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Frédéric Fekkai’s Profit Renaissance

NEW YORK — Last year, Frédéric Fekkai’s salon and hair care business was showing signs of mortality. First there was the discontinuation of Fekkai’s accessories and color cosmetics business. Then in April, the brand’s...

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NEW YORK — Last year, Frédéric Fekkai’s salon and hair care business was showing signs of mortality. First there was the discontinuation of Fekkai’s accessories and color cosmetics business. Then in April, the brand’s prominent spot in Manhattan’s Saks Fifth Avenue’s atrium disappeared. This past fall, Fekkai took over its back-office responsibilities, which had previously been handled by seven-year joint venture partner, Chanel Inc. Add to that the challenge of running a $200-per-cut salon in a receding economy, and industry observers were speculating on an exit date.

But what appears to be an unraveling, said Lori Perella, senior vice president and general manager of Frédéric Fekkai & Co., are actually signs that the business’s balance sheet has gone from red to black, and 2003’s earnings before interest, tax, depreciation and amortization will increase by as much as 5 percent of company sales. While Perella would not comment on overall revenue, industry sources estimate that Fekkai’s two salons and hair care product line generate as much as $36 million a year.

Perella maintains that the canceling of non-core businesses, such as handbags, scarves, eyeglasses and color cosmetics, was first on her list to return the company to a hair care focus when she took the helm in August 2000. Perella joined the company as chief financial officer in May 1999.

And, when asked what’s behind the company’s new-found profitability, she replied: “products.”

Sales of Fekkai’s eponymous hair care and styling line, which is sold in 300 Sephora, Saks Fifth Avenue, Neiman Marcus and beauty boutiques, were up 51 percent for 2002, according to Perella. Comp-store sales of products in stores open at least a year, were up 36 percent, she added. The product line, which Perella said comprises 40 percent of the business, or $16 million in sales annually, is poised for growth in 2003. Already, January comp-store sales results show 30 percent gains. Part of her strategy is to focus on sell-through, not sell-in. “We’re not going beyond these 300 doors,” Perella said.

Instead, in-store stylist events — what makeovers are to the cosmetics industry — will begin in stores this spring. Most of the store-in-store formats that launched Fekkai into department stores seven years ago have been converted to open-sell areas, complete with promotional tools and cards designed to push sales. Lantz-A-Lot, a retail management group that has handled La Prairie and Dr. Perricone, is now designing Fekkai programs to further in-store sales. These efforts, Perella said, would put salespeople in stores (except in Sephora units) and could grow product sales at least 20 percent in 2003.

Kate Oldham, divisional merchandise manager for cosmetics, fragrances and accessories at Saks Fifth Avenue, said Fekkai’s consistent double-digit increases in stores are buoyed by his celebrity. “I think having a personality as an authority makes it easier to sell the products. You have to have someone behind the brand to lend some credibility.”

At stores such as Sephora, Fekkai is also a top seller. Sales gains there are significantly above the chain’s 20-plus percent same-store sales, said Shashi Batra, senior vice president of merchandising at Sephora USA. And at an open-sell retailer such as Sephora, the success of a brand rests on its own merits. “Fekkai has benefited from that,” Batra said. The best-selling Fekkai sku’s at Sephora, such as Glossing Cream, a leave-in conditioner with olive oil; Shea Butter Moisturizing Conditioner and Technician Shampoo for Dry, Damaged or Color Treated Hair, reveal part of what makes Fekkai’s products successful.

“We focus on the fashion of styling. We hadn’t done that in the past,” said Kim Hoelting, Fekkai’s vice president of marketing. “We look at trends, fashion and editorial and create products to help our customers achieve that new look for the season.” This spring Frédéric is seeing a return to volume, so styling products designed to give hair fullness, such as Full Volume Styling Mousse, were created.

Shampoos and conditioners are said to have been designed to solve problems created by some currently trendy treatments, such as Japanese thermal reconditioning, the intense hair straightening process.

“When we saw women wearing their hair stick-straight last year, we saw more damaged and broken hair than ever. So we launched Protein RX to strengthen and rehabilitate hair,” Hoelting said.

And, by addressing specific demographic needs, such as the four-product line for men that came out last year, Fekkai kept up with competitors who were doing the same.

Since Perella took over, the number of Fekkai styling sku’s has grown from 16 to 24; hair care products have grown from 31 to 49. And while Perella isn’t considering expanding its department store presence, she and Fekkai, who serves as the company’s president, are exploring creating a second brand for salon distribution. They are looking at Aveda — which has both salons and a successful salon distribution — as a benchmark.

But Fekkai didn’t always follow this operating model. Looking back now, it’s clear Fekkai pushed the limit on brand extensions until his positioning in the marketplace seemed to become glaringly askew. Accessories and beauty products, not hair care, made up the crux of the company’s product mix from 1996 to 2000.

In an ambitious and unwavering attempt to style his elegant, Hermès-clad clientele, Fekkai personally helped design the $500 bags, $300 silk scarves and $200 eyeglass frames that filled both his New York and Beverly Hills salons. Hair care, which should have been Fekkai’s core business, consisted of less than half of the sku’s that the company has now with one-tenth of the distribution. Reportedly, the Beverly Hills and New York salons generate annual sales of $5 million and $15 million, respectively, and comprised 60 percent of 2002’s business. In 2000, the salons comprised nearly 80 percent of business.

Michelle Taylor, Fekkai’s former general manager who led the business during the launch of these categories, said the efforts were logical and well-received. There are no regrets.

“It is always better to have tried, failed and learned than to have not tried at all,” said Taylor, now with San Ysidro Ranch, an upscale resort in Santa Barbara. “Many of those products had success with the customer but just could not be supported over time from a business point of view.”

Arie Kopelman, chairman and chief executive officer of Chanel, concurred. “In retrospect I would have preferred that we had stayed in the whole hair care world. But people did feel that [Frédéric’s] taste and style was broader than what he was doing in the salon, and we felt it was worth getting a toe in the water. As it turned out…the marketplace became really cluttered with brands. It would be like someone without credibility jumping into the fragrance business today.”

Though accessories kept Fekkai from generating profits for years, Kopelman noted selling Fekkai wasn’t seriously considered. But he knows enough to never rule out a possible sale.

“The old expression ‘make me an offer I can’t refuse’ is alive and well in any business. Anyone who says nothing is for sale — they are crazy.” While it has never been disclosed how much of Fekkai Chanel owns, Kopelman pointed out that the stylist is the core decision maker on such matters.

Now, with a clear retail focus in the States, Perella is preparing to take Fekkai overseas. Following a soft launch in Harrod’s in the fourth quarter of 2002, Fekkai hair care enters U.K. retailers Harvey Nichols, Space NK and Selfridges in the spring.

This fall, after seven years at retail, Fekkai is slated to enter France, his home country. Paris-based stores such as Samaritaine, Bon Marche and Galleries Lafayette are in conversations with Perella to carry products.

Perella, who was groomed in international business at both Helene Curtis and Liz Claiborne, believes Fekkai’s entry into Europe is well timed.

“I didn’t want to make the mistake that a lot of other brands do — they sacrifice sales for image or they sell into a country without really understanding what they’re doing. What they end up with is a brand sitting on a shelf collecting dust. Well, not a brand, a product.”

While product sales keep the company afloat, the salon industry, as a whole, is rife with challenges. Both of Fekkai’s salons’ sales were flat last year.

“Clients lost jobs, clients moved [outside of Manhattan], clients are waiting longer periods between treatments, and there was a decline in add-ons,” such as highlights and manicures, a salon’s bread and butter, Perella said. To offset possible 2003 decreases, this year both Fekkai salons will open for business on Sundays, a move that could grow sales 7 percent in Manhattan and 10 percent in Beverly Hills, Perella said. The average life span of a salon is less than 10 years, and Fekkai is celebrating his 14th year in business. (Prior to the joint partnership with Chanel, which afforded Fekkai to create Frédéric Fekkai & Co. and subsequently the 57th Street salon in 1996 and the Beverly Hills salon in 1997, he operated the salon atop Bergdorf Goodman for seven years.)

Fekkai admits he’s lucky to cater to a high-income customer. Today, Frederic charges $400 for a haircut and has a three to six month wait list. The New York salon is reportedly one of the highest grossing salons in the world. It caters to more than 400 clients per day with an average ticket of $150. And, a new Fekkai salon in the Brazilian Court Hotel in Palm Beach is in the works. South East Florida is not only one of Fekkai’s fastest growing markets for products, it’s where his clientele winters.

But Fekkai points out his success wasn’t due to luck.

“It’s about creating a point of difference. I was the first stylist to invite customers to my salon to simply chat about beauty. I expect everyone, the stylists, to be trendsetters, and to guide clients on beauty tips, such as how to use lipgloss and achieve healthy hair.”

Signs that Fekkai can’t completely tear himself from his obsession with fashion are visible in the Beverly Hills salon, where another vendor’s shoe line is now sold and a jewelry line is being considered. In the Manhattan salon, stylists wear crisp, white buttoned-down Theory blouses. Last spring they wore white Lacoste shirts — a stark contrast to the usual black uniform stylists are prone to.

“If you are only doing hair you are doing half the job,” Fekkai said.

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