Pure Beauty Salons & Boutiques Inc. is back in bankruptcy court, but its chief executive officer Brian Luborsky is confident the beauty retailer will emerge this time better equipped for long-term success.
This story first appeared in the November 4, 2011 issue of WWD. Subscribe Today.
On Oct. 4, Pure Beauty, which operates under the nameplates PureBeauty, Trade Secret, BeautyFirst and Beauty Express, filed for Chapter 11 in U.S. Bankruptcy Court for the District of Delaware. The company owes approximately $15 million in unsecured debt to product vendors and landlords.
Pure Beauty, then operating under the name Trade Secret Inc., was in the same bankruptcy court after filing for Chapter 11 in July of last year. Those proceedings led to a complicated transaction in which Regis Corp. put in a credit bid of $32.5 million plus the assumption of $13 million in liabilities, and transferred the interest to an entity affiliated with Luborsky.
It is anticipated that a similar transaction will take place to conclude Pure Beauty’s current foray into bankruptcy with Regis offering a combined $32.5 million for a credit bid and liabilities assumption. However, there is a bidding process for Pure Beauty that is under way in case there are other suitors. Luborsky expects the bidding process to be completed next month.
Meanwhile, Luborsky is busy repairing the damage that got Pure Beauty into trouble. When Pure Beauty last was bankrupt, it was projected the company would register earnings before interest, taxes depreciation and amortization of $6.7 million for the nine months ending July of this year, but it actually generated $14.1 million in losses. It was obvious to Luborsky the retailer continued to be dogged by under performing stores.
“The company had some IT and service problems. We felt we could fix a lot of them and get sales back to the net levels that they were before, but the problem was we had lost customers,” he said. “They started buying their regular beauty needs somewhere else.”
Luborsky has been aggressively closing underperforming stores. In an affidavit filed on Oct. 4, Pure Beauty’s store count is given as 436, but Luborsky said that number has been whittled down to roughly 250, with 175 Trade Secret units, 40 PureBeauty, 30 Beauty First and the rest Beauty Express stores. He said store size and annual revenue vary widely, from 1,000 to 3,000 square feet, and generating between $400,000 to $1.5 million, respectively.
After the closures, the next step is to improve the remaining stores and lure customers back. Luborsky said most stores are going to be changed to the Pure Beauty name, and shopping in them will become “much more of a fashion experience rather than strictly a discount hair salon or hair care experience.…We want the concept to be like walking through a beauty magazine,” he said, adding that staff members will be called beauty or section editors, and images will advise customers how to get celebrity looks. He estimated the costs of store upgrades wouldn’t be excessive, perhaps $5,000 to $50,000 per store.
Trade Secret originally landed in Luborsky’s hands in 2009, when Regis sold the company to Premier Salons Beauty Inc. for no proceeds, but a $56 million tax benefit. Luborsky is the ceo of Premier Salons, which is separate from Pure Beauty, and operates and owns 340 hair and cosmetic salons throughout North America.