On the cutting edge: Great Clips grows as competitors trim staff

There's a reason why Regis Corp, the long-ailing haircut outfit, wants to look more like neighboring Great Clips.

Regis, which just laid off another 290 people in North America, has struggled since the late CEO Paul Finkelstein, one of Minnesota's top-paid executives for years, was forced out in 2012.

In August, Regis, under its second CEO since Finkelstein, announced it was accelerating its two-year transition from a mix of corporate-owned and franchised stores to franchisee-shops only.

The stock price of Regis, which reports 2019 earnings Feb. 4, trades at half its value of 15 years ago.

Regis, which operates several brands including Supercuts and Cost Cutters, essentially is grooming itself to be more like rival Great Clips.

Privately held Great Clips, also Twin Cities-based, has had success as a pure play since 1982.

It is a franchiser of 4,500-plus salons in the United States and Canada owned by 1,200 franchisees.

Regis' total revenue has slipped from about $1.8 billion to $1 billion over the last five years, partly because of sales of stores to franchisees. It has been an arduous, multiyear turnaround for what was once a rapacious consolidator.

Meanwhile, Great Clips has grown systemwide sales profitably, from about $1.1 billion to $1.5 billion.

Great Clips has stuck with one name, the franchisee-based, seven-day-a-week model based on a moderately priced haircut that was $6 in 1982 and is about $15 today.

"We believe franchising is a great model," said CEO Steve Hockett, 58, a one-time franchisee. "They are the business owners. Building a common brand and providing great jobs in the salons and in their communities. They put in the commitment and their capital."

Great Clips is a fairly promotional company. It's also a retailer that likes to tout its stuff.

Most recently, it has promoted its mobile app and a recent relationship NCAA sports.

However, when the subject of quantifying its performance comes up, Great Clips generally goes mum.

Great Clips, although 38 years old, is a venerable growth company.

It opens up to 200 salons annually through its franchisee-owners. And even Hockett talks of 15 years of consecutive revenue growth from "comparable stores," or those open at least a year. That demonstrates organic-sales growth.

A look at Great Clips financials, on file with a government regulator, also reveals a rich profit margin.

The net earnings of Great Clips grew 26% to $31 million in 2018 on revenue that grew 10% to $98.2 million between 2016 and 2018, according to audited financial statements Great Clips must file as a business franchiser with the Minnesota Department of Commerce.

Those results would make Great Clips one of Minnesota's 50 most profitable companies, were it a publicly held company, based on the Star Tribune's 2019 rankings.

Great Clips revenue comes from fees for services and products paid by the franchisees.

The owners received $12.1 million in profit distributions in 2018.

Hockett refused to publicly discuss in detail the franchiser's financial performance or ownership.

Hockett said the overall good performance springs from a focus on the franchisee-owners, consistent service, support and a common brand.

"We do a few things very well," Hockett said. "The first Great Clips opened in Dinkytown in 1982.

"Our price board hasn't changed that much. No appointments. Walk-in convenience. Reasonable prices. We don't do coloring. That's our focus and our future."

The Bloomington-based company also has embraced technology.

The Great Clips mobile app allows for remote check-in to any nearby franchise location and has been downloaded 10 million times since 2016.

"But we are thankful the internet cannot deliver a haircut," Hockett quipped last week.

Brian Stevens, the owner of 25 Great Clips salons with his wife, Jenn, is the son of the fellow who opened the second Great Clips in 1983.

"I came into the business when we had nine salons and we've grown quite a bit,'' Stevens said. "Great Clips knows who we are as a brand. We stay focused on providing great value and convenience. We could have chased other business models, but we stuck to our core.

"Great Clips relies on our expertise as store operators and we rely on them for their expertise. They are in touch with us."

Great Clips is among the top 15 in 2020 on Entrepreneur Magazine's annual Franchise 500 list.

Entrepreneur has published a list of the top franchise companies in North America for the past 41 years. Its proprietary ranking system measures more than 150 data points including: costs and fees; size and growth; support; brand strength; financial strength and stability.

No. 1 on the 2020 list is Dunkin', followed by Taco Bell, McDonald's, Sonic Drive-in and the UPS Store.

Great Clips was the highest-ranked Minnesota-based company on the list at No. 15.

The magazine credits Great Clips' innovation, such as the check-in app, for bringing technology to the hands-on-heads industry of haircuts

Technology helps customers through the doors and their Clip Notes database follows customers into the stylist's chairs.

Other Minnesota companies among the Top 50 were Dairy Queen (No. 16) and Anytime Fitness (No. 22).

Supercuts, a brand of Edina-based Regis, is ranked No. 26.