Cookie Cutters not trimming back on expansion plans

March 16, 2009
When it comes to niche marketing, few companies are more specialized than Cookie Cutters Haircuts for Kids. The Indianapolis-based firm, with seven stores in central Indiana and a total of 39 across the United States and Canada, makes its living selling haircuts for children — specifically those between the ages of 2 and 12.

"The average age is closer to 4 years old," said company Vice President Larry Shelton, 58. "We like to say that once we sell a child [on the experience], they'll keep bringing the parents back."

The company is so sure of its grip on its niche that — in spite of tough economic times — it hopes to increase its tally of franchised locations past 100 within five years. But this small, family-owned business plans to tread carefully.

"We're entering into a period where we're going to start pushing stores a little bit more aggressively. But we're more concerned with getting stores opened and getting them in decent spots instead of just selling franchises all over the place," he said.

"We've been doing this so long, we've already been through that temptation to just go out and sell them to anybody and everybody and then not be able to open them."

Shelton and his wife, Cookie, 56 (the company's namesake), were themselves sold on the concept back in the early 1990s. While visiting relatives in San Francisco, they accompanied their 2-year-old nephew to a barbershop that welcomed children, but didn't necessarily cater to them. The couple (who had no haircutting experience) saw an opportunity.

"We basically decided to specialize in just kids, and built the stores a lot bigger and put nothing but children's chairs and children's services in them," said Larry Shelton, who formerly worked as a computer consultant.

The original Cookie Cutters, which opened in 1994 at Clearwater Crossing, set the corporate template. It boasts special chairs that look like everything from race cars to firetrucks, colorful interior design, lots of TVs and video games to distract scissors-shy patrons, and a corps of stylists who work only with tykes.

These days, the firm is really two companies — Cookie Cutters Haircuts For Kids Inc., which oversees the couple's three wholly owned local stores, and CC Franchising Inc., which handles franchising.

The franchising wing consists of the elder Sheltons (Cookie serves as company president), their son, Joe, and an outside executive. On the third Friday of each month, the company holds an open house, called Discovery Day, for (properly screened) potential franchisees at its offices in the Stutz Building. Since 1995, when the company started selling franchises, it has debuted an average of four to five stores per year.

"The challenge was getting from 10 stores to 30 stores," Shelton said of the firm's expansion. "It takes a lot of cash to do that, and it's tough to get over that hump. That's the hardest thing any franchiser faces — getting to a big enough number so that it starts to live off itself."

Getting cash these days is even more problematic. Shelton says the franchising business went in the tank last summer, thanks mostly to the inability of interested parties to secure bank financing. Typically, a new location costs anywhere from $90,000 to $250,000 to open. But the company likes to stay comfortably below the quarter-million mark for new stores.

Franchisees pay a one-time $25,000 fee, then royalties of 5 percent on sales. Additional locations opened by a franchisee in good standing cost $10,000 each. For their money, franchisees receive five days of intense training in Indianapolis, plus ongoing technical support once the shop opens. The company even outfits new stores with the chain's signature novelty chairs.

Helping franchisees

Chelsie Dierickx got into the business three years ago. A former stylist, she bought out the previous owner of her Davenport, Iowa, Cookie Cutters. So far, she says, the recession hasn't cut her business.

"It's hard to believe, but it hasn't been too bad," she said. "No matter the economy, every kid still needs a haircut."

Unlike Dierickx, most of the people getting into the business have no haircutting experience. Shelton says this necessitates a lot of careful hand-holding for newbies.

Providing that support is critical for any company growing through franchising, said Marcus B. Chandler, partner and chairman of the entrepreneurial services group at the law firm Barnes and Thornburg.

"There have to be people willing to answer the phone, and maybe hop on a plane or in a car and take a look at your store to find out what's wrong with it," he said.

"Yes, some franchises explode, but maybe they're well-funded and maybe they have a staff of 300 who are ready to help franchisees. But none of the stores I've ever been associated with started out with 300 people who were able to do support work."

'Micro niche'

Shelton doesn't use words like "explode" when describing the company's expansion plans. His just isn't that sort of niche.

The United States has 228,221 adult oriented salons, which generate more than $56 billion in annual revenue, according to Texas-based Professional Consultants & Resources. The opportunities for kids' haircuts are far more modest. The number of barbershops or salons catering to kids likely is no more than a few thousand.

"I think [kids' haircuts] is very much a micro niche," said Stacey Soble, editorin-chief of the trade publication Salon Today. "If [Cookie Cutters has] almost 40 locations, that's actually pretty strong."

Shelton said Cookie Cutters is approaching saturation in the Indianapolis area with its seven stores, which typically are at least five miles from one another.

"If we go into an area where a children's salon already has a presence, we'll either look at acquiring them or go somewhere else," Shelton said. "It's just silly to try to go head to head."

In Indianapolis, Cookie Cutters' chief competitor is a four-store local operation called Clubhouse Cuts for Kids. Nationally, there are a handful of regional players, plus a national chain called Cool Cuts 4 Kids with 68 salons in eight states. In fact, if Shelton realizes his 100-store ambition, the company could well become the biggest fish in this small pond.

With cash-strapped consumers pinching pennies, the timing for the rollout is less than opportune. Parents pay slightly more for a haircut at Cookie Cutters than they would at walk-in hair salon chains. A basic Cookie Cutters cut costs $13.95. A child 10 or younger pays $11 at Great Clips, and a child 11 or younger pays $12 at Supercuts.

But the extra cost might not be a deterrent, even in this deep recession, said Raymond Burke, professor of marketing at Indiana University's Kelley School of Business.

"People may indulge themselves in little ways if they can't indulge themselves in big ways," he said. "This might be just that kind of thing."

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