FDD Talk 2021: Great Clips Franchise Review (Financial Performance Analysis, Costs, Fees, and More) (2024)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Great Clips franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Great Clips franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Great Clips franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Great Clips outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Great Clips’ financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2019 and 2020 average monthly gross sales from January to December for the franchised Great Clips units that were open 7 days a week during the entire applicable month in both 2019 and 2020

• number of units that were open in the United States and Canada as of the last day of each month beginning in January 2020

Section I – Background Information

18 Things You Need to Know About the Great Clips Franchise

Launches ReadyNext Text Alerts to Help Customers Make the Most of Their Time

1. Near the end of June 2020, Great Clips enhanced its industry-leading Online Check-In with the launch of new ReadyNext text alerts. The text alerts notify customers once their wait time reaches 15 minutes, so they can head to the salon for their service. To receive a ReadyNext text alert, customers can check in online through the Great Clips app or on Great Clips’ website and opt-in to receive a text message.

2. Customers can make the most of their wait time – at home or elsewhere – without having to keep an eye on the app or website. This enhancement also allows Great Clips to minimize the number of customers in and around salons, an essential feature to enable social distancing.

3. Steve Hockett, CEO of Great Clips, Inc., said, “At Great Clips, we are continuously working to make the haircut experience easier, faster and more comfortable for the well-being and benefit of our customers. As part of our Online Check-In process, ReadyNext text alerts will help salons maintain social distancing guidelines and enable our customers to optimize their schedules for a haircut when it works for them.”

4. ReadyNext text alerts mark the latest technology innovation adopted by Great Clips to enhance the customer experience and further its convenient, high-quality haircare services. In 2011, Great Clips was the first in the industry to launch Online Check-In, through the Great Clips app and website.

5. Online Check-In provides customers with estimated wait times for their local Great Clips salons and adds their name to the service queue before they even arrive. Through Online Check-In technology, estimated wait times are updated continuously based on actual salon activity, so customers can see updates to their wait time, in real time. The Great Clips Online Check-In app has been downloaded nearly 13 million times.

Introduces GreatCare Promise Across All Salons

6. At the end of July 2020, Great Clips announced the launch of the GreatCare Promise, an enhanced commitment designed to help keep customers, stylists, and staff as safe and comfortable as possible in its nearly 4,500 franchised salons across the United States and Canada. Part of this commitment includes Great Clips requiring everyone to wear a mask in salons beginning August 1.

7. Great Clips’ commitment starts before customers arrive at local salons. Prior to visiting a Great Clips salon, customers are strongly encouraged to check in online via the Great Clips app and website. Great Clips Online Check-In serves as a “real-time” appointment function, allowing customers to view estimated wait times at their local salon and plan their visit accordingly. Leveraging proprietary technology, wait times are updated every 90 seconds ensuring that customers have the most accurate information as they await their haircut.

8. After checking in online, customers can also opt-in to receive a ReadyNext text alert that notifies them when their estimated wait time reaches 15 minutes so they can head to the salon for their service. Online Check-In and ReadyNext text alerts allow Great Clips to minimize the number of customers in and around salons, helping enable social distancing.

9. In addition, Great Clips’ more than 1,100 franchisees continue to work hard to ensure that every salon adheres to federal, state/provincial, and local health guidelines and recommendations put in place to help slow the spread of COVID-19. As part of the GreatCare Promise, salons have also enacted various procedures that are designed to help create a safer environment for customers when they visit their local Great Clips salon, such as:

• Starting on Saturday, August 1 and until further notice, customers, stylists, and staff are required to wear masks inside all Great Clips salons.
• Salon chairs and stylist tools are sanitized between every haircut.
• Salon chairs are spaced to accommodate social distancing.
• Stylists wash their hands frequently and hand sanitizer is available throughout salons.
• Face-to-face services such as beard trims have been temporarily suspended in many Great Clips salons.
• Lobby chairs, door handles, and other high-traffic surfaces are disinfected frequently.
• Salon lobbies are free of magazines and shared items.
• Lobby chairs, where permitted to remain in the salons, are spaced six feet apart.

10. According to Steve Hockett, CEO of Great Clips, Inc., “Great Clips cares about the well-being of customers, stylists and staff and we’re proud to introduce the GreatCare Promise to further demonstrate our commitment to safety and comfort across all salons. From technologies that help minimize the number of customers in salons, to enhanced cleaning and sanitizing procedures, and the required use of masks, Great Clips franchisees and their staff are prepared and ready for customers whenever they need or want that next great haircut.”

Announces Partnership with Fan Controlled Football League

11. In mid-February 2021, Great Clips announced a new strategic partnership with Fan Controlled Football (FCF), the only professional sports league that empowers fans to call the plays in real-time. For the league’s inaugural season, which kicked off on February 13, at 8:00 p.m. ET on Twitch, Great Clips, the world’s largest salon brand, became the “Official Hair Salon of Fan Controlled Football.” Working with Fan Controlled Football, Great Clips will integrate its brand into a variety of in-game and post-game programming focused on recognizing and highlighting great plays and players.

12. During live games on Twitch, Great Clips will become the official sponsor of instant replays, referred to as “Great Clips.” Each week, fans will have the opportunity to vote for the best play of the week as part of the “Great Clips of the Week” campaign on FCF’s website and mobile app. Additionally, weekly game highlight video clips will be named the “Great Clips of the Game” and will be shared across FCF’s social media channels. Great Clips branding will also appear in the arena during games and broadcasts, online, and across the league’s mobile application.

13. Lisa Hake, vice president of marketing and communications for Great Clips, Inc., said, “We’re excited to partner with FCF as they embark on a compelling new concept that enables fans, like our customers, to be a part of the action. We look forward to integrating the Great Clips brand into the overall viewing experience and spotlighting great moments and plays throughout the season.”

14. Jen Rottenberg, CMO of Fan Controlled Football, added, “Great Clips is an ideal partner in solidifying the direct relationship between FCF’s fans and players. They’re a forward-thinking brand that will help us amplify the great performances of our players – we look forward to exciting highlights in the Great Clips of the Game!”

Company History

15. Great Clips was founded in 1982 by David Rubenzer and Steve Lemmon in Minneapolis, Minnesota. At the time, there were only a few ways that people could get haircuts: a full-service salon, barbershops, or at home. Rubenzer and Lemmon wanted to offer an affordable no-frills alternative and developed the concept for a walk-in haircare salon with weekend and evening hours, offering customers a select list of services, and providing benefits for stylists. The first Great Clips was an immediate success and Rubenzer and Lemmon opened a few more salons.

16. In early 1983, Rubenzer and Lemmon sought out a third partner in Ray Barton to spearhead Great Clips’ expansion and franchising. The first franchised location opened that summer. By the end of the 1980s, Great Clips had 150 franchised locations in operation. In 1993, Great Clips opened its first Canadian stores.

17. A few years later, in 1997, Barton bought out Rubenzer and Lemmon to become majority shareholder of Great Clips. That same year, Great Clips hit 1,000 locations. Over the next few decades, Great Clips continued to grow and there are now locations all across the United States and Canada.

Entrepreneur’s Franchise 500

18. Great Clips ranked No. 13 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Great Clips franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Great Clips’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year: 4,261
• Outlets at the End of the Year: 4,371
• Net Change: +110

2019

• Outlets at the Start of the Year: 4,371
• Outlets at the End of the Year: 4,473
• Net Change: +102

2020

• Outlets at the Start of the Year: 4,473
• Outlets at the End of the Year: 4,472
• Net Change: -1

Company-Owned

2018

• Outlets at the Start of the Year: 0
• Outlets at the End of the Year: 0
• Net Change: 0

2019

• Outlets at the Start of the Year: 0
• Outlets at the End of the Year: 0
• Net Change: 0

2020

• Outlets at the Start of the Year: 0
• Outlets at the End of the Year: 0
• Net Change: 0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• The Coronavirus (COVID-19) pandemic has resulted in governmental closures and operating restrictions for many businesses, including the hair salon industry. Because of COVID-19 and corresponding federal, state, provincial, and local governmental mandates and requirements, nearly all Great Clips units closed temporarily for a period of time in 2020 without any ongoing revenue stream while closed.

• In fact, as of April 6, 2020, all but 17 Great Clips Salons had closed due to government mandates related to the COVID-19 pandemic. While the majority of Great Clips Salons have reopened, state and local governmental requirements have imposed additional operating requirements and restrictions for salons, impacting the Great Clips system.

• For example, all U.S. salons adhere to CDC social distancing requirements, states and localities have imposed restrictions on the number of customers that can be inside a business at a particular time, and many states require some type of advance scheduling or appointment-like system.

Part 1 – Average Monthly Sales Comparison 2019 to 2020

• The financial performance representation provided below includes a comparison of average monthly sales information for those Great Clips units that were open during certain time periods in 2019 and 2020.

• The financial performance information included below was obtained from reviewing Great Clips’ internal point of sale system (“POS System”), the system where franchisees input their salon sales numbers. Neither Great Clips nor its independent certified public accountants have independently audited or verified the financial information contained in the POS System. The information received in the POS System, to the best of Great Clips’ knowledge, is accurate and complete.

• The table below provides average monthly sales information for those Great Clips units that were open during each month in 2019 and 2020. To be eligible for inclusion in the table below, the unit must have been open 7 days a week during the entire applicable month in both 2019 and 2020. As such, Great Clips units that first opened for business in 2020 are not included in the table below.

• Further, and for purposes of this financial performance representation, a Great Clips unit is considered “open for the entire month” and included in the table below if the unit was open for business every required day of the month, regardless of how many hours per day the unit was open for business.

• For purposes of the table below, “Average Monthly Sales” means the average monthly sales based on the information recorded by a franchisee in Great Clips’ POS System. Where Average Monthly Sales data was reported by franchisees to Great Clips in Canadian dollars, Great Clips converted the reported Canadian dollars into the U.S. dollar equivalency by using a conversion rate of 0.75.

January

• Number of Units: 2,810
• 2019 Average: $28,919
• 2020 Average: $30,732
• Year-Over-Year Percent Change: +6.3%

February

• Number of Units: 3,464
• 2019 Average: $27,766
• 2020 Average: $29,895
• Year-Over-Year Percent Change: +7.7%

March

• Number of Units: 122
• 2019 Average: $35,779
• 2020 Average: $25,065
• Year-Over-Year Percent Change: -29.9%

April

• Number of Units: 5
• 2019 Average: $36,686
• 2020 Average: $28,521
• Year-Over-Year Percent Change: -22.3%

May

• Number of Units: 96
• 2019 Average: $33,262
• 2020 Average: $29,841
• Year-Over-Year Percent Change: -10.3%

June

• Number of Units: 2,632
• 2019 Average: $32,160
• 2020 Average: $22,654
• Year-Over-Year Percent Change: -29.6%

July

• Number of Units: 2,714
• 2019 Average: $30,971
• 2020 Average: $20,566
• Year-Over-Year Percent Change: -33.6%

August

• Number of Units: 3,071
• 2019 Average: $34,238
• 2020 Average: $23,686
• Year-Over-Year Percent Change: -30.8%

• As additional context, in August of each year, the Great Clips system runs a popular “Back to School” promotion. The reported figures for August 2019 include monthly sales derived from the “Back to School” promotion; this promotion did not occur in August 2020 given the impact of COVID-19 on school openings/schedules.

September

• Number of Units: 3,467
• 2019 Average: $30,125
• 2020 Average: $22,213
• Year-Over-Year Percent Change: -26.3%

October

• Number of Units: 3,438
• 2019 Average: $29,982
• 2020 Average: $22,988
• Year-Over-Year Percent Change: -23.3%

November

• Number of Units: 3,487
• 2019 Average: $29,768
• 2020 Average: $21,120
• Year-Over-Year Percent Change: -29.1%

December

• Number of Units: 3,033
• 2019 Average: $31,125
• 2020 Average: $22,323
• Year-Over-Year Percent Change: -28.3%

Annual

• 2019 Average: $380,781
• 2020 Average: $299,604
• Year-Over-Year Percent Change: -21.3%

Part 2 – Number of Units That Were Open in the United States and Canada as of the Last Day of Each Month in 2020

• As of December 31, 2019, there were 4,473 Great Clips units open in the United States and Canada. The table below identifies the total number of units that were open in the United States and Canada as of the last day of each month beginning in January 2020.

• The table below includes the total number of all units that were open for business as of the last day of each month regardless of whether: (i) the Salon was open for business in 2019, (ii) the Salon was open for business 7 days a week during the entire month, or (iii) the Salon transferred ownership during 2019 or 2020.

• January 2020: 4,483
• February 2020: 4,494
• March 2020: 104
• April 2020: 59
• May 2020: 3,040
• June 2020: 4,162
• July 2020: 4,108
• August 2020: 4,270
• September 2020: 4,354
• October 2020: 4,391
• November 2020: 4,334
• December 2020: 4,472

• Throughout 2020, salons located in various states, provinces, and localities across the United States and Canada faced multiple and ongoing closure orders and operational restrictions. By way of example only, salons located in parts of California, New York, Alberta, Saskatchewan, and Ontario faced multiple governmental mandated closures during 2020.

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