By  on July 13, 2007

When Cameron Capital Corp. bought PureBeauty Inc. for roughly $10 million a year ago, the chain was a mess by all accounts.

The corporate office in Encino, Calif., was bloated, costs were running out of control, customers found their favorite items out of stock and the former owner Heritage Partners had embarked on an ill-advised expensive remodel. The outcome was dismal: PureBeauty filed for Chapter 11 in April 2006, buried under millions of dollars in debt.

"They went from being a nice little traditional beauty supply business that did well for a number of years to attempting to do more than they were," said Pat Neville, the longtime chief executive officer of BeautyFirst, which is also owned by Cameron Capital. Neville replaced former Gap executive Jim Petty to take over the PureBeauty ceo post as well. "One day the customers bought hamburgers there and the next day they were told to buy gourmet foods. Their customers weren't ready for it," Neville said.

Although PureBeauty had enormous problems, Cameron Capital believed its concept ­— a beauty supply store with salon and spa services and the feel of an upscale boutique ­— would resonate with consumers given the right guidance. And PureBeauty dovetailed nicely with BeautyFirst, a Wichita, Kan.-based chain of 84 stores that Cameron picked up in May 2006 for an estimated $19 million.

Fast forward a year later and Cameron has consolidated PureBeauty and BeautyFirst's headquarters in Wichita, rectified stocking issues, closed three underperforming units and begun to introduce a slew of initiatives to energize the customer base. In March, PureBeauty, now at 40 units, turned an operating profit for the first time in many months. "There is a long way to go, but there are good results," said Neville.

The improvements have laid the groundwork for growth. Through acquisitions, Cameron Capital aims to build a 400- to 500-unit chain by 2010 to make it attractive bait for another beauty industry player. Cameron's founder, Steve Hudson, who once helmed the world's second-largest nonbank lender, has gone down this road before with Hair Club For Men, which was sold to Regis Corp. for $210 million in 2004.

"We did it at Hair Club. When we bought it, Hair Club generated about $6 million in profit every year. When we sold it, it was at about $33 or $34 million and that was in a relatively short period of two years," said Duncan Robinson, executive vice president of Cameron Capital. "We focused on developing Hair Club For Women and developing a consult-and-solve sales process. We added new products and services. We have the same idea with PureBeauty and BeautyFirst."Neville detailed that model acquisition targets are chains with 18 to 80 units that have salon chairs (four is the minimum number desired) and a healthy retail mix of hair care, skin care and cosmetics. Currently, PureBeauty averages about 2,000 square feet and BeautyFirst about 3,000 square feet. Outdoor shopping centers with anchors like Trader Joe's and Starbucks are ideal locations.

"It is a very fragmented industry. You have a lot of mom-and-pops and a lot of three-, four-, five-door chains," said Robinson. "We will look at that as well, but there are a couple of bigger ones we still feel we can add to our platform."

Skin care sales are heftier in PureBeauty than BeautyFirst, but, generally speaking, 50 percent of store sales come from hair care, 20 percent from skin care, 10 percent from cosmetics and the rest from appliances and miscellaneous merchandise. In total, retail sales constitute about 70 percent of the stores' business, and spa and salon services constitute about 30 percent.

In terms of product and service menu expansion, Beauty Metrix is the pièce de résistance of PureBeauty and BeautyFirst's new additions. Created with French company BME, the machine digitally analyzes customers' hair and skin and suggests products based on their concerns. In order to operate Beauty Metrix, which costs some $5,000 per unit, employees are put through extensive training that includes lessons on the machine's technology and multiple test consultations.

So far, the Beauty Metrix efforts have paid off. The behavior of nearly 190 customers was tracked six months before using a machine and several months after in five test doors in St. Louis. Robinson reported that those customers' number of visits increased 26 percent, their number of transactions went up 33 percent and their net sales jumped 32 percent. In contrast, the percentage change in net sales overall in those doors for the same period was less than 5 percent.

"We are not a Ralphs. We can't rely on volume. We need to rely on clients who come and visit us at least five or six times a year," said Robinson, explaining the need for new initiatives such as Beauty Metrix. "It was maybe three or four, and we saw an opportunity in driving that loyalty."In three weeks, 60-second television commercials instructing viewers about Beauty Metrix will begin airing on weekdays in St. Louis. Cameron produced three spots with Group SJR and will bring them to other markets if they prove to be successful in St. Louis. To encourage viewers to try the machine, the ads also offer a free product exchange. "If that doesn't make the phones ring, I don't know what will," quipped Robinson.

Several chains have tried electronic machines to match customers' wants with products, but Robinson and Neville discovered that these machines often lay fallow. To prod employees to do Beauty Metrix consultations, a requirement of at least 15 per month has been instituted. Stores must pay a lease fee if they don't meet the requirement.

"The way the retail world is today, none of the easy avenues are available because everybody has figured them out. So, when Beauty Metrix came around, I knew we had to work to perfect the machine to make sure it had the right products and to make sure the people operating it were well-skilled," said Neville. "The results have been great, and they really separate us from the rest of the world."

But Beauty Metrix alone won't foster PureBeauty and BeautyFirst loyalty. Similarly to what Cameron did at Hair Club, the firm is on a mission to roll out unique hair products and services that address problems critical to its core clientele. In the case of PureBeauty and BeautyFirst, that core is made up of 35- to 55-year-old women, many of whom are highly educated and have a family.

Cameron tapped Lisa Minervini, former creative director at wig, extension and hairpiece company Jon Renau, to create a line of hair extensions for PureBeauty and BeautyFirst. Launched in December, Pure Tresses are clip-in human hair extensions that sell for $235 and $289 for 14-inch and 18-inch lengths, respectively. Extensions customers are entitled to a free cut and style with a store stylist.

"From my experience in the hair industry, women were using [extensions] not just for length, but they would cut it to the length of their actual hair to add volume," said Minervini. "Women and celebrities have been using hair extensions to get fullness."Pure Care, a $12.95 shampoo and $12.95 conditioner for extensions, was introduced after Pure Tresses to help customers care for their extensions — highly processed hair that Robinson noted most shampoos and conditioners are not prepared to handle. In August, a four-step regimen for thinning and aging hair called Pure Therapy, which includes shampoo, conditioner and supplements, will enter stores. A month's supply of Pure Therapy retails for $69.99. Next up on the Pure franchise train is a bonded hair extensions line dubbed Pure Strands that's being test-marketed in Bay Area stores for $1,000 to $2,000, depending on the number of strands.

With an assist from the new products, Cameron has been able to raise its year-to-date average dollar per ticket to $33.30 at BeautyFirst from $30.37 last year. At PureBeauty, the year-to-date dollar per ticket is $40.54, up from $38.91 last year. For the June yearend, same-store sales climbed 10 percent at BeautyFirst and 5 percent at PureBeauty. The company would not disclose annual revenue figures.

PureBeauty and BeautyFirst's focus on professional brands keep the average ticket higher than discounters. Top brands include PureOlogy, Murad, Enjoy, Ojon, Tigi and Redken. The stores recently unveiled Frédéric Fekkai and Bare Escentuals, which will replace a private label mineral brand named Urban Essentials.

Bahman Fakhimi, owner of California chain Planet Beauty, explained that beauty supply stores were forced to start carrying professional and luxury products to stay afloat as the Targets and Wal-Marts of the marketplace cut into their business. The average transaction at his 27 stores, which he prefers to call beauty boutiques rather than beauty supply stores, ranges from $55 to $60.

"If you don't focus on luxury service and great training, then the bigger players are going to take away from you," he said. "The mom-and-pop stores can't survive. They are going to be gone and having luxury products is not going to be easy for everyone. You need to have major investment, you need to remodel your stores."

Beauty stores like Planet Beauty, BeautyFirst and PureBeauty are continually challenged by diversion to those discount retail behemoths. When brands such as Sebastian and Paul Mitchell end up in competitors' hands, the exclusivity beauty shops offer to customers is eroded. Therefore, those shops are in a constant battle to convince vendors to sell them high-end products that won't eventually end up elsewhere. For instance, PureBeauty and BeautyFirst were keen to get on Bare Escentuals' bandwagon, and Fakhimi noted it was a hard task to get N.V. Perricone M.D. into his locations.But challenges to Cameron's plans don't only come from discounters. Competition within the beauty supply field is mounting. Fakhimi said that, within the last year, he has received queries from several investment firms about buying his chain. He said Bare Escentuals' initial public offering and the investment by New York private equity firm The Invus Group in beauty apothecary Bluemercury Inc. have exposed the industry's success and piqued the interest of a variety of growth speculators. "It has been hidden for a long time, and now it is explored by big companies," said Fakhimi. "The trend toward more luxury toward consumers is helping our business."

At PureBeauty and BeautyFirst, catching that luxury consumer is still a work in progress. Robinson said that one of his upcoming projects is to lure the salon client into the retail store and vice versa. Currently, salon customers and retail customers are distinct groups. And he's waiting to see the response to a revamped catalogue that's being shipped in August. (In a nod to the sophistication of PureBeauty customers, beautiful women have been replaced by well-being scenes of spring water.)

Grading PureBeauty and BeautyFirst's performance since the Cameron acquisition, Neville concluded, "I won't give us A's. I will give us high B's. And we are getting better."

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