Table of Contents 1.0 Executive Summary .............................................................................................................................3 1.1 Objectives ..............................................................................................................................................3 1.2 Mission ...................................................................................................................................................3 1.3 Keys to Success ..................................................................................................................................3-4 2.0 Company Summary ..........................................................................................................................5-6 2.1 Company Ownership .......................................................................................................................7-8 2.2 Company History .................................................................................................................................9 Table: Past Performance ............................................................................................................................9 3.0 Products and Services ...................................................................................................................10-11 4.0 Market Analysis Summary ..........................................................................................................12-19 4.2 Target Market Segment Strategy .....................................................................................................20 4.3 Service Business Analysis ............................................................................................................21-22 5.0 Competition …………………………................................................................................................23 5.1 Competitive Edge ..........................................................................................................................23-24 5.2 Options for New Franchisees………………...............................................................................24-26 5.25 Marketing Strategy for Salons…..……………………………………………………………..27-31 5.3 Trademarks..........................................................................................................................................32 5.4 Training.................................................................................................................................................33 1 The salon just for kids where the haircuts are cool and fun rules! 7.0 Franchise Facts and Statistics.............................................................................................................34 9.0 Opening Costs......................................................................................................................................38 2 The salon just for kids where the haircuts are cool and fun rules! 1.0 Executive Summary Our principal business address is Westport, Connecticut, with additional offices and representation in Canada, Ireland, and the UK. We are a franchising company that sells and develops franchises for Sharkey’s Cuts for Kids hair which operate under the mark “Sharkey’s Cuts for Kids”. All Salons are established and operated under a comprehensive and unique system (the “System”). The System includes distinctive signage, interior and exterior design, décor, color scheme, furnishings and fixtures; distinctive products and services; uniform standards, specifications and procedures for operations; quality and uniformity of products and services offered; inventory, management and financial control procedures; training and assistance; and advertising and promotional programs; all of which we may change, improve and further develop, at our discretion. Certain aspects of the System are more fully described in this document and our confidential operations manual. 1.1 Objectives The objectives for Sharkey’s Cuts for Kids are: 1. To create a service-based kids salon which exceeds customers’ expectations. 2. To increase the number of customers by at least 10% per month through superior customer service and word-of-mouth referrals. 3. Have a clientele return rate of 80%+ at the end of each month. 4. Become an established community destination by end of first year. 5. Educate the community on what the salon has to offer. Company is currently sitting at #2 in the industry in the United States. Sharkey’s will become the industry leader around the globe in the Kids Haircutting Industry within the next 12-36 months. 1.2 Mission To provide excellent kids haircuts, birthday parties, & select retail items in a kid-friendly atmosphere while ensuring our customers, both parent and child, receive excellent service in a vibrant, playful, and circus like environment. 1.3 Keys to Success The Keys to success in our business are: - Recession Proof Business: kids are kids around the world. Kids always need haircuts, birthday parties, hair accessories, and toys. 3 The salon just for kids where the haircuts are cool and fun rules! - Superior Customer Service: high-quality kids haircuts with child friendly employees. - Environment: provide a clean, upscale, fun environment conducive to giving professional service to kids and parents. - Convenience: offer clients a wide range of services in one environment. - Location: provide an easily accessible location (3-5 mile radius per location) for customer convenience. - Reputation: reliability, consistency, integrity, and 100% dedication to pleasing the parents and kids. - Salon open seven (7) days per week - Facility designed to please the parents and keep the kids busy during their visit while the parents can relax. - Well trained management team. - Testimonials: new customers love nothing more than great stories from current customers, franchisees, and store owners. - Achievements and Recognition: awards, both in-store and in the franchisee community. The company believes that certain risk factors can be minimized by: - Optimization of key locations for new franchisees. - Strong franchisees with some experience in marketing or sales (but not required). - Low overhead within the salon through the use of multi-skilled & child friendly employees. - Strong customer base through aggressive marketing. - Strong community ties and involvement with schools, kids associations, kid’s retailers, religious sectors, parks, etc. 4 The salon just for kids where the haircuts are cool and fun rules! 2.0 Company Summary When Linda and Scott Sharkey took their kids to get haircuts in uninviting, unexciting salons, they felt there should be something better. So they set out to create a unique salon that caters to children of all ages. A place that is prompt for those on-the-go parents, fun and entertaining for their children, and reasonably priced for their wallets. Hence – Sharkey’s Cuts for Kids was born October 1, 2002. The first salon was a huge success and in 2004 they opened their second and third stores. The requests for franchises started to accelerate within the first few months of 2006, and they then knew the business model was successful. In 2006, the first Sharkey’s franchise was opened. In just two short years, 20 more salons opened in the United States and Canada. As of Q2/2011 Sharkey’s Franchising Company has global commitments for 245+ salons in the United States, Canada and Europe, making us the fastest growing children’s hair salon franchise. Sharkey’s is now the most innovative and entertaining kid’s salon for both boys and girls ages 0-14 around the globe. Our proven business models, which feature lower than average royalties and multiple revenue streams, give you the best opportunity for success. In summary, Sharkey’s is: • • • • • • • • A unique salon just for kids A “proven” recession proof business (kids always need haircuts, birthday parties, and retail) The fastest growing chain of children’s salons Commitments in the US, Canada, and Europe for another 245+ new stores Part of a $55 billion hair care industry A service business in strong demand even in a downward economy A fun and exciting place for children and parents A business that delivers multiple revenue streams: o Haircuts for boys and girls, and parents and dads o Birthday parties in our “famous” Glamour Room o Specialty merchandise and party favors A recession-proof industry Hair care is a $55 billion per year industry. It is estimated that hair care for children makes up $5 billion of the market. According to the 2000 census, there are over 52 million children between the ages of 0 and 14 in the US and they average 8 haircuts per year. This is the Sharkey’s Cuts for Kids target market. Children’s hair salons and entertainment style hair cutting have recently begun to gain momentum and the growth rate is phenomenal. Sharkey’s leads the industry in momentum and franchises sold per year, having overtaken its closest competitor in 2008 with the ranking of “Fastest Growing Children’s Hair Salon” from Franchise Times. 5 The salon just for kids where the haircuts are cool and fun rules! Why Sharkey’s • • • • • • • • • • • Turnkey package Playstation 3, X-box 360, Nintendo Lower initial investment compared to other kids hair salons (average lower investment of approximately $100,000) Benefit of a brand with high consumer awareness A complete and extensive training program that is unequaled Outstanding PERSONAL assistance throughout every step of the start-up phase and beyond Dedicated support team available at all times Unique and “famous” Glamour Parties Effective marketing programs Simple business model with an easy to follow step by step guide to make you successful Direct access to the ownership who are loyal and responsive to new ideas from their franchisees We offer unsurpassed, dedicated franchisee support, including but not limited to the following: • • • • • • 4-day comprehensive training program Site selection and negotiation Salon design and layout Grand opening and continuous marketing programs On-site assistance during grand opening week Owners’ meetings to discuss operations and marketing What will set Sharkey’s Cuts for Kids apart from the competition is the commitment to provide all these services in one convenient location. 6 The salon just for kids where the haircuts are cool and fun rules! 2.1 Company Ownership Sharkey's Franchising Co., LLC is a privately-held LLC co-owned by Linda and Scott Sharkey. Co-Founder and CEO: Scott Sharkey Scott Sharkey began his career graduating from the University of Hartford in 1985 with a degree in Economics and Finance. In 1985, Scott went to work in Research & Development for Chemicraft International, Inc., a New York based company, creating thermal transfer ink formulations for the soon to be barcode and facsimile industry. As part owner of Chemicraft, Scott led the design team that created and operated Chemicraft's first manufacturing equipment in 1988 in the United States. Scott's responsibilities then evolved to include the hiring and training of the company's fast growing factory, marketing, and sales personnel in the United States and then in the UK in 1995. In 1990, Scott became the Director of Sales for Chemicraft, cultivating relationships with strategic original equipment manufacturer's accounts; value added resellers, and resellers. Scott successfully transformed a small $2,000,000 business into a large dominant player ($11,000,000 is sales) in the barcode and facsimile market, both domestically and internationally. During his ten years as Director of Sales at Chemicraft, he developed and managed over $125,000,000 in barcode and facsimile sales in the United States and throughout Europe. In March of 2001 Scott left Chemicraft and created a new company called Precision Ribbon Technology ("PRT"), a New York company. PRT was a sales and marketing company that distributed barcode and facsimile products into smaller reseller channels of distribution. From April of 2001 to April of 2002, Scott built a large book of business through hundreds of distributors and resellers and PRT was acquired by one of its competitors, Iimak, of Amherst, New York. Scott was part of the acquisition and worked for Iimak from January 2002 to February 2003. Scott left Iimak to open the first Sharkey’s Cuts for Kids and currently serves as Sharkey's (and its affiliates’ Fintastics Cuts for Kids out of British Columbia) CEO. Scott's responsibilities with Sharkey’s involve all aspects of public relations, marketing, domestic & international expansion, franchise sales and development, ,and also serves on the Advisory Board for Sharkey’s Franchising Co., LLC. Scott will represent Sharkey's in the offering and approving of shares sold for Sharkey’s. Co-Founder: Linda Sharkey Linda Sharkey holds a Bachelor of Science degree in advertising from the University of Texas at Austin. She started her career in advertising working as an account supervisor with Saatchi & Saatchi Advertising, Grey Advertising and Wells Rich Green Advertising from 1987 to 1995. Her campaign credits included the award winning “I Love New York” campaign for New York State and the Procter and Gamble “Hair So Healthy It Shines” campaign for Pantene shampoo. She also brings considerable experience in marketing for children’s products. Linda worked on several General Mills brands, including Fruit by the Foot, 7 The salon just for kids where the haircuts are cool and fun rules! Gushers, and Fruit Roll-ups. This work allowed Linda to become heavily involved in new product development for General Mills. Her work as an Account Supervisor involved every aspect of the marketing process, from creative strategy through research and development to sustaining brands through their life cycle. After a brief break in her career to start her family, Linda returned to the business world as Chief Financial Officer of Precision Ribbon Technology. After working for PRT from April 2001 to January 2002, Linda went on to co-found the first Sharkey's Cuts for Kids. Currently Linda is a silent partner within Sharkey’s Franchising Co, LLC, and its affiliate company Fintastics Cuts for Kids out of British Columbia, Canada. 8 The salon just for kids where the haircuts are cool and fun rules! 2.2 Company History System wide Outlet Summary 2007, 2008, 2009, 2010, 2011 Outlet Type Sharkey's Deluxe Franchise Sharkey's Jr. Franchise Corporate Stores Total Total Salons Scheduled to Open Year Outlets Open at the End of the Year Outlets Sold by the End of the Year but Not Open Outlets Purchased, and Scheduled, by Master or Area Developer 20072009 2010 23 25 2 3 136 0 2011 18 3 0 2009 2 2 0 2010 3 13 91 2011 18 13 40 2009 0 0 0 2010 0 0 0 2011 0 0 0 2009 23 2 136 2010 27 16 91 2011 37 16 40 267 9 The salon just for kids where the haircuts are cool and fun rules! 3.0 Product and Services The company sets itself apart from other child hair care facilities that only offer one, or maybe two, types of similar services. Parents desire these additional services that Sharkey’s offers. We have found and proven that these parents are frustrated because they must go to several different salons, party establishments, toy stores or travel long distances to find these types of services, activities, or retail products. Sharkey’s offers all of the above under one roof. Sharkey’s revenue stream account for 75% haircuts (60% boys, 40% girls), 15% birthday parties (girls ages 4-12), & 10% retail (hair accessories, jewelry for the parents, party favors and gifts). The business atmosphere is clean, friendly, circus-like looking, and upscale where customers will be 110% comfortable bringing their children and “tweenagers” (new service as of Q1/2010 for older girls and parents). We offer a personal touch, fun exciting styling chairs, and a memorable hassle-free environment for the kids and parents! Turn-key Purchase The cost of the following equipment and supplies is included in the Initial Franchise Fee for a Sharkey’s Cuts for Kids franchise: desk, base cabinets, adult styling chairs, kids styling chairs, station vanities, glass tops/shelves for vanities, Playstation3 or Xbox 360, Nintendo, assorted video games, DVD players, assorted movies, DVD wall mount shelving, flat panel televisions, flat panel television wall brackets, shelves for window display, shelves and racks for in-store display, stools, monogrammed coat hooks, monogrammed fixtures for vanities, signage for outside, assorted mirrors, Glamour Stools, decorative knobs for mirrors, decorative fabric/curtains for mirrors, decorative display hooks around mirrors, manicure station, chalk buckets, chalk railing, slop sink, storage shelves, combs, brushes, blow dryers, clippers, buzzers, towels, hair washing station, hair washing chair, booster seats, telephone, monogrammed bags, assorted wall hangings, retail, software, scanner and computer. If certain items included in the above list are not available at the time we supply the franchise, we will replace any item that is of equivalent value and serves the same or similar purpose. 10 The salon just for kids where the haircuts are cool and fun rules! Services Offered at Sharkey's *All haircuts include wash, cut, blow-dry, Tween Lounge, fun chairs, game stations with Xbox/PS3/Nintendo, mini-cure & glamour rings, Sharkey dollars & bookmarks, balloons, lollipops, and of course lots of fun, smiles & great haircuts. Boy's Haircut Wash, cut, blow-dry, fun chairs or X-box/Nintendo, Sharkey dollar, Sharkey bookmark, balloon, lollipop. Girl's Haircut Wash, cut, blow-dry, Tween Lounge, fun chairs or X-box/Nintendo, mini-cure & choice of rings, Sharkey dollar, Sharkey bookmark, balloon, lollipop. Bang Trim Tween Lounge, fun chairs or Xbox/PS3/Nintendo, mini-cure & choice of rings, Sharkey dollar, Sharkey bookmark, balloon, lollipop. Child's 1st Haircut Wash, cut, blow-dry, fun chairs, 1st haircut certificate, picture, lock of hair, minicure & choice of rings, Sharkey dollar, Sharkey bookmark, balloon, lollipop. Updo Wash, cut, blow-dry, Tween Lounge, fun chairs or X-box/Nintendo, mini-cure & choice of rings, Sharkey dollar, Sharkey bookmark, balloon, lollipop. Dad & Son Wash, cut, blow-dry, fun chairs or X-box/Nintendo, Sharkey dollar, Sharkey bookmark, balloon, lollipop. Mom & Daughter Wash, cut, blow-dry, Tween Lounge, mini-cure & choice of rings, Sharkey dollar, Sharkey bookmark, balloon, lollipop. Mom's Haircut or Blowout Wash, cut, blow-dry, Tween Lounge Day of Beauty A spa package available to girls 4-14 in our "Tween Lounge". Membership Program Pay one price and receive unlimited haircuts, hair treatments, mini-cures, and discounts off retail items and birthday parties. Glamour Girl Birthday Parties * services may vary per location 11 The salon just for kids where the haircuts are cool and fun rules! 4.0 Market Analysis Summary United States Research has shown us that the prime markets for a Sharkey's Cuts for Kids salon is near urban neighborhoods comprised of middle-to upper-income families. These families search for ways to engage their children in more than just haircuts that their children passively enjoy or do not enjoy. Demographics for each salon require 10,000-15,000 kids within a 5-mile radius of each salon. Kids population figures are approximately 23.5% +/- 1.5% (ages 0-17) of the total population, but these figures will vary in states like Utah where the percentage of kids reach as high as 31.2% (US Census Bureau). Sharkey's analysis of the United States market is listed below: U.S. population density within each county, in persons per sq. mile (lower 48 states only): Light to dark (yellow to blue): 1-4 (y), 5-9 (lt. green), 10-24 (teal), 25-49 (dk. teal), 50-99 (blue-green), 100-249 (blue), 250-66,995 (dark blue). In 2008, the US Census Bureau projected future censuses as follows: • • • 2010: 310,232,863 2020: 341,386,665 2030: 373,503,674 *Sharkey's Cuts for Kids looks for a minimum of 10,000 kids within a 5 mile radius of each location. Kid’s ages 0-14 represent 20.2% of the total US population, according to the US Census Bureau. **Sharkey’s takes the total number of kids between ages 0-14, divides this number by 15,000 kids, and takes 28% of this number. This 28% takes into account certain regions that are not easy to get to where customers need to drive 5+ miles where mountains exist, income levels, ethnicity, and small suburbs and towns. ***It needs to be noted that customers will drive 10+ miles for our "famous" Glamour Girl birthday parties. Customers typically will drive no more than 10 miles for a haircut, except on Saturday, Sunday, and holidays if a major shopping center exists in that location. Using the above formula, Sharkey's projects the following number of outlets within the United States to be open by: 2010: 310,232,3 - 119 Sharkey's Salons 2020: 31,3, - 127 Sharkey's Salons 12 The salon just for kids where the haircuts are cool and fun rules! Canada Research has shown us that the prime markets for a Sharkey's Cuts for Kids salon is near urban neighborhoods comprised of middle-to upper-income families. These families search for ways to engage their children that are more than just haircuts that their children passively enjoy or do not enjoy. Demographics for each salon require 10,000-15,000 kids within a 5-mile radius of each salon. Kids population figures are 22.1% (ages 0-17) of the total population. Sharkey's analysis of Canada is listed below: In 2010, the US Census Bureau projected future censuses as follows: • • • 2010: 34,019,000 2020: 36,387,000 2030: 38,565,000 *Sharkey's Cuts for Kids looks for a minimum of 10,000 kids within a 5 mile radius of each location. Kids ages 0-14 represent approximately 17.9% of the total population in Canada. **We will take the total number of kids between ages 0-14, divide this number by 15,000 kids, and take 28% of this number. This 28% takes into account certain regions that are not easy to get to where customers need to drive 5+ miles where mountains exist, income levels, ethnicity, and small suburbs and towns. ***It needs to be noted that customers will drive 10+ miles for our "famous" Glamour Girl birthday parties. Customers, "typically" will drive no more than 10 miles for a haircut, except on Saturday, Sunday, and holidays if a major shopping center exists in that location. Using the above formula, Sharkey's projects the following number of outlets within Canada to be open bye: 2010: 3,019,000 - 113 Sharkey's Salons 2020: 3,37,000 - 122 Sharkey's Salons 2030: 3,,000 - 129 Sharkey's Salons *Sharkey's has an affiliate company called Fintastics Cuts for Kids which operates under Sharkey's Cuts for Kids in the province of British Columbia. 13 The salon just for kids where the haircuts are cool and fun rules! Europe Research has shown us that the prime markets for a Sharkey's Cuts for Kids salon is near urban neighborhoods comprised of middle-to upper-income families. These families search for ways to engage their children that are more than just haircuts that their children passively enjoy or do not enjoy. Demographics for each salon require 15,000 - 20,000 kids within a 10-kilometer radius of each salon. Kids population figures are 20.5% (ages 0-17) of the total population. Sharkey's analysis of the European market is listed below: In 2009 the population of Europe was estimated to be 852.4 million. The precise figure depends on the exact definition of the geographic extent of Europe. The population of the EU was 499 million as of 2008. Non-EU countries situated in Europe in their entirety account for another 94 million. Five transcontinental countries have a total of 240 million people, of which about half reside in Europe proper. *Sharkey's Cuts for Kids looks for a minimum of 15,000 - 20,000 kids within a 10-kilometer radius of each location. Kid’s ages 0-14 represent approximately 15.5% of the total European population. **Sharkey’s takes the total number of kids between ages 0-14, divides this number by 20,000 kids, and takes 5% of this number. This 5% takes into account certain regions that are not easy to get to where customers need to drive 10+ kilometers where mountains exist, income levels, ethnicity(very important in Europe), and small suburbs and towns. Plus it needs to be noted that Sharkey's is a new brand, and concept, in Europe as kid’s hair cutting salons do not exist anywhere in Europe. ***It needs to be noted that customers will drive 25+ kilometers for our "famous" Glamour Girl birthday parties. Customers, "typically" will drive no more than 16 kilometers for a haircut, except on Saturday, Sunday, and holidays if a major shopping center exists in that location. Using the above formula, Sharkey's projects the following number of outlets within Europe to be open by: 2009: 2,00,000 - *0 Sharkey's Salons 14 The salon just for kids where the haircuts are cool and fun rules! India Research has shown us that the prime markets for a Sharkey's Cuts for Kids salon is near major cities and some urban neighborhoods comprised of middle-to upper-income families only. These families search for ways to engage their children that are more than just haircuts that their children passively enjoy or do not enjoy. Demographics for each salon require 10,000 - 15,000 kids within a 10-kilometer radius of each salon. Kid’s population figures are 32.1% (ages 0-14) of the total population, Sharkey's analysis of the India market is listed below: *Sharkey's Cuts for Kids looks for a minimum of 15,000 - 20,000 kids within a 10-kilometer radius of each location. Kid’s ages 0-14 represent approximately 31.2% of the total Indian population. **For India we take the total number of kids between ages 0-14, take into account income levels across the country, higher than average lease rates, divide this number by 15,000 kids, and take 14% of this number. This 14% takes into account certain regions that are not easy to get to where customers need to drive 10+ kilometers where mountains may exist, income levels are below middle income numbers, and small suburbs and towns. Plus it needs to be noted that Sharkey's will be a new brand to India, NOT concept, as a few mom and pop kids hair salons exist in one or two of the major cities (Bangalore and Mumbai). It should also be noted that the Indian population, in general, like franchise concepts and represent a nice percentage of current franchise ownership for Sharkey's worldwide. ***Activity for the Master Franchise rights to India is very big right now. Sharkey's is estimating the Master rights for India to be between $750,000 - $1,500,000 for the entire country. This sum is typically paid upfront at time of signing, but in some instances terms can/would be discussed. ****It needs to be noted that customers will drive 25+ kilometers for our "famous" Glamour Girl birthday parties. Customers, "typically" will drive no more than 16 kilometers for a haircut, except on Saturday, Sunday, and holidays if a major shopping center exists in that location. ***** Birthday parties for children in India average approximately 35 kids. Parents in India will spend upwards of $3000 US dollars for their daughter’s birthday party, according to locals on the ground in these middle to upper middle class communities. Using the above formula Sharkey's projects the following number of outlets within India to be open by: 2011: Estimated Middle Class: 10,000,000 - 3 Sharkey's Salons 201: Estimated Middle Class: 27,000,000 - 3 Sharkey's Salons 15 The salon just for kids where the haircuts are cool and fun rules! UAE & Middle East *As of 11/2011 Sharkey's has a franchisee in contract discussions for Dubai. Research has shown us that the prime markets for a Sharkey's Cuts for Kids salon is near major cities and some urban neighborhoods comprised of lower middle income families and above. These families search for ways to engage their children that are more than just haircuts that their children passively enjoy or do not enjoy. Demographics for each salon require 10,000 - 15,000 kids within a 10-kilometer radius of each salon. Kid’s population figures are 20.4% (ages 0-14) of the total population, Sharkey's analysis of the UAE market is listed below: Largest Cities of the UAE Rank City Name Emirate Population Estimated # of Sharkey's Jr. Salons 1 Dubai Dubai 1,770,533 4-7 2 Abu Dhabi Abu Dhabi 896,751 2-3 3 Sharjah Sharjah 845,617 2-3 4 Al Ain Abu Dhabi 374,000 1-2 5 Ajman Ajman 372,923 1-2 6 Ras Al Khaimah Ras Al Khaimah 171,903 1 7 Fujairah Fujairah 107,940 0 8 UmAl Quwain UmAl Quwain 69,936 0 9 Khor Fakkan Sharjah 49,635 0 10 Dibba Fujairah 30,000 0 16 The salon just for kids where the haircuts are cool and fun rules! Japan Research has shown us that the prime markets for a Sharkey's Cuts for Kids salon is near urban neighborhoods comprised of middle-to upper-income families. These families search for ways to engage their children that are more than just haircuts that their children passively enjoy or do not enjoy. Demographics for each salon require 10,000-15,000 kids within a 5-mile radius of each salon. Kids population figures are 13.3% (ages 0-14) of the total population. As of 2010 Japan's population was estimated at 126,804,183. *Sharkey's Cuts for Kids looks for a minimum of 10,000 kids within a 5 mile radius of each location. Kid’s ages 0-14 represent approximately 13.3% of the total Japan population, according to the US Census Bureau. **Sharkey’s takes the total number of kids between ages 0-14, divides this number by 15,000 kids, and takes 28% of this number. In this case we will take slightly less than the typical US 28% and take only 21% for this market. This takes into account certain regions that are not easy to get to where customers need to drive 5+ miles where mountains exist, income levels, and small suburbs and towns. ***It needs to be noted that customers will drive 10+ miles for our "famous" Glamour Girl birthday parties. Customers, "typically" will drive no more than 10 miles for a haircut, except on Saturday, Sunday, and holidays if a major shopping center exists in that location. *The Japanese parents and kids like very similar services to what is here in the United States. The middle class, and upper middle class population, in Japan like to spend money, pamper their kids, and like US franchises and services that pertain to children. Using the above formula, the potential Sharkey's outlets to open within Japan are: 2010: 126,804,183- 236 Sharkey's Salons 17 The salon just for kids where the haircuts are cool and fun rules! Middle East, Russia, China, South Africa We are currently fielding many leads on a weekly basis for the Middle East, but this region is not stable at the moment and Sharkey's has elected not to pursue this market at this time. Our company is open to doing regional salons in countries such as Egypt, Saudi Arabia, and Israel. Russia is a market we are watching very closely as we are currently in discussions with a possible Master Franchisee for this territory. Sharkey's will need to do much more legwork on the demographics and income levels in this very large country before moving forward. But, Sharkey's feels very strongly that we will have a presence in this country within the next 2-4 years. 18 The salon just for kids where the haircuts are cool and fun rules! The China market for Sharkey's has the same approach as Russia at this time. We have engaged a number of people in this country as we are exploring future possibilities. China is the biggest unknown for Sharkey's at this time, but the company is exploring possible opportunities. South Africa may be a very nice niche for Sharkey's as we are currently discussing a possible salon or two in this country. 19 The salon just for kids where the haircuts are cool and fun rules! .2 Target Market Segment Strategy for Salons Our success will be based on our ability to become known in the community. We must focus on the specific market segments whose needs match our offerings. Focusing on targeted segments is one of the keys to meeting our expansion plans. Stay at Home Parents and Dads For a variety of reasons, stay-at-home Parents and Dads are an attractive segment. Parents are looking for a place to take their children to get a haircut and play. They live in middle class suburbs surrounding the metropolitan area. The market segment customers will lead a lifestyle in which their children play a large part in their lives. The company also focuses on meeting the local community need for birthday party services and select retail items within the salon. Flexibility and service within the salon allows the children and “tweenagers” (new revenue source as of 2010) to be dropped off, or to be taken care of while the mom or dad is sitting and reading/texting/checking emails. Elementary Schools The salon also likes to establish relationships with local elementary schools; there are typically 35+ schools within the target area, for possible customers. The strategy for this market is to provide periodic communications through the PTA channels, Friday folders, Mother/Daughter Nights at the schools, etc.. This strategic approach will provide credibility and frequency of communication to our target market. This market is a primary focus for our salons. Day Cares Local Day Care centers are a great source of customers for our salons. Sharkey's is exploring the possibilities of bringing a mobile type Sharkey's (Q4/2012) establishment to these Day Care locations during the course of a business day. Sporting Venues Soccer, tennis, baseball, basketball, hockey, and other local sporting teams all comprise potential customers for our salons. Both boys and girls participate in all these events. Local Retail Establishments Pizza shops, libraries, ice cream shops, supermarkets, deli's, bagel shops, delivery services, kids gym franchises, other birthday party establishments, girl/boy scout troops, children’s dentists and doctors offices, children’s hospitals, dance studios, karate classes, are all target markets for Sharkey’s' Cuts for Kids customer! 20 The salon just for kids where the haircuts are cool and fun rules! .3 Service Business Analysis When times are tough, consumers will spend on their kids! Despite the gloomy economic forecast, many child and education related franchises claim the clouds are parting for their businesses! There is one market that never has to fear losing its client base, it’s the children’s products, education and services industry. After all, there will always be children! Tutoring franchises, children’s consignment franchises, and child related service franchises have been helped by a poor economy. Children and their parents are spending more money every year. Children in this country influence $500 billion of retail and service related spending each year. With so many children, and so many different needs as the face of the family changes, there are many opportunities for the entrepreneur to enter into this booming market. There are 4 million babies born every year in the U.S., and most families are moving toward being dualincome households. The result of this combination is $60 billion in annual revenues for the childcare industry. Whether it is haircuts, toys, food for clothes, the market is rapidly growing. Children’s hair care and personal care was estimated at $281 million in 2006 and has maintained steady growth since 2002. We expect this to keep rising through 2020. Sharkey's Cuts for Kids At Sharkey's Cuts for Kids, we know that kids and parents want something different with their haircut experience. So we provide it all: a superior haircut with warm, experienced stylists in a meticulously clean place filled with fun! Children can sit in a Harley Davidson Motorcycle, Barbie Car, Big Red Jeep, and Sparkling Silver Mercedes while watching their favorite DVD'S or cartoon channel. Older kids will love the chance to play Playstation 3, X-box 360, and Nintendo games (all on 40”-42” TV’s) and watch their favorite sporting events or music concerts through Satellite TV while getting their haircut! If you should be waiting for your haircut or just want to have fun, feel free to shop for some of our great toys, gifts, party favors, or have your kids play video games while they are waiting! We offer unsurpassed, dedicated franchisee support, including but not limited to the following: • • • • • • 4-day comprehensive training program Site selection and negotiation Salon design and layout Grand opening and continuous marketing programs On-site assistance during grand opening week Owners' meetings to discuss operations and marketing Our brilliant formula for success is all about our multiple sources of revenue that flow through our shops daily (haircuts, birthday parties, retail). 21 The salon just for kids where the haircuts are cool and fun rules! Common Questions? What qualifications do you seek in a franchisee? We seek positive, customer focused people who are highly motivated with a desire and commitment to build a successful business while having fun. Do I need hair care experience? Not at all. We actually prefer previous management or business experience to hair care experience. Your stylist will handle the hair while you focus on building your business. Why choose Sharkey’s Cuts for Kids over another salon? We are the most innovative and entertaining salon for both boys and girls ages 0-14 around the globe. Our proven business models, which feature lower than average royalties and three revenue streams, give you the best opportunity for success. What is your “Turnkey package”? All the store equipment and installation is included in the franchise fee - plus all the franchise information and training you will need to open for business. What does it cost to open a Sharkey’s Cuts for Kids? You should expect to invest between $96,170 - $128,995 for a Sharkey’s Cuts for Kids. Typical financing will cover 75-80% of this amount. Can I open multiple salons? Yes, if you qualify, we encourage our franchisees to own more than one salon. In fact, we offer substantial discounts off the franchise fee for multiple salons. Do I need to work in the salon(s)? For single salon owners we do not require you to work full-time in the salon. Multi-store owners, we suggest, should hire a district manager or promote a stylist from within. Sharkey’s Cuts for Kids should only require approximately 1-5 hrs/week of management time, which will allow you to add additional stores and manage them from an outside office! 22 The salon just for kids where the haircuts are cool and fun rules! .0 Competition Children's Hair Care Franchises January, 2012 - Entrepreneur Magazine Competition Total Franchise Investment Franchising Since Snip-Its $152.8K - $298.7K 2003 Pigtails & Crewcuts $118.8K - $193.3K 2004 Cool Cuts for Kids $130.5K - $211K 2009 Sharkey's Cuts for Kids $96.2K - $128.1K 2006 Franchises Open (not sold) Company 2009 2010 2011 2012 Snip-its 65 63 61 n/a -6 % Pigtails & Crewcuts 27 30 31 n/a +14.5% Cool Cuts for Kids 0 0 1 n/a +100% n/a 25 39 *48 +92% Sharkey's Cuts for Kids % of Change *As of 11/1/2011 The market for the hair care services offered by the Salons (adult salons, not kid’s salons) is highly competitive. However, we believe our competitive position is enhanced by our operational format and by the various services offered by the Salons. We plan to continue controlled expansion into areas that we determine can support the Salons to improve name recognition and the reputation of the System. The children’s segment of the hair care industry represents an opportunity to exploit a substantial market. Competition consists of traditional independent hair care stores, including barber shops, independent hair salons and stylists, day spas and regional and national chains. The principal bases of competition in the hair care industry have been price, convenience, speed of delivery, quality and name recognition. .1 Competitive Edge Price, service, certification & validation, and reputation are critical in success factors in the kid’s service business. The company will compete very well and aggressively in the defined targeted markets by offering a franchise that is as much as $170,000 under its largest competitor, offering services up to the age of 14 where competition stops at 7, and offering a turn-key package at a price where the franchisee DOES NOT need to go to the bank for a loan. Sharkey's has taken the lending out of the equation for the franchisee by keeping the price of the turn-key model at a price that is affordable to most people seeking to purchase a kids salon. Ninety percent (90%) of the last twenty five (25) franchises sold by Sharkey's 23 The salon just for kids where the haircuts are cool and fun rules! Franchising CO., LLC have been sold and paid for by the franchisees without requiring an SBA loan or home equity loan. With our competition offering their models at a significantly higher price, not offering the full compliment of revenue sources as Sharkey's, lack of creativity and rapid responsiveness from management, our company has been able to catapult to near the top of the small amount of competitors in this industry. With salons all across the United States, Canada, and now the UK and Ireland, Sharkey's has positioned itself as a global provider of kid’s hair salons and children's entertainment centers. Additional Benefits of Sharkey’s Cuts for Kids: 1. Validation through existing franchisees 2. Recession proof franchise 3. All cash business, no receivables 4. Minimal inventory 5. No selling, customer comes to you 6. Absentee ownership model (Ability to add additional units) 7. Scalable with multiple locations 8. Initial entry could be under $100,000 9. Mentor program available for all franchisees 10. Monthly conference calls with all the Sharkey’s franchisees 11. State of the art salon software 12. Sharkey’s App for Android & I Phone (Q2/2012) 13. Access to New Sharkey’s Kids Franchise (Q2/2012) .2 Options for New Franchisees Single Unit, Multiple, Area Development, and Master Development SINGLE UNIT FRANCHISEES A franchisee has the right to operate one franchise unit. Most franchisees enter the world of Sharkey’s by owning one unit, and planning to open 2-9 more units. It is a great way to get in and understand the system before taking on more units. Some new franchisees will initially purchase a 3-pack or 6-pack of Sharkey’s Cuts for Kids in order to secure a territory before another franchisee takes it first. Territory: The franchisee may have a small radius of exclusive territory to operate within. Sharkey’s will give an area of exclusivity around the salon (3-5 mile radius). If Sharkey’s elects not to give exclusivity, the franchisee will be offered the first right of refusal on a new location being sought after by a new franchisee. 24 The salon just for kids where the haircuts are cool and fun rules! Level of participation: The franchisee is very involved with almost all operations of this type. Even if it is a semi-absentee owned business, the franchisee will want to be present at the business and be as hands-on as possible. Typical liquid capital required: Approximately $96,000 to $128,000 for a single unit, $245,000 for a 3-pack, $490,000 for a 6-pack, and $780,000 for a 10-pack of Sharkey’s Cuts for Kids. MULTI-UNIT FRANCHISEES (Most Common) The franchisee acquires more than one unit from Sharkey’s at a reduced (must be 3 units or greater) franchise fees. The risk is lower because the franchisee can take advantage of the economies-of-scale theory; by spreading costs across multi-units, the locations may be more successful. Territory: There is usually no exclusive territory where the franchises must be set up. The franchisee may have one unit in one part of town with a surrounding radius of exclusivity, and another unit in another part of town 15 miles away or even in another county with its exclusive radius of operation. Level of participation: The franchisee is less involved with each of the units operations, but will be managing multiple operations and will need to have some level of supervision in each unit. If many units are opened, a general manager and additional administrative and training staff may be needed. The franchisee is more of a general manager when many units are involved. Typical liquid capital required: $245,000 for a 3-pack, $490,000 for a 6-pack, and $780,000 for a 10-pack of Sharkey’s Cuts for Kids (limited financing is available for 10-pack purchases). AREA DEVELOPMENT FRANCHISEES (Limited to specific territories within the US) This license grants the Area Developer the right to open or sell a certain number of franchises in a given area. There is a development schedule where the Area Developer must open or sell a certain number of franchises during a certain period (10 years is the average). Territory: The Area Developer maintains an exclusive geographic territory as long as the development schedule is maintained. The territories range from a small city, to parts or all of a larger city, a state, province, or country. Level of participation: The Area Developer will be very involved in the beginning stages of the first location to make sure it is successful. The Area Developer will also need to be looking for qualified real estate to open the next few locations for himself or a new franchisee within the exclusive territory. Once 25 The salon just for kids where the haircuts are cool and fun rules! several locations are open, the Area Developer will be responsible for the success of the franchisees within the exclusive territory, along with have the backend support from Sharkey’s. Compensation: An Area Developer for Sharkey’s receives a $20,000 commission check for every Sharkey’s Cuts for Kids that is sold within the exclusive territory, along with 50% of the monthly royalties paid by all franchisees within the exclusive territory. The Area Developer will also receive a $15,000 commission for any leads outside the exclusive territory that are converted into franchises. No royalty fees are awarded for sales outside the exclusive territory. Typical liquid capital required: $50,000 to $450,000 initially to secure the area. The Area Developer will then be responsible for the rest of the start-up costs. One single unit is required for this person to open. MASTER DEVELOPMENT FRANCHISEES (Available Only for International) A Master Franchisee, sometimes called a Regional Developer, has the rights to a larger area than that of an Area Developer. The Master Franchisee, in addition to opening franchises at a much reduced franchise fee and royalty, can also sell unit franchises, multi-unit franchises and area development franchises and make a nice return on the sale. The master receives 75% of the royalty and franchise fee paid by each franchisee, and the remaining 25% is paid to the Franchisor (Sharkey’s). There may be additional income available from distribution of products through the franchisees in the area and possibly even some real estate interest. The master becomes somewhat of a sub-franchisor for the area, without having experienced all the trial and error the original franchisor did. The master franchisee will open and operate at least one unit (pilot location), for income and use as a training center. Master franchises are offered by Sharkey’s to International prospects only. However, when they are available they usually sell quickly. The income available from a master franchise is extremely lucrative. The initial investment is low compared to the type of value you can build in the master franchise area. The flexibility is also the greatest at this level. Territory: Usually is a large metropolitan area, provinces, countries, and regions (not available for states within the US). It is an exclusive area and will remain exclusive as long as the master franchisee meets the development schedule of franchises in the exclusive territory. Level or participation: The master franchisee will set up and operate at least one unit and use a manager to manage it while working on selling other "sub-franchises" and assisting them in operating properly. Very rarely is a master franchisee "hands on" in a unit franchise. They tend to spend more of their time operating like a business consultant or coach to their franchisees to help them become successful. The master is responsible for franchisee contracts, construction, administrative costs, marketing, advertising, collection of franchise and royalty fees, and all legal matters. Typical liquid capital required: $150,000 to $1,500,000 is needed to acquire the territory and for initial liquid capital to start the area. Typically this is paid in one lump sum at signing. 26 The salon just for kids where the haircuts are cool and fun rules! .2 Marketing Strategy for Salons Partnership Programs. The salon will develop community partnerships to offer discounts to the clients of other businesses that cater to our target market, such as: · Local fitness centers without child care · Local elementary schools (there are 34+ within a 5-mile radius) · Pediatrics offices, pediatric dentistry and pediatric orthodontist offices Brochures. Brochures to be designed to communicate our presence, the services we offer, and the clients we serve in the community. Flyers. Flyers will be designed for posting at community locations that attract high traffic volumes of consumers within our target market, such as: · Local grocery stores, pizza shops, ice cream shops, and dry cleaners · Local child care centers & OB/Gyn offices · Local children's clothing stores (i.e., Kid to Kid and Babies R Us) · Local stores that carry children's items (i.e., Target, Wal-Mart, and Kohl's) · Local children's programs (Gymnastics, Dance centers, Karate, My Gym, etc.) · Libraries ~ children's books section and entrance bulletin board · Local bookstores ~ children's book section (i.e., Barnes and Noble, etc.) · Fitness Centers ~ child care area (if they have one) Advertising. Ads will be placed in publications that cater to the demographics of our target market, including: · Parent Magazine · What's Happening Around Town · Positively Parenting · Kids Directory Public Relations. As the franchisor, we will promote our company and it's benefits to the community through efforts to have articles published in new media and efforts to gain coverage on local radio and television programming. Potential media outlets include: 27 The salon just for kids where the haircuts are cool and fun rules! · A magazine serving families of Our County · Small Business Times · Women’s Directory · Local schools PTA newsletters 28 The salon just for kids where the haircuts are cool and fun rules! What’s New for 2012 No more helium for our franchisees. With our new balloon process our franchisees will be cutting their cost of balloon by 50%. This process has been implemented across the network of franchisees as of 12/1/2011. Membership Cards were made available to our franchisees as of November 18, 2011. B o y s a n d g i r l s membership cards can now be ordered through Sharkey’s secure website. Software is being written by Leprechaun come January 2012 for our franchisees to have the option of purchasing Windows based tablets for customers to use instead of the conventional sign-in forms. We are being told there will be a monthly fee attached to this option ($10-$40), but the advantages far supersede the small fee. We are being told that programming will take 30 days, and the project will start mid-January. Based upon the feedback we have received from all our franchisees, we are expecting all our franchisees, in the US, to jump on this once it becomes available. 29 The salon just for kids where the haircuts are cool and fun rules! Sharkey's is working on a mobile App for I-phone and Android Technology. As of today, we are hoping to launch this App towards the end of Q1/2012. Very cool stuff.. A New Operations Manual is currently being worked on and will be made available to our franchisees sometime during Q2/2012. The manual appears to be approximately 150 pages in length, and will replace the one currently being used. ? Sharkey's will be launching a New Kids Franchise during the second quarter of 2012. Our thoughts are to offer this franchise to a select number of current franchisees, in certain select markets around the world, at cost or no cost (not yet determined). This franchise will not require a store front, and will be worked from a home office or behind the desk at Sharkey's Cuts for Kids. 30 The salon just for kids where the haircuts are cool and fun rules! Advisory Board Meetings An Advisory Board within Sharkey’s has been formalized and is scheduled to meet quarterly, one meeting per year to be in person and the others via Skype. Items to be discussed on a quarterly basis will include, but not limited to, new concepts, additional revenue sources, streamlining current operations, expansion of current concepts, software upgrades, marketing tools, etc. Area & Master Developer Conference All Area and Master Developers are required to meet for an annual conference, to be held at Sharkey’s corporate headquarters, to discuss expansion of current territories held by these individual developers. Items that are discussed, but not limited to, are real estate options, market conditions, barriers of entry, expansion in lower-income markets, build-out costs, co-op advertising, demographics, etc. 31 The salon just for kids where the haircuts are cool and fun rules! .3 TRADEMARKS The Franchise Agreement and Area Representative Agreement permits you to use the Proprietary Marks only for the purposes and upon the terms and conditions set forth in the Franchise Agreement or Area Representative Agreement. We have registered the following Proprietary Marks with the U.S. Patent and Trademark Office (“USPTO”): Mark Registration No. Date of Registration Sharkey’s Cuts for Kids 2,842,656 May 18, 2004 Sharkey’s Cuts for Kids (and design) 2,894,629 October 19, 2004 005513056, 005512983 November 12, 2007 TMA718138, TMA718185 July 9, 2008 Sharkey’s Cuts for Kids (EU) Sharkey’s Cuts for Kids (Canada) These Marks may be used only in the manner we authorize and only for the operation of the business franchised to you under the Franchise Agreement or Area Representative Agreement. You may not use the Marks as a part of your corporate or other legal name, and you must comply with our instructions in filing and maintaining trade name or fictitious name registrations. You must sign any documents we require to protect the Marks or to maintain their continued validity and enforceability. In addition, you may not directly or indirectly contest the validity of our ownership of the Marks. There are currently no effective agreements that significantly limit our rights to use or license the use of trademarks listed in this section in a manner material to the franchise. 32 The salon just for kids where the haircuts are cool and fun rules! . TRAINING TRAINING PROGRAM – SHARKEY’S CUTS FOR KIDS FRANCHISE Hours of Classroom Training Hours of On-the-Job Training Location Glamour Party 0 3 Off-site Computer 0 6 On-site Hair Stylists & General Store Practice 0 2 On-site Retail 0 2 On-site Desk/reception 0 2 to 4 On-site Audio/Video 0 1 to 2 On-site Subject Our initial training program is overseen by Sharkey’s representative or Area/Master Developer, at a store location chosen by the Franchisor or Area/Master Developer. TRAINING PROGRAM – SHARKEY’S CUTS FOR KIDS AREA/MASTER DEVELOPER Hours of Classroom Training Hours of On-the-Job Training Location Lead Generation 0 2 Norwalk, CT Computer 0 1 Norwalk, CT Validation Process 0 2 Norwalk, CT Qualifying 0 2 Norwalk, CT Home Office Requirements 0 30 min Norwalk, CT Follow-up Requirements 0 2 Norwalk, CT Subject As an Area/Master Developer, they will experience one full day of training at our corporate headquarters in Norwalk, Connecticut or at a training site designated by us. This training will consist of teaching the AD/MD and their personnel how to solicit, validate and qualify franchise sales, how to provide on-going operational assistance to the franchisees located within their Development Area, and other aspects of conducting their business beyond that of how to operate a Salon. They must successfully complete the training to our (Sharkey’s Franchising Co., LLC) satisfaction. The initial training programs will be offered at various times during the year depending on the number of new Area/Master Developers entering the System. The instructional material we use in our initial training program includes our Manual, the computer system, and any other materials that we believe will be beneficial to our new developers in the training process. 33 The salon just for kids where the haircuts are cool and fun rules! 7.0 FRANCHISE FACTS and STATISTICS Important Franchise Statistics for Potential Franchisees Franchised businesses account for nearly 0% of all service & retail sales in the United States. • The International Franchise Association has reported that franchising is responsible for 760,000 businesses, 18 million jobs, 14 percent of the private sector employment, and over $500 billion in payroll! • From January, 2000 to December, 2008 the index that tracks the performance of the top 50 franchisors increased 34.5% compared to a drop of 20.1% in the S&P 500 over the same period. • A study by The United States Chamber of Commerce found that % of franchises opened within the last five years were still under the same ownership and 97% of the were still open for business. • A U.S. Department of Commerce study showed that during that time less than % of franchise businesses were closed each year. • A U.S. Small Business Administration study conducted found that 2% of non-franchised businesses closed within the first years of their existence due to failure, bankruptcy, etc.. • A Franchise Times survey indicates that 90% of their respondents recommend franchise ownership. In addition, 87% are satisfied with their franchise experience & only 4% expressed they were not at all satisfied. Franchise Pros and Cons The advantages of owning a Sharkey’s franchise are many and frequently overlooked by the purchaser, Some of the advantages that it is important to point out: • • • • • • • • • • • Established Name Recognition Co-op Marketing Bulk Purchasing Power Training and Training Time Management Experience Accounting Systems Strategic Planning Research and Development Quality Control Systems Real Estate Criteria Construction and Design Some perceived disadvantages: • • • • • Franchise Fee On-going Royalties Operating Conformity Duration of Agreement Reliant on Franchisor Success 34 The salon just for kids where the haircuts are cool and fun rules! 9.0 ESTIMATED INITIAL COSTS FOR OPENING Item Initial Franchise Fee Travel and Living Expenses While Training Estimated Cost Method of Payment $89,995 When Due To Whom Paid Installments $65,000 on signing Deposit Agreement; Balance due upon signing Franchise Agreement Sharkey’s Franchising Co., LLC $0 (included in Initial Franchise Fee) Rental – 1 months $750 to $3,000 Per lease Per lease Landlord Leasehold Improvements $0 to $22,000 As arranged As arranged Contractor *( 50-100% being covered by landlords) Blue Prints and Plans $0 to $3,500 As arranged As arranged Architect; Government Agencies $175 to $250 Lump sum Before opening Insurance Companies $750 to $3,000 Lump sum Before opening Landlord; Utility Companies $3,500 As arranged As arranged Suppliers Permits and Licenses $250 to $750 As incurred Before opening Governmental Agencies Additional Funds – Three Months $0 to $5000 As incurred As incurred Suppliers, Employees, etc. Equipment $0 (included in Initial Franchise Fee) Signs $0 (included in Initial Franchise Fee) Opening Inventory $0 (included in Initial Franchise Fee) Insurance Premiums – Per Month Security Deposits Grand Opening Advertising TOTAL $96,170 to $128,995 *years 2009-2011(based upon Sharkey’s history) 35 The salon just for kids where the haircuts are cool and fun rules!
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