design. “I’ve been disappointed (with the haircut) a couple of times, but it’s not permanent damage--hair grows out.”

THE HAIR SALON MARKET Projected 1989 sales by service category Skin care $413 million Nail services $1.80 billion Retail items $1.72 billion Chemicals (perms, tints) $8.82 billion Hair care and styling $12.6 billion Top ten states with the most chain salons: 1. California 502 2. Pennsylvania 424 3. Ohio 375 4. Minnesota 286 5. Florida 284 6. Texas 253 7. Maryland 239 8. Virginia 213 9. New York 375 10. Michigan 200 Source: American Salon’s Green Book