Clipping along

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: August 18, 2009 - 3:22 PM

CEO Ray Barton and his sister Rhoda Olsen, company president, have continued to grow their Edina-based hair care company through the recession and aim for sales of $1 billion.

Great Clips CEO Ray Barton circled the crowded banquet room at Bear Path Golf and County Club recently, glad-handing franchisees and vendors, checking up on silent auction items, and clearly in his element as host of the company's annual charity golfing event. His sister and Great Clips president, Rhoda Olsen, leaned into a conversation and smiled, intent on catching every word over the din.

The siblings have become pros at working rooms. After 25 years of encouraging entrepreneurs to buy into Great Clips Inc. franchises, they've built the Edina-based company into the nation's biggest hair care brand, with more than 2,700 salons. Even a recession that has clipped profits at high-end beauty salons and put many independents out of business hasn't hurt their stride. The chain has posted 17 quarters of same-store sales growth, including a 4 percent gain in the first quarter this year, according to Olsen. Salon revenues are expected to hit $750 million this year, and the company forecasts franchise fees to rise 6 percent, to $50.4 million.

"The recession is definitely an opportunity," said Barton, 60. "We're aggressively pursuing sites, we're aggressively adding franchisees."

Now Barton and Olsen have set their sights on a new mark: ringing up $1 billion in salon sales within five years.

But growth in the fragmented $55 billion hair care industry won't necessarily come easy. The two are well aware that, particularly at their discount end of the segment, consumers make choices based on convenience and price, rather than brand loyalty.

"We don't like the fact that people don't know the difference between Great Clips and Supercuts, and that they go to whichever one's on the right-hand side of the road," said Olsen, 56. "That's pretty annoying. We know that happens."

Not that they're humorless about it. When someone made a nod to the "fantastic" weather for the Great Clips golf tournament, which raised a record $300,000 for Children's Hospitals and Clinics of Minnesota, Olsen chided playfully: "In our office, we never say 'fantastic' or 'super.' You can say, 'incredible.' Or better yet, 'great.'"

Luring 'switchers'

The siblings have spent years focusing on ways to make the Great Clips brand stand out. Until the early part of this decade, the company grew because every value-priced salon was growing.

But six years ago, with Fantastic Sams, Supercuts, Sports Clips and others gaining ground, Great Clips embarked on a six-month study to figure out what consumers wanted and how salons were delivering. The company found salons used 33 measures to run their business. But, said Barton, only a couple really counted. Great Clips turned those into three goals. Market share and profits got back on track.

Longtime franchise owner Roger Ledebuhr said the renewed focus worked.

"You go into any Great Clips and you'll see the same menu of services," said Ledebuhr, whose wife, Marilu opened the first Great Clips franchise with Barton's wife in 1983. The couple still own 17 stores. "There are no tanning beds or any other thing because corporate won't allow it. Great Clips is very disciplined that way."

Market share figures are hard to come by, but Great Clips' research breaks it down this way: Neighborhood salons have about a quarter of the market; barbershops and at-home hair cuts take another 17 to 18 percent each; upscale salons have about 12 percent. The value-priced salons have a 20 to 22 percent slice.

Barton and Olsen say 40 percent of the market is up for grabs. "Switchers" -- who don't seem to be loyal to any company -- are most sought-after. Across the industry, "second-time visits are embarrassingly low," said Ledebuhr.

Analyst Erika Maschmeyer, of Robert W. Baird & Co. in Chicago, said her research shows consumers are deferring salon visits by one to four weeks because of the recession, and many are trading down.

"Great Clips is probably benefiting from a very cautious consumer," said Maschmeyer, who covers Regis and Sally Beauty Holdings. "Expensive haircuts are not a need."

The average price of a Great Clips haircut is $13 for an adult and $10 for a child.

Supercuts, owned by Regis Corp., is Great Clips' closest competitor in the number of stores, with 2,100. Fantastic Sams has 1,300. (While Great Clips claims to be the largest hair care brand, Regis, also based in Edina, is much bigger, with 12,800 locations worldwide, split among many brands, including Regis Salons, MasterCuts and Cost Cutters.)

Maschmeyer noted Great Clips also profits from its location in suburban strip centers, doing much better than bigger malls in this economy. Regis has many mall-based and upscale brands and has closed salons, laid off staff and had trouble reducing its high-cost debt. Its value-priced chains are doing better than high-ends, but Supercuts still only registered 0.7 percent same-store sales growth last year.

Great Clips has lost about three to five customers a week to delays and people switching salons, so it's boosting efforts to lure first-timers. A computerized customer tracking system shows if a new customer has returned or if an every-six week customer is going longer between cuts. That means offering aggressive discounts and sending out free offers to new customers if they come back. Olsen figures it takes two or three visits to turn someone into a regular customer.

Don Guenther is one of those regulars. He even followed his Great Clips stylist when she transferred from his Bloomington neighborhood store to one in St. Louis Park.

"I started going because of the convenience and price and just got used to the same person," said Guenther, who pays about $18 plus tip for a cut and shampoo.

Entrepreneurship genes

The partnership seems to work well for the siblings.

Barton is the second-oldest of six kids, and the only male. Olsen is four years younger, and, thanks to the earlier arrival of twin sister Rhonda (all siblings have "R" names), she's No. 5 in birth order. Growing up, the family lived in cities around Iowa but settled in the Twin Cities before Barton's junior year in high school.

Barton and Olsen describe their mother, Alice, as a "serial entrepreneur" who ran a drive-in restaurant in the Twin Cities and had a wine and cheese shop. She was the bookkeeper when Barton's wife, Mary Lou, opened the first Great Clips franchise, and soon became a franchise owner herself.

Barton got his first job in fifth grade, delivering newspapers, and learned that if he wanted something besides the basics in life, he had to earn his own money.

He jokes that he came to Great Clips after having been fired twice in six months -- axed as an expensive member of the Century 21-North Central State management team during the recession of the early 1980s and then from an energy company that got caught in the boom-and-bust of oil drilling.

Great Clips founders Steve Lemmon and David Rubenzer hired him a year after launching the company to bring his franchising expertise from Century 21 to their beauty salon start-up. From the start, Barton wanted to build Great Clips into the biggest brand in hair care. Starting from just four salons, he quadrupled that in a year. Barton bought out Lemmon and Rubenzer in 1997, and is majority owner. Olsen and the executive staff own the rest.

Getting the company to $1 billion in total sales means steady expansion in the face of a tightened credit market and dragging consumer confidence.

The company opened 125 salons last year but has backed off its pre-recession pace of 110 to 150, in part because new construction has dried up, forcing franchisees to find space in existing centers. Still, franchise recruitment was up 35 percent last year, the company said.

Olsen said the company could easily open 200 to 250 salons a year, but instead it aims to inch up to 140 to 180 a year by 2010. Demand is high for people who want to become franchise owners, but Great Clips remains choosy. On a recent week, Olsen said they turned down 10 applications. Barton is famous for returning a $10,000 check from a man who, in the company's formative years, wanted to open a Great Clips in Indiana before the company had the infrastructure in place.

The same logic holds today. The company won't expand into new markets until it has a training center and full-time real estate person on the ground.

But consider that even in Great Clips' strongest markets, it has a 10 to 13 percent slice of the pie. That means, of course, that 90 percent of people are going somewhere else to get their 'do done.

With that kind of potential, Barton and Olsen might tell you there's no such thing as a bad hair day.

Jackie Crosby • 612-673-7335

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