Cost Cutters Franchise
Audited FinancialsRisk Score
Pending analysis
Investment Range
$177,466 - $323,558
Franchise Fee
$12,500
Total US Locations
521
Business Summary
Cost Cutters provides value-priced hair care services for men, women, and children, and sells a complete line of hair care products, merchandise, and appliances. Cost Cutters operates retail hair care establishments primarily under the COST CUTTERS trademark and business system. These franchises are currently offered at approved locations within Walmart stores, but Cost Cutters reserves the right to approve other locations outside of Walmart stores. The business system focuses on providing high-quality, value-priced hair care services and products to the general public.
Corporate History
The Barbers, Hairstyling for Men & Women, Inc. (Cost Cutters' franchisor) was established in October 1968 as a Minnesota corporation. Initially, The Barbers operated a chain of company-owned, full-service hairstyling businesses. In 1970, The Barbers began franchising its hairstyling businesses. The Cost Cutters hairstyling system was developed and began franchising in 1982. Regis Corporation acquired The Barbers through a merger in May 1999.
Financial Overview
Investment Range
$177,466 - $323,558
Franchise Fee (Low)
$12,500
Franchise Fee (High)
$39,500
Royalty %
6%
Marketing %
4%
Equipment Costs (Low)
$91,000
Equipment Costs (High)
$182,000
Working Capital
$30,000
Audited Financials
Yes
Offers Financing
No
Audit Opinion
Unqualified opinion
Financial Health Notes
The Franchisor's financial condition as reflected in its financial statements calls into question Cost Cutters' financial ability to provide services and support to franchisees. Regis Corporation, the parent company, has reported continuing net losses over the past three fiscal years, with a net loss of $7.385 million in 2023, $85.857 million in 2022, and $113.331 million in 2021. The company also reported negative cash flow from operating activities for these periods. Regis Corporation's total shareholders' deficit increased from $(30.953) million in 2022 to $(36.730) million in 2023. Additionally, the company has a valuation allowance on its deferred tax assets of over $200 million. While the company stated it was in compliance with its financing arrangements' financial covenants as of June 30, 2023, the overall financial performance and ongoing losses are a highlighted risk for potential franchisees.
Financing Details
Cost Cutters and its agents and affiliates do not offer direct or indirect financing for the franchise purchase, equipment, or working capital, nor do they guarantee a franchisee's note or other obligations. However, Cost Cutters may lease the store premises directly from the landlord and require the franchisee to sublease the location from Cost Cutters or an affiliate. If Cost Cutters agrees to guarantee a franchisee's lease obligations, it reserves the right to charge a monthly fee. For Walmart locations, a $300 monthly surcharge may apply for this arrangement. Cost Cutters explicitly states it has no obligation to guarantee any lease.
Performance Metrics
Total US Locations
521
Franchised Units
521
Corporate Units
0
Avg Square Footage
1,000
Franchising Since
1982
Legal & Compliance Analysis
Recent Litigation
Yes
Bankruptcy
No
Litigation Count
11
Litigation Summary
Cost Cutters' parent company, Regis Corporation, has disclosed 11 litigation matters. Two cases are currently pending. One involves Supercuts (an affiliate) suing a franchisee for collections, where the franchisee asserted counterclaims for franchise act violations and fraud; this case has agreed to a $95,000 settlement. The second is a class action against Supercuts (later became individual) regarding credit card receipt details, which is heading to mediation. Seven cases have concluded. Six of these were Supercuts suing franchisees for collections, with franchisees counter-suing for franchise act violations and fraud; these were settled in 2022, with Supercuts and Regis paying franchisees various amounts. Another concluded case involved a Smartstyle franchisee alleging misrepresentations and omissions to induce agreement, which was settled for $210,000. Additionally, Regis settled a lawsuit with its former point-of-sale system supplier, Propoint Solutions, related to trade secret misappropriation for $2 million, with transition services extended through March 2024. Six Pro-Cuts Sports franchisees (another affiliate) and their owners filed separate arbitrations against RPC Acquisition Corp. (an affiliate) and Regis, alleging illegal financial performance representations, misrepresentations about brand growth and support, and breach of contract. All six of these disputes were settled in 2017 for amounts ranging from $115,000 to $300,000, and Regis assumed some lease liabilities. One Supercuts franchisee arbitration against Supercuts and Regis for franchise act violations and fraud was settled in 2018 for $25,000.
Bankruptcy History
Cost Cutters has no bankruptcy history. Item 4 of the Franchise Disclosure Document explicitly states that no bankruptcy information is required to be disclosed for the franchisor or its key personnel.
Agreement Terms
Initial Term
15 years
Renewal Conditions
To renew their franchise agreement, Cost Cutters franchisees must provide written notice at least 180 days before the agreement ends. They must satisfy all material requirements of their current franchise agreement, pay all outstanding amounts due to Cost Cutters, and ensure their franchised location is modernized, upgraded, and redecorated to reflect Cost Cutters' then-current design standards. Franchisees must also be in a position to occupy the location for at least three more years and sign Cost Cutters' then-current standard Franchise Agreement.
Training & Support Program
Franchisor Assistance
Cost Cutters provides both pre-opening and ongoing assistance to its franchisees. Before opening, Cost Cutters helps by reviewing and approving proposed store sites and lease/sublease agreements, provides template architectural plans, initial training for the managing owner and other managerial employees, and outlines minimum operating standards and specifications. Franchisees also receive access to the confidential Operations Manual. During operation, Cost Cutters offers advice and recommendations on store operations, purchasing, employee training methods, and accounting, advertising, and marketing strategies. Franchisees are required to participate in brand standards, marketing initiatives, and gift card/customer loyalty programs. Optional additional training may be provided at the franchisee's expense, and there is a mandatory annual convention.
Initial Training Hours
21
Training Location
Online or virtual learning, Cost Cutters Corporate Office in Minneapolis, MN, or other location designated by the franchisor
Ongoing Support
After opening, Cost Cutters franchisees receive ongoing advice and recommendations regarding store operations, including standards, purchasing, employee training methods, and accounting, advertising, and marketing. This support is delivered through the Operations Manual, electronic media, telephone, and/or at the corporate office or franchised store. Cost Cutters also provides optional additional training for employees upon request, though charges may apply depending on the type, location, and duration. Franchisees are required to have continuous access to the updated Operations Manual. Cost Cutters also maintains and administers an Advertising Fund to promote the brand and requires franchisees to participate in customer loyalty and gift card programs. Franchisees must also attend an annual system-wide convention.
Franchise Requirements
Industry Experience Required
No
Management Experience Required
Yes
Sales Experience Required
No
Technical Skills Required
No
Operational Details
Location Type
Retail
Owner Participation
Supervisory
Territory Type
Non-Exclusive
Staffing Notes
Cost Cutters requires a sufficient number of adequately trained and competent personnel to be on duty at all times to ensure efficient customer service. Franchisees must have a salon manager on duty during business hours, responsible for supervising employees and operations. If a franchisee owns six or more Cost Cutters stores, they must employ an approved and certified District Manager for every six stores. This District Manager is responsible for overseeing the operations and administration of their assigned stores, including supervising salon and assistant managers. All employees are required to wear standard attire or uniforms approved by Cost Cutters and maintain good personal hygiene. Franchisees are solely responsible for their labor relations and employment practices, including hiring, firing, and setting wages, and must ensure employees acknowledge the franchisee as their employer.