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Being in the beauty salon business is challenging. Consistently, about 80% of beauty salons close within the first 18 months. It is because anyone can open a salon; there are no special certifications or licenses required. As a result, competition is fierce–and keeping customers requires more than just quality products and an attractive name–like Great Clips.
Great Clips provides quality haircuts for people on the go. With its 100% franchised locations and low prices, the company has become a frequent choice for people for being pioneers in embedding new technology in their industry.
The company was first in launching online check-in in 2011 through Great clips mobile check in-app. This app allowed customers to check the wait time and add their names to the waitlist before visiting the salon. The application was a huge success among its customers. They also introduced Clip Notes in 2014 to track customer data and provide consistent customer service across salons.
But when former employees filed a lawsuit against one of the Great clips franchisees for unpaid overtime and other labor violations, the parent company had been continuously on the radar since then. It has been accused of churning activities, racial discrimination, poor ROI, and stringent policies. Many other flaws came under notice, including unqualified and incompetent franchise applicants too.
Fransmart has been at the forefront of the franchise industry by providing legal consultation, market analysis, and franchise structure expertise. We work with franchisors and franchisees to understand their needs and goals and provide tailored advice and guidance to make the best decision regarding the franchise system. Some of our past customers belong to Anytime Fitness, Five Guys Burgers, Dunkin’ Donuts, Mcdonalds, and many more.
Reasons Why Not To Buy The Great Clips Franchise
From July 16, 1983, the Great clip company grew from 150 franchised salons to over 4,400 salons throughout the United States and Canada employing more than 35,000 stylists. Encashing the brand popularity Great clip franchise owner is expected to make $77,000 net profit every year, which may entice in the first go. However, the Great clip franchise system has a few potential pitfalls that might not suit your preferences and result in risky investments. It is advised to avoid them altogether or shift your choice in the first place.
#1 Initial Franchise Investment Cost is too Hefty
Setting up a Great Clips salon franchise can put a bit too much load in your pocket. The initial investment for setting up a Great Clips franchise is as follows:
- Initial Franchise Fee: $20,000.
- Renewal Fee: $1,750 per salon.
- Total Investment: $146,750 – $302,400.
The total investment required for the new Great Clips salon ranges from $146,750 to $302,400 in the U.S. and $96,450 to $194,730 in Canada. The cost of a single franchise agreement is $25,000, royalties are 6% of gross sales, and ongoing advertising fees are 5% of gross sales.
Many new franchisees face critical challenges in raising capital, getting profit, paying taxes, and administrative tasks. All this could be stressful and burdensome.
#2 Lawsuit Charges Against Great Clips is Bad for its Reputation
Great Clips has faced legal allegations for unlawful racial discrimination. Plaintiff Tracey Halton and thirteen others filed a complaint against Great Clips stating that Cleveland Clips refused services based upon Racial discrimination. Lawsuits against any franchise can be demeaning for brand reputation, as well as for the reputation of other franchises too.
A Crest Hill Woman has also sued Great Clips for negligence. The lawsuit states that the plaintiff used a cane to walk due to physical disabilities. The stylist did not accommodate the chair as per the client’s convenience with special needs, which resulted in an injury. Such kinds of negligence and non-empathic behavior bring customer dissatisfaction and the brand name in a bad light.
#3 Salons Have to Face Pandemic Effects
Salons are one of the sectors which have got impacted by Covid -19. People are at their homes, avoiding going out and spending less on their grooming, making it hard for salons to get back on track and make profits like earlier. As it is already tough for established salons to make profits, opening a new franchise at such a time would be harder to operate.
#4 Return On Investment Is Not Good
According to Great Clips’ Financial Disclosure Document (FDD) for 2019, average revenues minus expenses leave a positive cash flow of $77,742. This calculation is based on the stores running for 2+ years. This amount excludes deductions for store owner/operators’ income taxes nor non-cash expenses such as depreciation or amortization. After Covid-19, profits of the salons have reduced by a significant margin, leaving the profits to a bare minimum. Opening a new franchise at such a time when high ROI in the grooming industry is challenging cannot be a deal-breaker for new entrepreneurs.
To become a Great Clips franchisee is a significant commitment. However, at the same time, you also enjoy the advantages of franchising that include:
- Instant recognition and trust from clients when you are a franchise of Great Clips.
- Association with a stable and renowned world Salon Chain.
- Getting an already tried and tested result-oriented model.
Conclusion
Great Clips is an acclaimed salon chain, and buying its franchise might look like a great idea. Nevertheless, before taking any decision, consider all other aspects like lawsuits, their reputation in your area, Return on investment, and other aspects. Buying a franchise requires much financial investment, so be careful before investing. Great Clips is known for its no-appointment and low-priced haircuts, making some clients feel they are getting enough time or attention. So before opening a franchise, see whether the people in that area value service over money. Furthermore, if that is the case, Great Clips is not a good suit for you.
Sources:
https://law.justia.com/cases/federal/district-courts/FSupp2/94/856/2568966/
https://blog.shore.com/en/reasons-why-many-beauty-salons-fail/
https://www.unhappyfranchisee.com/are-more-franchisees-de-branding-going-independent/
https://www.complaintsboard.com/great-clips-awful-company-c125618
https://1851franchise.com/greatclips/info
https://patch.com/illinois/romeoville/crest-hill-woman-sues-great-clips-50k-plus