Japan Wants the Hair Club for Men

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The Hair Club for Men and Women is going worldwide. Hair salon company Regis Corp (NYSE: RGS) is selling off its “non-surgical, polyfuse hair restoration” line to Aderans, Japan's answer to male-patterned baldness.

The Hair Club for Men and Women will live in American infamy thanks to its memorable (and cheesy) commercials. Regis sold the line for $163.5 million.

Surprised that a brand as ridiculed as the Hair Club could sell for so much? Hair and nail salons generated an estimated $40.4 billion in 2010. The founder (and client), Mr. Sy Sperling sold his product to a private-equity firm in 2000 for $45 million. It sold to Regis in 2005 for $210 million.

Regis Corporation may be better known for its haircut chains, including Regis Salons, Vidal Sassoon and Supercuts. While the hair and beauty industry isn't failing overall, the individual brands do take a hit, as customers save money by waiting longer between haircuts.

So what was the secret to success for the Hair Club? What was it that gave men (and eventually women) lustrous locks that could be brushed, take a soccer ball header, and survive a daily shower? Was it really something out of a spray can? A special pill? Magic lotions?

A hair weave. The Hair Club for Men was nothing more than an extensive hair weave available at over 80 franchise salons around the country. The Hair Club weave is what makes the product a fit for Aderans (traded on the Tokyo Stock Exchange) which specializes in custom-made wigs, hair-volumizing products, and services to promote and maintain healthy hair growth for men, according to its website.

Those cheesy commercials may have been a late night TV joke for years, but it was all be design. Sperling told the Wall Street Journal in 2011, “I did my own commercial. I didn't have the resources [of] a large company so I always had to keep the budget in mind. We didn't use 35 mm film, it was a video commercial. The phones went off the hook. It was very memorable. Even to this day people stop me in the street. People perceive me as the guy next door. My speech is imperfect. My whole TV success had to do with the fact that it was believable and that I was able to afford good TV time by going on late at night.”

Generally, the hair and beauty industry in the United States does well. The beauty industry continues to expand globally, with some projections claiming 8.5% growth by 2014; revenue growth in 2010 is estimated at 3.3%. Trends support this expansion and promise continued profitability into the future. (Source: Franchise Help, “Beauty Industry Analysis 2012”) Beauty supply companies Sally Beauty Holdings (NYSE: SBH) and Ulta Salon (NASDAQ: ULTA) control almost half the U.S. beauty-supply retail segment. (Regis dominates the hair side of the beauty and hair industry.) Both Sally Beauty and Ulta reported excellent quarters recently. Estee Lauder has nearly doubled in the past two years and beauty products supplier Nu Skin is up more than 50%.

However, not all beauty companies fare so well. Avon (NYSE: AVP) was almost bought out by Coty (a Berkshire Hathaway company) earlier in the year. However, in spite of the generous deal, Avon did not act on it, and lost the chance. The company has seen stock its stock drop 30% since the Coty buyout debacle. The situation at Avon is further proof that a well-known brand, in a growing, healthy industry, can still fail due to management, and not because of the market.


ErinAnnie has no positions in the stocks mentioned above. The Motley Fool owns shares of Regis. Motley Fool newsletter services recommend Ulta Salon, Cosmetics & Fragrance. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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