Regis Corporation: The Hair Salon Monopoly of the World?

Regis Corporation is a company that operates various brands of hair salons throughout the world. It is the biggest company in the world by the number of locations, coming in at 5,563 franchised and 276 company-owned salons in 2021. It is headquartered in Saint Louis Park, MN. Regis was founded in 1922 by Paul and Florence Kunin as Kunin Beauty Salon and renamed Regis in 1958 by their son Myron who acquired the chain.

In the USA, Regis Corp operates these major brands:

• SmartStyle (located in Walmart stores)
• Supercuts (located in strip malls)
• Cost Cutters
• First Choice Haircutters
• Roosters Men’s Grooming Center (Roosters)

In this article, we will look at Supercuts, Cost Cutters, and Roosters in that order.

Industry Overview from Regis’ Latest Annual Report

The hair salon market is highly fragmented, with the vast majority of locations independently-owned and operated. However, the influence of salon chains, both franchised and company-owned, continues to grow within this market. Management believes that beauty salon chains will continue to have a significant influence in this market. As a result, they will continue to increase their presence. In virtually all areas where Regis has a salon, competitors offer similar hairdressing services and products at similar prices.

Regis’ offerings face competition from chains such as Great Clips, Fantastic Sams, Sport Clips and Ulta Beauty. It also faces independent salons, department stores located in shopping malls, home hairdressing services, booth rentals and blow dry bars. It also faces competition from other franchise organizations outside of the hair salon industry in attracting new franchisees.

At the individual salon level, barriers to entry are low; however, barriers exist for chains to expand nationally due to the need to establish systems and infrastructure, the ability to recruit franchisees, experienced field, and salon management and stylists, and to lease quality sites. The principal factors of competition in the haircare category are quality and consistency of the guest experience, convenience, location, and price.

Supercuts Franchise

Supercuts is a hair salon franchise with more than 2,400 locations across the United States. The company was founded in the San Francisco Bay Area in 1975, by Geoffrey Rappaport and Frank Emmett. Its first location was in Albany, CA but the headquarters are now in Minneapolis, Minnesota. Value sector leadership and high brand recognition make Supercuts one of the strongest hair salon brands available.

The total investment necessary to begin the operation of a new Supercuts franchise is $150,906 to $312,878 (including initial real estate lease costs). This includes $32,356 to $79,878 that must be paid to the franchisor or affiliate (for a new Supercuts Store to be developed, not an existing company-owned Store to be purchased). You generally sign a Development Agreement even if you want only a Store franchise for only one store. If you want to develop more than one Supercuts Store, you will sign a Development Agreement. The development fee depends on the number of Stores you want to develop. And whether you are an existing franchisee or a new franchisee.

How Much is a Supercuts Franchise?

The initial Supercuts Franchise Fee is between $10,000 – $39,500. You have to pay this upfront fee when opening a Supercuts franchise.

Supercuts Franchise Cost

The estimated total investment necessary to begin the operation of a Supercuts Franchise ranges from $150,906 – $312,878. The following costs are part of the upfront costs included in the initial investment for Supercuts. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Supercuts franchise in 2022.

Estimated Initial Investment

Supercuts Franchise Requirements

You need $75,000 in liquid assets to start a Supercuts franchise.

Owning a Supercuts Franchise Requires Ongoing Fees

Royalty: For new Stores, the combined service and merchandise royalty fee is 4% of the combined net service revenue and net merchandise revenue from the opening date until the first year anniversary. From the first year anniversary until the Franchise Agreement expires or is terminated, the royalty fee is 6% of combined net service revenue and net merchandise revenue.

Advertising Fee: 5% of net monthly service revenue (i.e., excluding merchandise sales).

How much do Supercuts franchise owners make?

Average, Median, and High/Low Annual Gross Sales Breakdown Franchised Stores

2021 Supercuts Median Franchise Sales: $187,715

Based on the median sales provided by Supercuts’s franchise locations, at an average of a 12% profit margin it will take around 12 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 12% profit margin which would elongate getting a return on your investment.

Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Barber And Salon stores; the extent of market penetration and brand awareness that Supercuts stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.

Is the Supercuts Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Supercuts franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.

Under $5 Million Net Sales

• Estimated Selling Price = Net Sales * 0.28

Over $5 Million Net Sales

• Estimated Selling Price = Net Sales * 0.43

When you go to sell a Supercuts franchise based on the median multiple of .28 and net sales in 2021 of $187,715, it would sell for $52,560. This is significantly lower than the midpoint investment of $231,892.

The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.

How many Supercuts units have opened and closed?

Over the last three years, the company has expanded. Franchised units have seen huge growth while company-owned outlets have rapidly closed down. Over the last three years, franchises have opened at a rate of 221 units a year. This is an indicator that these stores might be performing well regardless of the high times of investment recovery.

Cost Cutters

Cost Cutters is Regis’ concept that fulfills a universal desire: to get the best service in the smallest amount of time with the least money spent. Cost Cutters Businesses provide value priced hair care services for men, women, and children, and sell a complete line of hair care products, merchandise, and appliances.

The total investment necessary to begin the operation of a new Cost Cutters is $150,466 to $308,558. This includes $33,416 to $77,958 that must be paid to the franchisor or affiliate (for a new Cost Cutters Business to be developed, not an existing company-owned store to be purchased). If you want to develop more than one Cost Cutters Business, you will sign a development agreement. The development fee depends on the number of stores you want to develop and whether you are a new or existing franchisee.

How Much is a Cost Cutters Franchise?

The initial Cost Cutters Franchise Fee is between $12,500 – $39,500. You have to pay this upfront fee when opening a Cost Cutters franchise.

Cost Cutters Franchise Cost

The estimated total investment necessary to begin the operation of a Cost Cutters Franchise ranges from $150,466 – $308,558. The following costs are part of the upfront costs included in the initial investment for Cost Cutters. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Cost Cutters franchise in 2022.

Estimated Initial Investment

Cost Cutters Franchise Requirements

You need at least $250,000 in readily convertible assets to start a Cost Cutters franchise.

Owning a Cost Cutters Franchise Requires Ongoing Fees

Royalty: Weeks 1 through 52: 4% of Gross Revenues; Week 53 through the end of Franchise Agreement Term: 6% of Gross Revenues or $100 per week, whichever is greater (see remark below)

Advertising Fee: 4% of Gross Revenues.

Other Advertising: At least 1% of Gross Revenues.

Remark: “COST CUTTERS collects a 4% Continuing Fee for the first 52 weeks that you operate your Cost Cutters Business. The Continuing Fee increases to 6% as of the 53rd week of operation. Beginning with the 53rd week of operation, a minimum Continuing Fee of $100 per week is payable. COST CUTTERS requires you to pay these fees by direct bank transfer to COST CUTTERS’ bank account. If you purchase an existing company-owned COST CUTTERS store or affiliated branded salon for conversion to a COST CUTTERS store, your royalty fee will be the greater of 6% and one hundred dollars ($100) per week for the entire term of your Franchise Agreement. (i.e., you will pay 6% instead of 4% during the first year of the term and thereafter)COST CUTTERS requires you to pay this fee by direct bank transfer to COST CUTTERS’ bank account.”

How much do Cost Cutters franchise owners make?

Average, Median, and High/Low Annual Gross Sales Breakdown by One-Thirds Franchised Stores

2021 Cost Cutters Median Franchise Sales: $194,842

Based on the median sales provided by Cost Cutters’ franchise locations, at an average of a 12% profit margin it will take around 11 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 12% profit margin which would elongate getting a return on your investment.

Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Barber and Salon stores; the extent of market penetration and brand awareness that Cost Cutters stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.

Is the Cost Cutters Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Cost Cutters franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.

Under $5 Million Net Sales

• Estimated Selling Price = Net Sales * 0.28

Over $5 Million Net Sales

• Estimated Selling Price = Net Sales *  0.43

When you go to sell a Cost Cutters franchise based on the median multiple of .28 and net sales in 2021 of $194,842, it would sell for $54,555. This is significantly lower than the midpoint investment of $229,512.

The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.

How many Cutters units have opened and closed?

Over the last three years, the company has expanded. Following the same trend as Supercuts, franchised units have opened while company-owned units have closed. Over the last three years, franchises have opened at a rate of 88 units a year. This is an indicator that these stores may not be performing well. Or their franchise term is up and they are not renewing it.

Roosters

Lastly, Roosters is more of a premium product where customers step back in time to the quality and tradition of the classic men’s barbershop. As a Roosters Men’s Grooming Center franchisee, you will operate a unique full-service grooming center that provides personal grooming services primarily to men, including haircuts.

The total investment necessary to begin the operation of a Roosters Men’s Grooming Center franchise ranges from $208,166 to $342,808. This includes $60,416 to $72,958 that must be paid to the Franchisor or its affiliates. If you want to develop more than one Roosters business, you will sign a development agreement. The development fee depends on the number of stores you want to develop.

How Much is a Roosters Franchise?

The initial Roosters Franchise Fee is $39,500. You have to pay this upfront fee when opening a Roosters franchise.

Roosters Franchise Cost

The estimated total investment necessary to begin the operation of a Roosters Franchise ranges from $208,166 to $342,808. The following costs are part of the upfront costs included in the initial investment for a Roosters. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Roosters franchise in 2022.

Estimated Initial Investment

Roosters Franchise Requirements

You need a minimum of $150,000 in readily available cash to start a Roosters Franchise.

Owning a Roosters Franchise Requires Ongoing Fees

Use the Item 6 table to record the Royalty, Marketing Fee, and other important ongoing fees that the franchisor has. This shouldn’t be more than 3-7 fees.

Royalty: 4% of Gross Sales until first year anniversary. From first year anniversary through end of Franchise Agreement term: 6% of Gross Sales.

Advertising Fund: Up to 2% of Gross Sales (currently required to pay 1%).

How much do Roosters franchise owners make?

Average, Median, and High/Low Annual Gross Sales Breakdown by One-Thirds Franchised Stores

2021 Roosters Median Franchise Sales: $304,067

Based on the median sales provided by Roosters’s franchise locations, at an average of a 12% profit margin it will take around 9 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 12% profit margin which would elongate getting a return on your investment.

Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Barber and Salon stores; the extent of market penetration and brand awareness that Roosters stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.

Is the Roosters Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Roosters franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.

Under $5 Million Net Sales

• Estimated Selling Price = Net Sales * 0.28

Over $5 Million Net Sales

• Estimated Selling Price = Net Sales * 0.43

When you go to sell a Roosters franchise based on the median multiple of .28 and net sales in 2021 of $304,067, it would sell for $85,138. This is significantly lower than the midpoint investment of $275,487.

The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.

How many Roosters units have opened and closed?

Over the last three years, the company has seen slow growth. Over the last three years, the company has opened 8 new franchised stores.

Regis Corporation (Franchisor) Performance

Regis (NYSE: RGS) has not seen amazing growth as can be seen above from the comparative review of its common stock with Peer Group and other industry indices. As can be seen below from the Consolidates Results of Operations from the last three years, Regis only made a small profit of $2.9 million in 2021. When compared to losses of $16.7 million in 2019 and $27.3 million in 2020, the company has not performed well. This is a likely reason for the huge number of company-owned stores we have seen closing above.

Same-store sales also declines of 33.4%, 4.4%, and 0.4% in 2019, 2020, and 2021. As such, Regis Corporation is not in a strong financial position right now, but it remains to be seen where the future will go for it. The massive number of locations closing will definitely help the company’s expenditures. It was only after selling a lot of company-owned salons, that Regis saw a profit in the locations it owns and operates in 2021 as seen below.

Conclusion

Regis’ offerings are very strong and give prospective franchisees a business that might not be proven but a lot of people are flocking to. However, with the franchisor’s financial situation, it remains to be seen what the future holds for these salons.