Fantastic Sams

BUSINESS REVIEW

Fantastic Sams

Multi Unit Development Proposal

Athens, Georgia

{Clarke & Oconee Counties}

EXECUTIVE SUMMARY

Fantastic Sams is the largest franchise in the Hair Care industry. The Atlanta Region is responsible for the franchise growth and franchisee support in a designated area within North Georgia. As such, the Atlanta Region is responsible for the franchise growth in the Athens, Georgia area.

The Atlanta Region of Fantastic Sams proposes to offer this entire area to a single franchisee in an effort to facilitate planned growth, encourage consistent training/implementation, and allow a business operator the opportunity to capture an entire market.

MODEL:

This is a retail business that operates in retail locations specializing in moderately
priced hair services and quality hair products for the entire family on a “No Appointment Necessary” format. As such it observes retail hours:

10 AM ~ 7 PM – Monday thru Friday

 9 AM ~ 6 PM on Saturday

Sundays at the option of the Franchisee

and utilizes both full-time and part-time employees:

Manager(s) and Stylists

HISTORY:

Fantastic Sams has been in the Hair Care franchise business since 1974 - and
currently has over 1,340 franchised salons in operation in the U.S. and six other countries.

BASE:

These salons enjoy a strong customer base as well as new walk in traffic. A
computerized database allows management to track new customers as well as giving them the ability to market to existing customers.

LOCATION:

The salons are located in a high traffic, retail center such as: Super Wal-Mart, Big
K Mart, Kroger or Publix Shopping Centers. An exclusivity clause is usually negotiated.

DESIGN:

The salons are well designed using Fantastic Sams layout, graphics and
equipment and include salon chairs & stations, shampoo bowls and dryers. The reception / waiting areas are well visible and offer a display of retail products.

THE HAIR CARE INDUSTRY

According to American Salon’s Green Book, hair care is a $50+ billion industry and is expected to top $60 billion by the year 2000. Not only does the industry offer tremendous opportunity, it is also recession-resistant: hair keeps growing! Regardless of the economy, people continue to have their hair cut, so salon services stay in high demand all year long. It’s estimated that in the next 10 years, 3.5 million additional women will start going to salons on at least a monthly basis.

As the baby boom market ages, more disposable income becomes available for personal care and personal services. Today, more than half of all women over the age of 40 are using some form of tinting or coloring on their hair. (The average Baby Boomer turns 46 in 2000).

A $48,000,000,000 – Yes Billion Dollar – Industry

Source: American Salon Green Book

THE HAIR CARE INDUSTRY

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Compares well with other industries

Source: Encyclopedia of American Industries

Only Fast Food and Hotel/Motels generate annual sales greater than does the Hair Care Industry.

All Cash Business (No Accounts Receivables)

Low Inventory (Usually less than $7,500 per salon)

High Customer Loyalty – 85% Returning Customers

Very Resistant to Recession

A “People” Business

DOT COM PROOF

THE HAIR CARE INDUSTRY

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Two Businesses in One

ServicesProducts

 Cuts Shampoo

 Perms Conditioners

 Color Styling Aids

 Relaxing Treatment

Dominated by NON-BRANDED/Non-Affiliated (Mom & Pop) Salons

LARGEST BRANDS CONTROL LESS THAN 10%

Brand Units Percent

Fantastic Sams 1,237 0.5%

Supercuts 1,203 0.5%

Great Clips 1,196 0.5%

Cost Cutters 764 0.3%

Hair Cuttery 790 0.3%

Source: Various UFOC’s except Hair Cuttery (their web site) (4/8/00)

Ripe For Franchising
The Hair Salon industry of today looks in many ways like the “fast food” industry in the 1950’s where the bulk of the locations were individual, locally branded diners serving a small, local clientele. Along came some National Brands (McDonalds for one) with a system and an effective marketing campaign and in a few short years they were able to dominate the marketplace.
Today the National Brands in Fast Food comprise approximately 46% of the locations yet do just over 87% of the sales volume.*

Source: American Fast Food Association (1998)

FRANCHISING

For the franchisee, franchising is about risk reduction and safety. You give up the total freedom associated with being an “independent owner” to become part of a group of people committed to building a brand and dominating markets using a common, tested operating system. You don't have to guess about the most effective way to build your business, there is a specific system to use.

The franchisor provides a proven method of doing business (the operating system), a brand or trademark that will have value in the eyes of the customer based on execution of the operating system, and initial and ongoing support so you won't have to reinvent the wheel to be successful. Franchisees provide capital to expand the brand faster than the franchisor can by itself and management talent to run the business and execute the operating system.

A franchise system should also provide group buying power to cut operating expenses, faster growth due to tested marketing programs, predictable results based on adherence to the operating system and less risk of invested capital. The trade offs are the fees paid the franchisor for the operating license and the restrictions to deal with on the method of operating the business.

Franchising is nothing more or less than a business strategy for getting and keeping market share. It is a marketing system for creating an image in the minds of customers about the company's products or services. It is a method for distributing products and services that satisfy customer needs. Franchising is a network of interdependent business relationships that allows a number of people to share a brand identification, a successful method of doing business, and a strong marketing and distribution system.

Ask yourself if you would rather own a McDonald's or an independent burger drive-in. The answer to that question will tell you whether franchising has value in today's culture.

Source: International Franchise Association

A New Franchise Opens Every 8 Minutes of Each Business Day

8.3% of Business Establishments are Franchised

40.9% of Retail Sales are Generated by Franchised Businesses

Source: Franchise Fact Sheet: geocities.com

Fantastic Sams FRANCHISE

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Systems in Place to Run a Successful Business

Staff

Management

Hiring

Retention

Recognition

Payroll

Marketing

Media Planning

In Salon

Community

Facility

Location

Store Design

Store Layout

Approved Vendors

Business

Planning

Budgeting

Volume Analysis

Financial Controls

Product

Merchandising

Product Displays

Evaluating the Salon Team

Servicing the Guest

Training in Place to maximize results

New Owner Training
An intense 1 week session in our International Headquarters in Anaheim, CA

Management Training
One on one with owners and managers in our Regional office and in the operating Salons.

Technical Training
One on one and group sessions in new techniques, new products and refresher courses for stylists held both in the Regional Training center and in Salon.

Product and Merchandising Training
Focused on display and sales techniques helping Salon owners realize higher retail sales volumes and greater profit.

Point of Sale Computer System Training
Helping owners learn how to run and read the different reports available to help them make better business decisions in the areas of pricing, of staffing, of product training, and security. Also teaching how to run the reports from off site.

Fantastic Sams FRANCHISE

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Designed for Multi Unit Ownership

Source: FS Concepts

Operated by business owners with no technical (Hair) background

Source: FS Concepts

Fantastic Sams FRANCHISE

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Brand Equity from National, Regional and Local Media - Since 1975

“Fantastic Sams is recognized twice as much as any other name”*

Source: Subscriber Survey, Wall Street Journal, 1998

Clout of the largest franchise in Hair Care…

Over 1,300 Franchise Locations makes Fantastic Sams the #1 Franchise in Hair Care.

39 Operating Regions throughout North America

Over 60 Professional Educators

National and Regional Operations Support

National and Regional Recruiting & Retention Support

PRODUCTS

Additional revenue opportunities are available with the sale of retail products. In addition to offering the products of national brands like Redkin, Paul Mitchell or Matrix, a Fantastic Sams salon has the UNIQUE ability to offer FS Brand products.

These products are exclusive to the Fantastic Sams international chain of salons.

Fantastic Sams PRODUCTS

INNOVATIVE PRODUCTS - Fantastic Sams is the only hair salon organization with a complete line of retail and service products. These exceptional products were developed by top industry professionals and the FS National Academy TM, and were designed specifically for the needs of both stylists and guests.

FS HAIRCARE - The FS HairCare Line includes shampoos, conditioners, styling products, treatments, perms and hair color - all designed to leave hair beautiful and healthy. These products and services are available exclusively at Fantastic Sams salons, and come with an unconditional guarantee.

FS CLASSICS -The prescriptive line contains unique products designed for specific hair types/problems.

FS BOTANICAL EXTRACTS - (Pictured Left) A new addition, this line is designed around products which contain all natural botanic and herbal formulas. They are delicately balanced to provide vibrant, shiny hair.

THE SMOOTHEE© - This revolutionary in-salon service permanently smoothes curly hair and eliminates frizz and split ends. A first in the salon industry!

BOTANIC PERMS - Four different formulas are available to create body, bounce and shine for almost every type of hair.

FANTASTIC COLOR© - These non-ammonia color services are kind to hair and skin, leaving hair silky and shiny.

SERVICES

Fantastic Sams operates a business model that gives them a competitive edge in the marketplace. The model is described in the slogan “The Family Haircutters”. In other words, the business model calls for kids, men and women - the whole family.

Many of the nationally branded competitors work a business model that emphasizes the rapid processing of mostly kids and men ~ generating revenue via a large number of low/moderate tickets.

The Fantastic Sams model allows the salon to generate both an increasing number of guests as well as being able to increase the average ticket by offering higher ticket services to both men and women.

Fantastic Sams SERVICES

Kids Cuts -An excellent method for bringing in new customers and new families as prospective customers use their children to “test drive” the salon.

Men’s Cuts - The typical men’s cut can be performed in less than 20 minutes. This provides a rapid flow through the salon (And a major reason many competitors focus almost exclusively on Men’s Cuts).

Women’s Cuts -A women’s cut usually will take longer than a man’s, but in addition to the cut, the majority of women will want additional services.

Perms - A higher ticket service that puts body/wave into the hair.

Tint - A higher ticket service that slightly adjusts the color of the hair or adds highlights to the hair. (More than ½ of women over 40 years of age have some color treatment on their hair).

Color - An even higher ticket, this is a complete color treatment.

SmootheeTM - This revolutionary in-salon service permanently smoothes curly (Caucasian) hair and eliminates frizz and split ends. A first in the salon industry.

MARKET AREA

Athens &

Clarke & Oconee

Counties

Population / Growth (%)
Community / 1970 / 1980 / 1990 / 1970-1980 / 1980-1990
Clarke County / 65,177 / 74,498 / 87,594 / 14.3 / 17.6
Athens / 44,342 / 42,549 / 45,734 / -4.0 / 7.5
Winterville / 551 / 621 / 876 / 12.7 / 41.1

According to the 1990 Census, the population of Clarke County was 87,594 persons. The county's population grew between 1980 and 1990 at a rate of 17.6%, compared with a state average growth rate during the period of 13.2%. The county's projected population for the year 2000 is 102,775 persons.

Oconee/Watkinsville

According to the 1990 Census, the population of Oconee County was 17,618 persons. The county's population grew between 1980 and 1990 at a rate of 41.8%, compared with a state average growth rate during the period of 13.2%. The county's projected population for the year 2000 is 23,310 persons.

In Oconee County, 91.7% of the residents were white and 7.5% were black, according to the 1990 Census. Hispanics, who may also be identified as either white or black in the Census data, constituted 1% of the county’s population. Statewide, 71% of residents were white, 27% were black and 1.7% were Hispanic.

ORGANIZATION & STAFF

FACILITIES

The salon operates from leased facilities as follows:

Address:Major Grocery or Discount Department

Store

Size:Appx. 1,200 to 1,400 square feet

Term:Usually 5 years with a 5 year renewal

Renewal Options:Usually for 1 term.

Monthly Rental Rate:$2,000 to $3,200 per month

Utilities:$320 - $500 per month

Other:Exclusive “non appointment” salon within

the center.

Athens Area ~ Multi Unit - Development Plan

Fantastic Sams is the leading Hair Care franchise in the United States with over 1,300 franchise sold and over 1,200 units open. Much of the success of the franchise program has been by successful franchisees opening and operating more than one unit/salon.

Fantastic Sams operates in a unique manner among Hair Care franchise companies- on three levels.

The base level is Fantastic Sams - Corporate Headquarters. This level is responsible for the creation of the programs, training, marketing and strategic development and growth of the system both domestically and internationally.

The second level is the Fantastic Sams Region . Currently there are over 39 Regions within the Fantastic Sams system. Each Region is responsible for adding individual franchise locations within a prescribed territory and then delivering the products, services, training and programs developed by Corporate to them.

The third level is the franchisee (salon) level. This is where the product and service developed by corporate and administered by the Region is delivered to the consuming public. This is the only level that has direct interaction with the ultimate customer

An excellent analogy would be that of a tree - with Corporate being the trunk, the Regions being branches, and the franchisees being the leaves. The trunk supports the branches and the branches support the leaves. The leaves are where all the interaction takes place. Just as important, all are interdependent on each other.

From a Regional prospective, certain markets lend themselves better for a single franchisee to open all the units in that market. Reasons for this could include distance from Regional office, concentrations of population (pockets), regional shopping trends in certain markets, enhance the value of the business unit to the franchisee, etc.

The Atlanta Region has determined the Athens/Watkinsville market to be one such market and, as such, has determined a MINIMUM number of salons to be placed into the market by the franchisee. This number should change over time as markets grow, migrate and expand.

This market plan was developed to aid in determining the minimum number of salons and the best general area for their location.

Athens Area ~ Multi Unit - Development Plan

The Plan: To protect both the franchisee and ourselves, we have developed a strategy that will allow a franchisee several options of commitment (units) based on their eventual growth objective.

Athens, Georgia - and immediate Market area.

MINIMUM:3 Salons in the Market

Counties:

Clark County "90,638*

Oconee County "24,526*

Total for Minimum115,164*

* Source = U.S. Census Bureau

A]The Fantastic Sams standard salon model for an area is based on population support for the salon. Each salon requires between 30,000 and 45,000 in population to be a viable operation.

Using that formula, the above area would support between 2 and 4 successful salons.

B]However, a key to provide a better opportunity for success has been to establish the salon in or near a major center with a major traffic draw. In our market, those major draws include Grocery Stores - Kroger, Publix, Winn Dixie, and Ingles and General Discount Stores - K Mart and Wal Mart.

Therefore, by mapping the locations of these merchants, we can determine the effective shopping zones in the market to determine if the population formula would be valid in this particular instance. See Charts A & B

The above counties include about 2 Winn Dixie and 3 Publix supermarkets.

The above counties include about 4 Wal Mart and 3 K Mart centers.

C]The third criteria to observe in a new market is existing Nationally Branded competitors and how many locations each has and where they have been located. We only concern ourselves with the National Brands because most have consumer target models similar to ours. In our market these competitors are: Cost Cutters; Great Clips, Hair Cuttery, and SuperCuts.

The success of other National Brands in this market makes us confident we are in an excellent position if we act in a timely manner. See Chart C

Combining these two methods gives us a conservative MINIMUM NUMBER of locations for the listed counties of THREE. A franchisee making an initial commitment of opening only 3 salons over a designated period would be granted an exclusive in this trade area and could be relatively assured that he/she would not be over-saturating the market.

Athens Area ~ Multi Unit - Development Plan