Thirty-five years later, Fantastic Sams is thriving, and Scott Colabuono, president and CEO, contends that the ability to think outside the box is what’s kept this national franchiser ahead of the game while others have struggled to stay in business.
“We’re the only full-service, single-brand hair salon in the country with a national footprint,” he said. “We’ve seen a slowdown like many other franchisers have, but our sales activities are still robust.”
Between January and November, Fantastic Sams sold 74 franchise stores. Thirty-two of those have been sold since July, and 20 have been sold since September—what most mark as the beginning of the nation’s newest recession.
Although having a national footprint gives the company an advantage, so does the flat-fee royalty model the company has set up with its franchisees. Rather than a percentage of a store’s total sales going directly to corporate, franchisees pay the same base royalty as their sales grow.
“The percentage of royalty our franchisees pay corporate actually reduces as the franchisee’s sales grow. Under the flat fee structure, they continue to pay the same amount on a weekly basis, regardless of whether their revenues are $5,000 or $10,000,” Colabuono said. “Successful owners view the system as a way to put more money into their pockets as they become more successful at operating their businesses.”
Perfecting product development
Franchisees also benefit from the company’s R&D, both for its proprietary product line and in how it chooses its vendor partners. From reconstructive treatments and styling gels to hair dryers, flat irons, and ethnic hair care products, the Fantastic Sams line competes with name-brand products on effectiveness and on price.
Because the company has been able to negotiate cost with its manufacturer, it can sell its products to its owners at a lower price. Franchisees are then ahead of the game with lower-priced products and higher rates of return.
“Our franchisees can sell those products at a lower price than national brands but with equal quality, and they see the benefits in their volumes and margins,” Colabuono said. “We offer national brands in the salons because many customers are brand focused, but we believe we have a competitive private-label brand, and our employees know how to explain that difference.”
Fantastic Sams shows an equal amount of discretion when choosing which name brand products to put in its stores. All of the company’s vendors go through a qualification process before they can sell their products within the salons. In the past year, the company has added TiGi Colour products and qualified Mizani products by L’Oreal as an extension of its ethnic hair care product line.
“We also introduced Fantastic Sams’ men’s line in 2007, so we’ve increased both our national brand positioning and our private-label brand positioning in the past 18 months,” said Colabuono.
When Colabuono became president and CEO of Fantastic Sams three years ago, he had a two-pronged vision of what he wanted to do with the company. His first mission was to stabilize the business by putting personnel in place that had credibility and experience in the industry. He also wanted to spur regional and national growth.
“We had many people who did not have industry experience, and, as a result, in many cases, franchises failed,” he said. “We’ve upgraded the field staff and the executive team, and we’ve been very pleased with our personnel decisions.”
Part of the restructuring came from the development of a partnership with human resources consulting firm GHSmart in 2006. The firm is responsible for the development of top grading, a technique that comprises an intensive four- to five-hour interview session where interviewees are evaluated on their propensity to succeed. Fantastic Sams took it a step further and, after being trained in the GHSmart techniques, now uses top grading to assess a potential employee’s cultural fit across the organization.
“Our culture revolves around being people oriented and experienced in the industry,” Colabuono said. “More importantly, we’re a service-oriented culture. We’re here for our owners. They want to be in business for themselves, not by themselves.”
In the bigger picture, the GHSmart Top Grading program has had a trickle-down effect through the ranks, the result of which has been more significant marketshare growth on the franchise level. To continue to support those owners, Fantastic Sams changed its corporate structure. Although it continues to have exclusive regional developers for many of the markets, the company grew the number of salons supported directly from the corporate level.
“Over the last three years, we’ve moved the percentage of salons being serviced by the national company from 18% to 26%,” Colabuono said. “We’ve aggressively used technology and the Internet to drive franchise sales leads to find people who are interested in joining the system.”
Fantastic Sams also changed its national strategy by reacquiring five regional developers to consolidate the corporate structure. The result has been consistent organic growth. And while growing by 74 stores just between January and November 2008 is an impressive feat, consider the fact that the company has produced those numbers for each of the past three years. “We’ve opened 80 to 90 stores a year system-wide for the last three years,” Colabuono said.
When the company started in 1974, it was focused primarily on suburban expansion. The company is now focused on metropolitan growth, which is why development of its proprietary ethnic hair care products has been at the fore of its R&D platform.
“As you look at generations X and Y and so forth, you see that suburban markets will always be good, but you can’t ignore the mass portions of the populations going into the cities,” said Colabuono.
Because it’s charting new territory, Fantastic Sams invested in GIS (Geographical Information System), a platform typically used by big box retailers. The system will enable the company to determine its customer base, where they live, and where future store placement will be most effective. Colabuono said most retailers choose not to make the hefty investment into GIS, but he views investments as a way for Fantastic Sams to maintain its competitive edge.
“For years, we’ve offered hundreds of classes a year to our stylists, and we’re partnered with national training organizations to ensure our stylists are on the cutting edge of style,” Colabuono said. “We’re going to continue on the same path because we feel the consolidation investments we’re making, along with the technology and educational investments, will position us in the industry as a leading player in the full-service hair business.”