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Channel check – Regis Corp. (RGS)

Doug Bennett

October 4, 2013

sholker [printed: August 29, 2007 8:03 AM] [saved: August 29, 2007 8:19 AM] C:\Documents and Settings\sholker\Desktop\Sholk\Presentation\Sholk Molecular Diagnostics Presentation Final.ppt

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Channel check summary

• The purpose of the RGS channel check was to determine with statistical

significance whether Regis’ turnaround initiatives had begun to drive increased

guest traffic, as management mentioned on the earnings call that QTD comp sales

were down 3.4% at Aug. 25

• It became clear through conversations with Supercuts and SmartStyle salon team

members that gathering statistically significant results was not immediately

possible, but might be gathered later this quarter with the October 1 rollout of

individual salon scoreboards that display recent guest traffic data


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Initial plan

• The initial plan was to call 250-300 company-owned salons across all North

American concepts (statistically significant at 90% confidence, 5% margin of error)

and determine whether traffic had increased

• After an 80-call initial run which yielded 20 responses from company-owned

Supercuts salons nationwide, I realized the salon team members willing to speak

about guest traffic could not speak objectively about customer traffic growth and

those who knew the figures referred me to corporate (see Appendix I for study

outline, initial results and salon team member comments)


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Revised plan

• The revised plan was to shift focus to the SmartStyle concept within Wal-Mart, as

Regis management has focused on rolling out turnaround strategies in the

SmartStyle and Supercuts businesses first given each concept’s large size (greater

effect on Regis’ consolidated financials) and single operating model (quicker,

simpler execution of new strategies)

• Wal-Mart has guided to a roughly flat comp for the Aug-Oct 2013 quarter, so if it

were determined with statistical significance that recent SmartStyle traffic growth

was positive, one might infer Regis’ turnaround initiatives were working

• In initial calls with SmartStyle salon managers and stylists, I experienced similar

difficulties in capturing reliable information on guest traffic trends

• However, I did learn how management is attempting to execute the best practices

transfer, which includes displaying a scoreboard in each salon which tracks the

individual salon’s progress toward meeting guest traffic goals (see Appendix II for

SmartStyle call results and salon team member comments)

• The scoreboard improves the chances a motivated caller could in future tests

capture reliable information on guest traffic trends


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Watch SmartStyle for signs of turnaround success

• Regis management’s turnaround initiatives are focused on transferring operating

best practices from its own best-performing internal operators, franchisees and

external peers to its underperforming company-owned salons

• Management intends to execute these initiatives at the salon level using the

FranklinCovey “4 Disciplines of Execution” method (“4DX”)

• Though the details of the strategy and its implementation have been worked out

over the past year, 4DX was just rolled out to most SmartStyle salons on October 1

http://www.youtube.com/watch?v=EZR2Ixm0QQE&feature


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First, RGS clarified most important organizational goal

• 4DX Discipline 1 is to “focus on the wildly important” by choosing a salon-level

“Wildly Important Goal” that closely aligns with achievement of a greater

organizational goal

α According to Chris McChesney, head of the 4DX practice at FranklinCovey, “Within every organization

that we work, whenever we move from a half a dozen or a dozen of these ‘we kinda ought to’ goals to

one or two ‘no matter what’s’, there is a tangible change in morale and engagement. There’s a little

switch in people’s heads called “game on”; in Discipline 1, we want to throw that switch.”

• SmartStyle salon managers across the country confirmed the chain-wide, salon-

level “wildly important goal” is increased guest counts


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Then, mgmt. identified behaviors that guest traffic

• 4DX Discipline 2 is to “Act on the lead measure”, a predictive measure that if

executed upon by each salon team member leads to achievement of the WIG, or

lag measure (increased guest counts)

• SmartStyle salon managers were recently given a list of lead measures by Regis

management and the salons had the choice of either collaboratively or individually

choosing a few individual lead measures

α one salon manager gave lead measure examples such as “one new customer per day” or “give 3

business cards to one customer per day”

• This list of effective lead measures was determined in the first nine months of new

CEO Dan Hanrahan’s tenure as he and his team catalogued the best practices of

outstanding salon operators nationwide - internal, franchisee, external (Great Clips)


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Third, a company-wide scoreboard was created

• 4DX Discipline 3 is to “create a compelling scoreboard” which simply and

transparently displays to each salon team member whether they are “winning or

losing” vs. their goal

• A SmartStyle manager confirmed that these scoreboards went live on Oct. 1,

managers can also see other SmartStyle salon’s goals and progress on “my 4DX”

• Another SmartStyle salon manager indicated all salon team members had a

personal page on a company intranet site where they could check their progress

vs. the chosen lead and lag measures and could also check the progress made in

other salons


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Last, mgmt. introduced a proven accountability routine

• 4DX Discipline 4 is to “create a cadence of accountability” – a weekly 20-minute

meeting where each salon team member reports personal progress against chosen

lead measures


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A similar turnaround process has worked in retail

• Regis’ implementation of 4DX is similar to that used in the successful turnaround of

El Pollo Loco - and later Red Robin Gourmet Burgers - under CEO Steve Carley

α “Start focusing your team on benchmarks that reflect the best-in-class performance…One way to do

that is to look for people both inside and outside the organization, or even the industry, who reflect the

absolute highest level of performance. Then you can track your performance against theirs…Carley

says this holds your employees to a higher standard, and it has helped El Pollo Loco reach new highs

in guest service and satisfaction…So once you’ve created straightforward metrics that establish the

standard for success, from both a customer and employee standpoint…“You need to take operating

information and convert it into information that you can’t ignore,” Carley says. “So you create a set of

metrics based on what you are trying to accomplish, so that it’s clear to the casual observer who is

achieving or overachieving and who is not, and in a way that they can’t ignore it…At El Pollo Loco,

that information conversion is so simple that if you understand how a traffic light works, you’ll know if

a particular store is a top performer. Restaurants that are hitting the benchmarks get to hoist a green

flag in their stores with pride. Restaurants that are just a bit below their target metrics post a yellow

flag, and the stores with significant work to do operate under a red flag. The relevant information is

dissected on a monthly basis, ranked for that month, and then publicly reviewed by management. The

key is getting the metrics and benchmarks right and then tracking them closely and publish their

performance under a harsh spotlight for everybody to see,” Carley says. “Your best employees will

respond to that and step up, and your marginal ones will either improve or leave.”

(http://www.sbnonline.com/index.php?option=com_k2&view=item&id=17565)

http://www.sbnonline.com/index.php?option=com_k2&view=item&id=17565

http://www.sbnonline.com/index.php?option=com_k2&view=item&id=17565


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The SmartStyle lab

• If these strategies drive increased guest traffic in SmartStyle, they’ll likely do the

same in the other value salons – the customer base is homogenous

• With new 4DX scorecards in place in SmartStyle, all salon team members will know

objectively whether salon-level and chain-wide guest traffic have increased;

therefore, a channel check completed in Nov.-Dec. might yield meaningful results

• Reported SmartStyle comp sales and traffic growth will also be a focus as Wal-Mart

traffic growth can be estimated and backed out, which should yield a clearer picture

of how well the new strategies have worked and how long we might expect them to

take to work when rolled out in the other concepts

SmartStyle/Wal-Mart traffic comparison QE 6/30 QE 9/30 QE 12/31 QE 3/31 QE 6/30

2012 2012 2012 2013 2013

SmartStyle (estimated customer traffic)1 -3.9% 1.4% 3.2% 1.2%

Wal-Mart (customer traffic, adj.)2 0.2% 0.0% -1.2% -0.9%

Smart-Style traffic differential -4.1% 1.4% 4.4% 2.1%1 For FY2013 ended 6/30/13, salon service prices fell by -2.4%, as full-year same-salon service sales were -0.1% and service

counts increased by 2.3% (one-off management mention in Q4 2013 earnings call); therefore, to approximate SmartStyle traffic

growth, comparable salon service sales growth for each quarter in FY2013 is adjusted up by 0.6% (2.4%/4) 2 WMT quarterly results are measured one month later than SmartStyle's; therefore, WMT's quarterly traffic growth is estimated

as follows for SmartStyle comparison: (Current comp x 2/3) + (Previous comp x 1/3)

Appendix


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Appendix I: Initial study outline

Purpose

Method

Sample size

Required responses by concept: # responses % total # salons % total

Regis Salons 33 12% 862 12%

MasterCuts 20 8% 532 8%

SmartStyle (in Wal-Mart) 95 35% 2,490 35%

Supercuts 46 17% 1,210 17%

Promenade 76 28% 1,990 28%

Total required sample size 271 100% 7,084 100%

The minimum sample size was determined using Qualtrics' recommended method (www.qualtrics.com/blog/determining-sample-

size/) and double-checked using Raosoft's sample size calculator (www.raosoft.com/samplesize.html)

To determine with statistical significance whether Regis Corp (RGS) management's newly implemented turnaround strategies have

begun to drive higher salon traffic and improved operating performance (or might be reasonably expected to do so within a year) in its

North American company-owned salons

During the period Sept. 28-30, 2013, I will call a geographically dispersed sample of Regis' North American company-owned salons and

solicit a salon team member's responses to the following questions:

1. Have management's new strategies already begun to drive higher customer traffic? Is it significant?

2. Will the new strategies improve performance in your salon in the next year?

At least 271 responses are required in order to create a sample size large enough to conclude with 0.9 confidence (0.05 margin of error)

that Regis' 7,084 company-owned North American salons are already benefiting or might benefit in the future from the strategy

The number of responses gathered per salon concept will be determined by the concept's proportion of total North American company-

owned salons at 6/30/13. Any unsolicited salon team member comments will also be recorded.


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Appendix I: Initial Supercuts call results

• Question 1: More customers recently? Significantly more?

• Question 2: Will new strategies improve salon performance in the next year?

Concept Salon # Location Question 1 Question 2 Additional comments

Supercuts 1 1292 1st Ave, New York, NY ‎10021 Yes Yes Just implemented inventory plan-o-gram, not sure how product sales have changed

Supercuts 2 272 North Avenue East, Westfield, NJ 07090 No Yes

Haven't seen the traffic improvement yet but mentioned it was still early, believes salon

will see improvement

Supercuts 3 968 High Ridge Road, Stamford, CT 06905 Yes IDK

Little information, circulating coupons driving more customer traffic, "hoped" it would

continue this year

Supercuts 4 1 Commerce Way, Johnston, RI 02919 No IDK Too early to tell whether traffic will improve

Supercuts 5 1000 Bald Hill Road, Warwick, RI 02886 No Yes

"It's getting better", sounded optimistic about future but mentioned new strategies just put

in, still early

Supercuts 6 1109 Route 35, Middletown, New Jersey 07748 Yes Yes Seeing significant traffic improvement, optimistic it will continue

Supercuts 7 2704 North Mall Drive #102, Virginia Beach, VA 23452 Yes Yes Location has always had good performance but says they are seeing higher customer traffic

Supercuts 8 2509 Bagby Street, Houston, TX 77006 No Yes

Have begun practicing "lead goals" and will begin marking performance this week, just

started gathering email addresses and passing out business cards

Supercuts 9 4180 Lake Forest Dr #410, McKinney, TX 75070 Yes Yes Customers come and go but "feels like" traffic has been up since last year, new coupons etc.

Supercuts 10 1213 Alameda Street, Norman, OK 73071 No IDK Traffic was about the same as it's always been

Supercuts 11 3807 South Peoria Avenue, Tulsa, OK 74105 Yes Yes Questionable response quality but higher traffic lately

Supercuts 12 5642 S 900 E #3, Salt Lake City, UT 84121 No Yes

Guest traffic down slightly this quarter but usually a busy store, says people are optimistic,

email coupons are going out but have only seen a few redeemed, mentioned some

customers upset when "punch-card" promotion taken away

Supercuts 13 759 W Antelope Dr, Layton, UT ‎84041 Yes Yes

Noticed a difference since more stylists hired and hiring of new district manager, said

summer was rough and have improved since then, mentioned traffic was slightly down this

month after being up since summer

Supercuts 14 6046 Stetson Hills Boulevard, Colorado Springs, CO 80923 No IDK Haven't seen much difference

Supercuts 15 3262 Centennial Boulevard, Colorado Springs, CO 80907 No Yes

Things slowly improving but haven't seen big difference in traffic yet, mentioned email

marketing improvement

Supercuts 16 7475 West Colfax Avenue, Lakewood, CO 80214 Yes Yes

Supercuts 17 18220 East 104th Avenue, Commerce City, CO 80022 Yes Yes Thought upper management was better than last

Supercuts 18 725 South Rural Road, Tempe, AZ 85281 Yes Yes

Always been busy because on campus but traffic has improved, thinks management is

improved

Supercuts 19 13954 West Waddell Road, Surprise, AZ 85374 No IDK Always been busy, can't really tell a major difference

Supercuts 20 12229 Jefferson Avenue, Newport News, VA 23602 Yes Yes

Seeing improved traffic but attributed much of the improvement to a another local

SuperCuts closing


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Appendix II: SmartStyle call results

• Question 1: More customers recently? Question 2: Significantly more traffic?

Concept Salon # Location Question 1 Question 2 Additional comments

SmartStyle 1 150 Harrison Ave, Kearny, NJ 07032 Yes Yes

Under new management, $1 off haircut promotion, used to be 1 person, hired two more

people to more open chairs, seeing more customers

SmartStyle 2 288 Industrial Park Rd, Monroe, NY 10950 No No Send email coupons if you sign up, buy 1 get one 50% off all products

SmartStyle 3 1885 New Jersey 57, Hackettstown, NJ 07840 Yes No

Email program, haircuts $15.50, 1 length buzz $10, sales on product, extra stylist, still

shorthanded, steadily getting better traffic

SmartStyle 4 180 River Road, Lisbon, CT 06351 Yes Yes New clientele, more customers (only promotion is $12 Tuesdays)

SmartStyle 5 250 Hartford Avenue, Bellingham, MA 02019 No No Not too sure on traffic, said it depends on the day. Haircut is $15.95 ($12 Tuesdays)

SmartStyle 6 222 Wilkinson Lane, White House, TN 37188 Yes No

SmartStyle 7 1091 Mill Creek Road, Allentown, PA 18106 No No

SmartStyle 8 2 Gannett Drive, Johnson City, NY 13790

Program called WIGs (Wildly Important Goals), just started on September 30 in Binghamton,

NY area, focused on driving customer traffic, call back in 13 weeks

SmartStyle 9 100 Commons Dr, Parkesburg, PA 19365 Manager was too busy to talk, said I could call back later

SmartStyle 10 250 Summit Park Dr, Pittsburgh, PA 15275

WIGs just started on Sept. 30, only WIG at salon level is "increase guest counts" - stylists

focused on doing certain things for each and every guest that drives guest counts

SmartStyle 11 2500 S Adams Rd Ste C, Rochester Hills, MI 48309 Told me to call corporate

SmartStyle 12 250 Hartford Avenue, Bellingham, MA 02019

Started WIGs on Tuesday, overall salon WIG is to increase sales/guest count, each stylist has

own WIG, "meant to make things fun" (i.e. get stylist buy-in, mentioned "girls"/stylists have

different opinions on the program)

SmartStyle 13 671 Southpark Boulevard, Colonial Heights, VA 23834

Overall company and each SmartStyle team has one goal, which is to drive traffic/salon

sales, a list of "leads" was given to this salon and the entire salon team (managers and

stylists) decided collaboratively on executing on two specific leads to meet the overall WIG

SmartStyle 14 260 Bobby Jones Expressway, Augusta, GA 30907 Have not implemented WIGs yet, have a meeting on October 13

SmartStyle 15 10251 Shops Lane, Jacksonville, FL 32258 "We don't have a salon manager"

SmartStyle 16 3535 Apalachee Parkway, Tallahassee, FL 32311

"We don't have a salon manager" - "WIGs doesn't start until next week, I think", "we did the

graph chart"

SmartStyle 17 4085 Wegdewood Ln, The Villages, FL 32162 Salon manager was out but person answering phone said WIGs was started this week

SmartStyle 18 9885 Collier Blvd, Naples, FL 34114

"one new customer each day", "one customer per day gets 3 business cards", advertising-

focused, driving traffic, implemented this week, each employee has a personal web page

where they can log on and see others goals and how they're performing against them

SmartStyle 19 5501 South Olive Street, Pine Bluff, AR 71603 Receptionist didn't know about WIG's but quickly referred to manager, not sure

SmartStyle 20 3300 Tri City Drive, Newcastle, OK 73065

Stylist said WIGs just went in this week, salon choose "leads" as a team, not each inidividual

(seems salon manager has some leeway on deciding vs. salon-level collaboratively-chosen

leads or individual leads

SmartStyle 21 1015 Texas 80, San Marcos, TX 78666 Implemented WIGs this week

SmartStyle 22 7162 Highway 1, Mansura, LA 71350

Manager said implemented WIG's a few weeks ago, seeing success from it, collaborative

salon-level leads, can see other salon's goals and progress vs. those goals on "my 4DX"

SmartStyle 23 15050 South Springdale Avenue, Middlefield, OH 44062

Stylist makes a goal, writes down progress daily, had first meeting, just started but believes

the meetings are every week

SmartStyle 24 240 Lafayette Avenue, Moundsville, WV 26041 WIGs meetings are once a month

SmartStyle 25 2802 Outer Drive, Marion, IL 62959 WIGs meetings are once a month