Supercuts Inc. History

Address:

550 California Street
San Francisco, California 94104
U.S.A.

Telephone: (612) 947-7777
Fax: (612) 947-8800

Wholly Owned Subsidiary of Regis Corporation
Incorporated: 1975
Employees: 1,500
Sales: $96 million (1997 est.)
SICs: 7231 Beauty Shops

Company Perspectives:

Since its inception, Supercuts has undergone many changes, but the haircutting technique, the commitment to training, and the basic concept of offering its customers value and choice remain virtually unchanged.

Company History:

One of the largest barbershop chains in the United States, Supercuts Inc. operates approximately 1,200 stores in the United States and Puerto Rico. Supercuts was founded in 1975 and grew in large part through franchising for the ensuing 15 years, attracting a steady clientele who preferred the company's discount prices and unisex approach to hair styling. In the early 1990s, as the company underwent a series of management changes, company-owned stores took the center stage after years of relying on franchisee-led expansion. The shift into establishing company-owned stores led to crippling financial losses for the chain, as the number of company-owned stores increased from 45 to 500 during a two-year span. In 1996, when Supercuts was coming off a more than $7 million loss and found itself $25 million in debt, Regis Corporation acquired the chain. Regis, based in Minneapolis, owned 2,000 hair salons operating under the names MasterCuts and Trade Secret. In 1998, 754 of the Supercuts in operation were owned by franchisees, with the balance owned by the company itself.

Mid-1970s Origins

Supercuts was founded in 1975 by Frank Emmett and Geoffrey Rappaport, two entrepreneurs who reworked the business of cutting hair and created a concept capable of nationwide expansion. Compared with high-fashion hair salons and neighborhood barbershops, the prototype Supercuts store developed by Emmett and Rappaport was fundamentally distinct, differing from each end of the hair-styling industry spectrum. The idea behind Supercuts was to provide an inexpensive and quick haircut, without appointment and available to everyone--men, women, and children. Further, the basic services offered at a Supercuts store&mdash⁄ampoo, haircut, blow-dry, and styling--would be offered individually, enabling customers to choose those services they specifically wanted and be charged for only the services they chose, something akin to dining from an à la carte menu. In essence, the concept represented the standardization of cutting hair: streamlining the process for maximum efficiency and then marketing the services to a broad customer base. Supercuts customers could get their haircut with the same ease as going to the supermarket and expect the same type of service no matter which Supercuts they frequented. To make this concept work, Emmett and Rappaport created a framework that served as a pattern for all Supercuts stores to follow. The particulars of this blueprint distinguished Supercuts from nearly all other competitors.

Emmett's and Rappaport's novel "product" was the development of an efficient hair-cutting technique that reduced the time required to complete a haircut to 20 minutes. It was a technique that other hair stylists could learn readily, providing the company with a standard that could be disseminated to all Supercuts hairstylists. To become a Supercuts hairstylist, an individual first was required to be a licensed cosmetologist, then had to undergo training in the Emmett-Rappaport hair-cutting technique. Recertification every seven months was another stipulation, but the rewards for adhering to the standards of Supercuts had their advantages for willing hair stylists. At the time of Supercuts formation, the prevailing compensation method in the hair-cutting industry was on a commission basis. Hair stylists earned their money according to how many heads they cut, which meant that financial success was dependent on the individual hair stylist's success in building his or her own clientele. Not so at Supercuts, where hair stylists were genuine employees paid a regular salary, along with benefits.

The first Supercuts opened in the fall of 1975 in Albany, California, and quickly attracted a steady stream of business. Three years later Emmett and Rappaport were ready to expand and in a burst of energy established five more stores in 1978. At this point, the burgeoning company did not possess all of the characteristics of its systemic approach to the business of cutting hair, but those qualities did begin to appear after the end of 1978. By the end of their company's third year of business, Emmett and Rappaport, encouraged by the resounding success of their concept, decided to begin franchising Supercuts. Over the course of the ensuing decade--their last as Supercuts owners--Emmett and Rappaport governed the proliferation of their concept into a sprawling chain, one that grew for the most part through franchising. In an eight-year span, slightly more than 20 new Supercuts stores were opened by Supercuts the corporation, but this same period also saw nearly 500 Supercuts open up through franchise agreements. By the mid-1980s the chain was the second largest of its kind in the country, trailing only Memphis-based Fantastic Sam's.

Combined, company-owned stores and franchised units were generating more than $120 million in sales per year, their presence blanketing much of the United States. In less than a decade Emmett and Rappaport and their franchisees had begun to exert a stranglehold on the nation's major markets, with Supercuts stores entrenched in 39 states, but the company's statistical strengths alone did not tell the whole story. By the end of 1986 there were profound and, as it would turn out, incurable problems between the founders and the franchisees. A divisive feud had festered during the chain's prolific growth, and by the beginning of 1987 the task of resolving the acrimony had been passed to new owners.

1987 Knightsbridge Acquisition

A group of Chicago-based venture capitalists operating under the name Knightsbridge Partners purchased Supercuts from Emmett and Rappaport in 1987. Led by David Lipson, former executive vice-president and chief financial officer of Beatrice Companies Inc., Knightsbridge invested in companies involved in food, consumer products, and consumer services and had first approached Emmett and Rappaport in November 1986 about acquiring Supercuts. The founders rejected the proposal, as well as others, but three months later their position had changed and it was Emmett and Rappaport who approached Knightsbridge, inviting the investment firm to offer another bid. An agreement was reached, and as the details of the deal were negotiated Knightsbridge began looking for an executive to manage their soon-to-be-acquired investment. Lipson and his colleagues turned to an executive referral service and the name they were given to contact was Betsy Burton, most recently the marketing executive for Pontiac, Michigan-based Perry Drug Stores Inc. Burton signed on as chairman, chief executive officer, and president, assuming the responsibility of assuaging the difficulties between Supercuts franchisees and corporate executives in San Rafael.

Burton, in her mid-30s when she was tapped as the leader of Supercuts, held a B.A. in psychology from the College of William and Mary and an M.B.A. from the University of Chicago. She began her professional career as a merchandising manager for health and beauty aids for a Midwestern retail chain named Jewel Companies, Inc., distinguishing herself enough to be recruited in 1981 by Bee Discount, a retail chain of beauty and barber supply stores. Eventually rising through the corporate ranks to become president and chief operating officer, she left Bee Discount to become president of Victory Beauty Supplies, the largest beauty supply distributor in the Midwest. Her record of success continued at Victory, where she was credited for doubling sales. As part of her compensation for invigorating business, grateful Victory management awarded Burton part-ownership in the company, which she subsequently cashed in when Victory was sold to Alberto-Culver Co. in 1985. Her bank account fattened by the sale of her ownership stake, Burton joined Perry Drug Stores Inc. as senior vice-president of marketing. In February 1987, while working for Perry Drug, Burton's telephone rang, signaling her next career move to Supercuts.

With the money she gained from her heralded efforts at Victory, Burton not only assumed the three most powerful executive positions at Supercuts, she also took on a financial interest in the company, acquiring ten percent of the beleaguered hair salon chain. The challenge in front of her was unifying the franchisees and corporate management, something that was intrinsic to the vitality of the company. "My challenges are set out in front of me," Burton explained when she took the helm in late 1987. "The first task is to develop a partnership with the franchisees. The company doesn't make money unless the franchisees make money," she remarked. Burton also looked past the internal strife and set the tone for future growth once the difficulties were resolved. "The growth of chains is rapid," she noted, "but there's still room for more growth. Expansion will help the existing stores. We're not even near saturation. We will try to increase density in underpenetrated markets." On this confident note, Burton began moving forward, hoping to make her tenure at Supercuts as successful as her previous managerial stints.

When Burton first slipped behind her desk at San Rafael, the adversarial relationship between corporate headquarters and the franchisees had erupted into a contentious legal squabble that hobbled the company. As the chain grew robustly during the first half of the 1980s, the independent shop owners became increasingly angered about their treatment from Supercuts executives. The franchisees were convinced that their thoughts and ideas concerning the operation of Supercuts were being ignored, and in response they took collective action and formed an association of independent Supercuts owners. Meanwhile, productivity waned as emotions flared and chainwide profitability began to suffer. Against this backdrop the change in ownership occurred, and by the time Burton took the helm the association of franchisees had filed a lawsuit against Supercuts the corporation, threatening further difficulties for the company. Burton realized that the situation was grave, requiring immediate resolution. Before the Knightsbridge deal was officially concluded, Burton began to preach harmony, hoping to demonstrate to the independent shop owners that she was on their side. She hosted a reception for franchisees, met several of their demands, and convinced the franchisees to settle their class action lawsuit, which centered on the use of advertising dollars. "It was heartwarming," she remarked shortly after the reception. "It's a tremendous feeling. People are asking to expand. They want to know what our plans are."

With the rift between management and franchisees resolved, Burton next turned her attention toward regaining the momentum lost during Supercuts' mid-1980s downward spiral. She reduced corporate staff by 50 percent and assembled her own management team. After realizing that Supercuts had been operating without any formal budgeting procedures, she put in place measures to curtail overspending. In addition, she began selling beauty supplies in Supercuts stores, something Emmett and Rappaport had shied away from because, in their minds, it detracted from the company's no-frills concept. "It seemed to me," Burton explained, "that selling hair-care products in the shops was an ideal way to build another profit center without increasing overhead by more than the few thousand dollars it would take to stock the goods." Given the opportunity to increase profits, Supercuts' franchisees welcomed the new facet to their business operations, as they did the $500,000 Burton spent on the company's training program. The changes and the renewed team spirit worked wonders, injecting life into a previously anemic enterprise. During the first two years of Burton's stewardship, franchisees recorded double-digit sales increases. All told, franchisee revenues swelled from $126 million to $170 million, spurred in part by the 100 new franchised stores that were added during the two-year span. By the beginning of the 1990s optimism and confidence soared, reflected in Burton's five-year master plan of reaching $500 million in sales and a store count of 1,200 by 1995. The harmonious spirit that had lifted Supercuts' fortunes had even spread upward to the company's highest ranks: in 1990 Burton and Lipson married. It seemed the perfect beginning for a rejuvenated company, but the camaraderie did not last. Less than a year after her wedding and the launching of her five-year master plan, Burton quit.

Troubled Early 1990s

Burton's enchantment with her tenure at Supercuts soured in 1991. At the time, the company's financial growth and physical expansion was brisk. Lipson, perhaps spurred by the company's energetic progress, wanted to take Supercuts public, a proposal Burton was wholly against. As the leader of the company, Burton did not relish the idea of shareholders possessing a voice in the governance of Supercuts, but Lipson was firmly attached to the idea and would not be swayed from converting the company to public ownership. In response, Burton resigned five months before Supercuts' initial public offering of stock in October 1991. Shortly after Burton departed, she and Lipson divorced, leaving Lipson in the same position he had occupied four years earlier: in need of someone to manage Supercuts.

To replace Burton, Lipson selected Edward Faber, the flamboyant president of ComputerLand during the early 1980s who was credited with rapidly increasing franchise sales for the computer retailer. Expected to invigorate franchise sales as he had at ComputerLand, Faber did not remain with Supercuts long enough to achieve any substantial goals. He resigned from the company 11 months after he took control, explaining that he lacked the energy for the job. Supercuts, too, was beginning to slouch in the shoulders, bereft of steady support to franchisees that had reached its acme during the years of Burton's leadership. With nowhere else to turn, Lipson named himself as Supercuts' new chief executive officer, taking over with a bold new plan that promised to change the face of Supercuts as it had existed since 1975. Lipson proclaimed a new focus on establishing company-owned stores, moving the company away from its nearly 20-year-long dependence on franchised units to fuel growth. Lipson's dramatic turnaround was predicated on his belief that the rampant franchisee-led growth that occurred during the 1980s was made possible by the liberal lending habits of banks during the decade, a characteristic that no longer described bank lending practices during the 1990s. Consequently, Lipson looked to company-owned stores as the driving force for Supercuts' future, and in early 1993 he hoped to open 120 new company-owned stores before the end of the year.

As a foundation on which to build, Lipson had 45 company-owned stores, far fewer than the more than 720 franchised Supercuts that were in operation when he took over as chief executive officer. For potential location sites for the company-owned stores he would open, Lipson looked to the Midwest and the Northeast, where the company's presence was weakest, and away from California, Texas, and Florida, where Supercuts stores were concentrated. Lipson, as he set his plan in motion, displayed a prodigious appetite for expansion, establishing one new store after another in rapid fashion. By the beginning of 1996 the total number of Supercuts stores had risen to nearly 1,200, close to the target goal set by Burton five years earlier; the goal had been achieved, however, in a manner contrary to the mode of growth projected by Burton. All of the new stores were company-owned stores, lifting the total count of such stores to 500, a remarkable increase from the 45 company-owned stores in operation roughly two years earlier. The prolific expansion did not come without its costs, the most alarming of which was the more than $7 million loss recorded in 1995. The chain was reeling under the strain of too-rapid expansion, and the person to blame was the architect of the frenetic expansion: Lipson. At the beginning of 1996 Lipson was ousted from the company, his vision of financial success achieved through an armada of company-owned stores having proved illusory.

In the wake of Lipson's departure, Supercuts was a rudderless company coming off of fours years of misguided management. The task of steering the company in the right direction fell to the chain's new owners, who arrived in mid-1996. In July, Minneapolis-based Regis Corporation, operator of nearly 2,000 hair salons, purchased Supercuts. Regis acquired Supercuts in a stock swap valued at approximately $120 million, a deal that also forced Regis to assume $25 million in debt racked up by the weakened Supercuts chain. Under Regis's ownership, Supercuts was operated as a separate business unit, retaining its name and many of its senior executives, led by Steve Price, who took over as president and chief executive officer after Lipson's departure. A number of company-owned stores closed in the months after the acquisition was finalized in October 1996, particularly in the New York area. During the ensuing two years, the chain avoided major expansion and steadied itself after years of tumult, striving to distance itself from its troubled past and chart a course for a less disruptive future.

Supercuts Inc. History

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