Business description: QB Net Holdings is the holding company of QB Net Co., Ltd., which operates QB House, Japan’s largest chain of haircut-only salons, by number of locations and sales. QB House is the first in the Japanese haircut industry to offer fast haircuts in approximately 10 minutes, recognizing the value of customers’ time. By offering only haircuts, it is able to serve customers at a very affordable standard price of JPY1,200 (including tax) in Japan. As of the end of FY06/21, the company had 579 salons in operation in Japan and 135 salons outside Japan (in Singapore, Hong Kong, Taiwan, and the US).
Characteristics of haircut-only salons: Traditional hairdressers in Japan require reservations and provide a full set of services (including haircut, shampoo, shaving, and styling), take around 60 minutes, and charge JPY5,000 to JPY6,000. QB Net has two brands, QB House and FaSS. QB House salons mainly target businessmen and provide haircuts in only roughly 10 minutes at the standard price of JPY1,200 (including tax) in Japan. Meanwhile FaSS salons, which target men and women in their 20s through 40s, provide haircut and styling services in around 20 minutes for JPY2,200 (including tax). At QB Net salons, specially designed equipment helps streamline salon operations.
How the company stands out from peers: QB Net distinguishes itself from the competition in several ways. It is the largest domestic operator of haircut-only salons (with a total of 714 outlets as of September 2021 compared with 271 operated by 3Q Cut, the second-largest operator), it opens salons mainly in prime locations in shopping centers and stations, with average floor space of around 33sqm. The company’s salons are primarily directly managed and operated by its own staff (franchises are more common at peers). It is the only haircut-only company listed on the stock exchange. The company has built its own proprietary salon management systems. It collects daily sales and customer data for each salon. This data includes the time of day customers come, as well as their ages, genders, and whether they are new or returning. It also includes haircut times, waiting times, and utilization rates. The data are collected and analyzed at the head office to help allocate staff, standardize services, boost efficiency, and develop salon opening plans. The company also runs its own personnel training center (LogiTHcut Professional Stylist School), utilizing the expertise it gained from training newcomers in other countries, which typically do not have national certification systems. The company actively recruits people in Japan who have a barber/beautician certificate but no prior haircutting experience and gives them all the training they need to become full-fledged hairdressers in six months, a relatively short period of time (it generally takes about two years to train a newcomer to cut hair at a typical salon). The company opened its Tokyo school in 2012, and, as of June 2021, it has fschools in Osaka, Nagoya, Hakata, and Sendai, as well as its Tokyo school satellite campus in Yokohama. With these schools nurturing talent nationwide, the company is securing the personnel it needs to open new salons.
Revenue, number of customers, charge per customer: In FY06/21, the company had 579 salons and around 15.4mn customers in Japan for an average of 27,000 customers per salon. The charge per customer was JPY1,200 (including tax; JPY1,100 for seniors [65 and over, weekdays only]) at QB House salons in Japan and JPY2,200 (including tax) at FaSS salons (providing haircuts and styling services mainly to customers in their 20s to 40s). Overseas, the company had 135 salons and around 3.2mn customers for roughly 24,000 customers per salon. Prices overseas vary from JPY900 to JPY2,800, depending on the region.
Expenses: Cost of revenue mainly comprises labor costs (for directly managed/direct labor [DM/DL] salons, where the company employs its own staff), outsourcing costs (for directly managed/outsourced labor [DM/OL] salons, where it employs people from its partner companies), and rent. SG&A expenses include personnel expenses related to the administrative department, employees and trainers involved in training at the company’s internal personnel training centers (LogiTHcut Professional Stylist Schools), and area managers. Other expenses, which include advertising expenses, commissions paid, and hiring expenses, are primarily fixed costs that are generally not directly related to revenue fluctuations. Over the last three years (FY06/17 to FY06/19), the cost of revenue ratio has hovered around 78% and the SG&A expenses ratio around 13%. In FY06/20, the cost of revenue climbed to 85% on falling revenue due to the COVID-19 pandemic, and continued on at 87% in FY06/21.
Other (substantial goodwill and interest-bearing debt): The company’s balance sheet contains a large amount of acquired goodwill resulting from three private-equity-driven changes of ownership. Each of those transactions involved leverage. As a result, goodwill on the company’s balance sheet at the end of FY06/21 stood at JPY15.4bn versus borrowings of JPY12.8bn. QB Net borrowed a total of JPY3.0bn to ensure it had sufficient cash on hand in case of unforeseen circumstances such as a further spread of the pandemic. Since the company uses IFRS accounting, goodwill is not amortized. Under J-GAAP accounting, goodwill would be subject to straight-line amortization but under IFRS accounting goodwill is subject to an impairment test every fiscal year. As of end-FY06/21, the company estimated the recoverable amount of certain assets to be JPY24.0bn higher than the book value of one cash-generating unit (including goodwill). However, these two values could become comparable if the company’s pre-tax discount rate (6.6% was applied in FY06/21) increases by 5.7% or if estimated cash flows for all associated accounting periods decline by 49.4%.
In FY06/21, the company reported revenue of JPY18.9bn (-0.8% YoY), operating profit of JPY463mn (+93.7% YoY), pre-tax profit of JPY286mn (+191.8% YoY), and profit attributable to owners of the parent of JPY243mn (+133.7% YoY). The impact from the COVID-19 pandemic manifested from Q3 in FY06/20, and its impact over the entire FY06/21 resulted in FY06/21 revenue falling YoY. However, despite a decline in gross profit, FY06/21 earnings from the operating line down increased YoY thanks to the booking of employment adjustment subsidies and a drop in SG&A expenses.
The company’s FY06/22 forecast calls for revenue of JPY20.8bn (+10.1% YoY), operating profit of JPY1.1bn (+137.6% YoY), pre-tax profit of JPY920mn (+221.7% YoY), and profit attributable to owners of the parent of JPY640mn (+163.4% YoY). The company expects revenue and profits to increase as the impact from the pandemic eases amid a rise in vaccination rates.
In November 2019, the company announced a medium-term plan covering FY06/20 through FY06/24. It aims at 900 salons in 2023 (+206 from FY06/19), revenue of JPY30.0bn (+43.8%, CAGR of 7.5%), and operating profit of JPY3.3bn (+67.6%, CAGR of 10.9%). The company aims to grow profit by expanding its personnel training centers, opening more salons in Japan and expanding its network overseas, developing and growing new formats, and improving the value of its services. Results deviated from the medium-term plan in FY06/20 and FY06/21 due to the COVID-19 pandemic.
Shared Research thinks that the company’s strengths are: 1) strong brand recognition thanks to its supremely large salon network and prime locations, as well as customer peace of mind stemming from a uniform quality of services at all its salons, 2) ongoing workflow efficiency and service improvements through analysis of salon data and mystery shopper surveys, and 3) in-house training systems that widen the potential recruiting pool beyond experienced hairdressers. We think its weaknesses include: 1) limitations due to a high debt level and financial covenants, 2) directly managed/outsourced labor (DM/OL) salons account for one third of directly managed domestic salons, hindering service standardization, and 3) salon opening pace has slowed due to focus on direct management and direct labor performed by its own staff, who take time to recruit and train (see “Strengths and weaknesses” section for details).
|Gross profit margin||22.6%||22.1%||22.0%||23.3%||14.9%||13.2%|
|Operating profit margin||11.9%||10.8%||10.4%||8.5%||8.4%||8.5%||9.4%||1.3%||2.4%||5.3%|
|Pre-tax profit margin||4.9%||7.9%||8.1%||9.1%||0.5%||1.5%||4.4%|
|Profit attributable to owners of the parent||782||913||866||565||1,023||1,041||1,272||104||243||640|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)||-||-||-||12,000||12,000||12,392||12,488||12,735||12,821|
|EPS (fully diluted; JPY)||-||-||-||47.2||85.1||83.2||95.7||7.8||18.3|
|Dividend per share (JPY)||-||-||-||-||-||18.0||19.0||-||-||TBD|
|Book value per share (JPY)||-||-||-||522.6||619.5||701.7||784.5||768.5||792.2|
|Balance sheet (JPYmn)|
|Cash and cash equivalent||-||-||-||1,928||1,962||2,018||2,489||5,117||4,601|
|Total current assets||-||-||-||2,867||3,488||3,387||3,982||6,544||5,641|
|Tangible fixed assets||-||-||-||1,958||2,357||2,355||2,327||1,857||1,502|
|Total noncurrent assets||-||-||-||19,305||20,085||20,167||20,299||26,176||24,992|
|Trade and other payables||-||-||-||302||486||344||273||342||202|
|Total current liabilities||-||-||-||2,560||3,439||2,848||3,185||8,784||7,699|
|Total noncurrent liabilities||-||-||-||13,341||12,699||12,010||11,299||14,151||12,777|
|Total interest-bearing debt||-||-||-||14,077||13,236||12,469||11,718||20,524||18,208|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||-||-||-||1,592||2,051||1,564||2,370||2,747||4,050|
|Cash flows from investing activities||-||-||-||-918||-1,163||-943||-961||-838||-393|
|Cash flows from financing activities||-||-||-||-799||-923||-548||-916||721||-4,216|
QB Net Holdings Co., Ltd. announced domestic store sales for November 2021.
|All salons sales||-26.7%||-18.0%||-20.4%||-13.2%||-13.9%||-17.4%||-18.1%||-14.4%||-0.1%||209.1%||202.1%||8.5%||-21.7%||-18.4%||-16.1%||-1.7%|
|Comparable-store sales YoY||-27.4%||-19.0%||-21.7%||-14.6%||-15.1%||-18.4%||-19.1%||-15.5%||-1.4%||205.5%||199.6%||7.9%||-22.7%||-19.5%||-17.2%||-2.9%|
|All salons sales||19.4%||1.5%||6.9%||8.2%||5.5%||9.0%|
|Comparable-store sales YoY||19.7%||1.8%||7.2%||8.3%||5.3%||9.3%|
|All salons sales||-25.5%||-16.6%||-18.9%||-13.3%||-14.0%||-17.4%||-18.2%||-14.3%||0.0%||207.6%||200.0%||8.5%||-20.3%||-17.7%||-15.6%||-1.3%|
|Comparable-store sales YoY||-26.1%||-17.6%||-20.2%||-14.7%||-15.2%||-18.4%||-19.2%||-15.4%||-1.3%||204.1%||197.8%||8.0%||-21.3%||-18.8%||-16.7%||-2.4%|
|All salons sales||19.3%||1.6%||6.9%||8.0%||5.6%||9.0%|
|Comparable-store sales YoY||19.6%||1.9%||7.1%||8.2%||5.4%||9.3%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||1H Est.||% of Est.||FY Est.|
|Gross profit margin||11.3%||11.2%||11.7%||13.2%||20.0%|
|Operating profit margin||9.6%||3.8%||2.0%||2.4%||8.6%||4.7%||5.3%|
|Pre-tax profit margin||8.6%||2.9%||1.0%||1.5%||7.8%||3.8%||4.4%|
|Profit attributable to owners of the parent||284||228||160||243||262||97.0%||270||40.9%||640|
|Gross profit margin||11.3%||11.0%||12.7%||17.5%||20.0%|
|Operating profit margin||9.6%||-||-||3.7%||8.6%|
|Pre-tax profit margin||8.6%||-||-||2.8%||7.8%|
|Profit attributable to owners of the parent||284||-56||-68||83||262|
In Q1 (July–September) and Q4 (April–June), quarterly revenue and gross profit tend to be higher than in Q2 (October–December) and Q3 (January–March). Profit lines from operating profit down tend to display the same sort of seasonality.
|All salons sales||-21.7%||-18.4%||-16.1%||-1.7%||9.0%|
|Comparable-store sales YoY||-22.7%||-19.5%||-17.2%||-2.9%||9.3%|
|Number of salons||FY06/21||FY06/22|
|Franchise (royalty revenue)||54||110||161||222||54|
|Franchise (royalty revenue)||54||55||51||61||54|
|Directly managed salons||3,644||7,382||11,021||14,979||4,018|
|Directly managed salons||3,644||3,738||3,639||3,958||4,018|
|Comparable-store sales YoY||-1,168||-1,935||-2,358||-354||361|
|Personnel expenses at HQs, other||20||43||60||53||-24|
|Overseas and outside directors||-||-||-||-||-|
|Stock market listing||-||-||-||-||-|
|Comparable-store sales YoY||-900||-1,563||-1,816||-257||496|
|Comparable-store sales YoY||-1,168||-767||-423||2,004||361|
|Personnel expenses at HQs, other||20||23||17||-7||-24|
|Overseas and outside directors||-||-||-||-||-|
|Stock market listing||-||-||-||-||-|
|Comparable-store sales YoY||-900||-663||-253||1,559||496|
The company saw revenue growth despite the prolonged COVID-19 pandemic.
Japan: Revenue was JPY4.2bn (+9.6% YoY). While still lower than pre-pandemic levels, customer traffic is on a recovery trend, as salons, excluding those in facilities that were closed or had shortened operating hours, continued to operate under the declaration of state of emergency in July 2021.
Hong Kong: Revenue was JPY486mn (+11.5% YoY). With the pandemic having been subdued, customer traffic, including at new salons-, have returned to pre-pandemic levels. Revenue was up YoY on a forex-adjusted basis as well as on a non-adjusted basis.
Singapore: Revenue came to JPY206mn (+5.1 YoY). With continuing government quarantine measures in the face of the increase in new infections, revenue was flat YoY, including on a forex-adjusted basis.
Taiwan: Revenue came to JPY116mn (-10.1% YoY). Results were impacted by government epidemic prevention measures implemented in a response to increases in new infections in mid-May 2021. Revenue was also down YoY, including on a forex-adjusted basis.
US (New York): Revenue was JPY42mn (+121.1% YoY). While new infections continued to be reported, infection prevention measures were relaxed, and customer traffic is on a recovery trend. Revenue was up YoY with price revisions and on a forex-adjusted basis.
Operating profit saw an YoY decline as the company booked a JPY579mn in subsidy in Q1 FY06/21, but grew excluding the subsidy.
Cost of revenue fell 1.2% YoY to JPY4.0bn. Despite growth in revenue at outsourced labor salons leading to higher outsourcing expenses, labor costs fell due the reduction in salon stylists thanks to optimization of personnel and supplies expenses also declined with the start of reuse of combs.
SG&A expenses were JPY583mn (-11.3% YoY). The drop was the result of decreases in provision for bonuses and labor costs.
In Q1 FY06/22, QB Net opened 5 salons (including relocations) and closed 3 for a net increase of two. It had 716 salons as of end-Q1 FY06/22. By region, it opened 4 salons in Japan, and one in Hong Kong.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Est.||2H Est.||FY Est.||1H Est.||2H Est.||FY Est.|
|Cost of revenue||8,261||8,172||16,433|
|Gross profit margin||11.2%||15.2%||13.2%|
|Operating profit margin||3.8%||1.1%||2.4%||4.7%||5.8%||5.3%|
|Pre-tax profit margin||2.9%||0.2%||1.5%||3.8%||5.0%||4.4%|
|Profit attributable to owners of the parent||228||15||243||270||370||640||18.4%||-||163.4%|
The company’s FY06/22 forecast calls for revenue of JPY20.8bn (+10.1% YoY), operating profit of JPY1.1bn (+137.6% YoY), pre-tax profit of JPY920mn (+221.7% YoY), and profit attributable to owners of the parent of JPY640mn (+163.4% YoY).
The company expects revenue to gradually recover as the impact from the pandemic eases amid a rise in vaccination rates.
The company has three KPIs: customer traffic, salon count, and unit price. Of these, QB Net in FY06/22 intends to focus in particular on measures designed to increase salon count and customer traffic. In addition to the KPI improvements, the company aims to continue lowering costs so as to bolster its earnings structure and lift earnings to the level of, or above that achieved before the pandemic.
QB Net forecasts revenue of JPY20.8bn (+10.1% YoY), with both domestic and overseas revenue expected to grow by around 10% YoY.
The company expects customer traffic as of end-FY06/22 to recover to about 95% of the pre-pandemic levels in Japan with the help of a rise in vaccination rates. It also expects overseas customer traffic to fully recover to pre-pandemic levels as the impact of the pandemic subsides, although vaccination progress varies from country to country. It expects revenue to surpass pre-pandemic level in Hong Kong, where it raise prices by HKD10 in July 2019, and in the US, where it raised prices by a total of USD5 in June and November 2020.
The company plans for new salon openings to be concentrated in 2H FY06/22 both in Japan and overseas, with limited full-year revenue contribution.
The company forecasts operating profit to rise 137.6% YoY to JPY1.1bn, driven by higher revenue despite a projected increase in cost of revenue and SG&A expenses.
The company expects gross profit to rise substantially driven by higher revenue, despite a projected increase in cost of revenue due to higher labor costs associated with salon openings and higher rent.
Labor costs: QB Net plans for 43 new salon openings, 32 in Japan and 11 overseas, and expects personnel expenses to rise in line with this.
Rent: In FY06/21, some salons had lower rent due to limited time rent reductions under the state of emergency, while others had lower rent due to revenue-based rent. The company expects rent to increase at these salons in FY06/22.
Other cost: The company anticipates outsourcing costs to rise as revenue recovers at outsourced labor salons.
In terms of SG&A expenses, the company forecasts labor costs, sales promotion expenses, and hiring expenses to increase YoY.
Labor costs: The company plans for labor costs to rise as a result of an increase in research facility employees and hiring of additional area managers.
Others: QB Net dialed back on sales promotion and hiring expenses in FY06/21, but plans to increase them in FY06/22.
The company reported JPY742mn in other operating revenue in FY06/21 thanks mainly to the booking of employment adjustment subsidies. On the other hand, other operating expenses came to JPY312mn, including an impairment loss of JPY282mn. It does not expect to book employment adjustment subsidies in FY06/22 and projects impairment losses to decrease YoY.
QB Net plans to open 43 new salons (32 in Japan and 11 overseas) for the group as a whole in FY06/22, stepping up the pace from 20 openings (12 in Japan and eight overseas; excludes relocations) in FY06/21.
The company plans to open 30 new salons an d close six for QB House (including QB Premium), while opening two new salons and closing none for FaSS. In terms of measures for opening new salons to boost salon count, the company will consider the ongoing trend of telecommuting and people refraining from going out, which has led to a shift in where people spend their days, specifically a shift from centralized areas, including well-trafficked train stations, to more peripheral, suburban areas. In response to such trends, QB Net will review its location assessment and focus on developing salons in new areas, including those where it previously found it difficult to turn a profit. It also plans to open salons in highly efficient format, which require less capital investment compared to conventional salons.
QB Net expects customer traffic to rise from October 2021 onward as vaccination rates increase. As of July 2021, customer traffic at all domestic salons (including new salons) was 88% of pre-pandemic levels, while customer traffic at existing salons was 87% of pre-pandemic levels. The company expects this to recover to 95% and 92% of pre-pandemic levels, respectively, by end-FY06/22. In terms of recovery by location, the company expects customer traffic for salons in lifestyle-centers such as train stations and small and medium-sized shopping centers, which account for 78% of all its salons, to recover to over 90% of pre-pandemic levels by end-FY06/22 (below 90% of pre-pandemic levels as of July 2021). On the other hand, it expects customer traffic for salons in central areas, which account for 10% of all its salons, to recover to about 84% of pre-pandemic levels by end-FY06/22 (about 75% of pre-pandemic levels as of July 2021).
Figures used for pre-pandemic customer traffic in Japan are actual results for July 2019–February 2020 and projected figures for March 2020–June 2020. The company was affected by salon closures between March 2020 and June 2020 due to the first state of emergency declaration. Projected figures for March 2020–June 2020 are equivalent to actual results for March 2019–June 2019.
In terms of measures to attract customers, the company plans to boost customer convenience by improving the functionality of the app installed at FaSS and QB Premium salons, while developing an e-haircut record system for QB House to register its customers' hair quality and hairstyles. The company will also plan to improve its Google My Business page, website, and other online touch points to create an environment where customers can get the salon information they need in a timely manner.
QB Net plans to open 11 new salons and close one overseas. This consists of five new openings and zero closures in Hong Kong, five new openings and one closure in Taiwan, and one new opening and zero closures in the US. It plans to change salon format from QB House to QB House Premium at 2 salons in Singapore.
With regard to overseas operations, the pace of vaccination varies by country and city, but the company assumes each country will implement quarantine measures when infection spreads.
The company has not made a decision in regard to paying a dividend in FY06/22 (there was no dividend in FY06/21).
In November 2019, the company announced a medium-term plan covering FY06/20 through FY06/24. The company aims to grow profit and reduce debt by expanding its personnel training centers, opening more salons in Japan, expanding its network overseas, developing and growing new formats, and improving the value of its services.
|FY06/19 results||FY06/20 results||FY06/24 targets|
|Operating profit margin||9.4%||1.3%||11.0%|
|ROE||13.8%||1.1%||Keep above 13%|
|Number of salons (period end)||694||715||900|
Results deviated from the medium-term plan in FY06/20 and FY06/21 due to the COVID-19 pandemic. As of August 2021, the company had not disclosed a revised medium-term plan, but Shared Research thinks that progress is roughly two years behind schedule.
The company sees societal changes such as a shortage of personnel to take over barbershops and beauty salons and an increasing tendency to economize as the society ages as business and growth opportunities. With this in mind, its key strategies include expanding its personnel training centers, opening more salons in Japan and expanding its network overseas, developing and growing new formats, and improving the value of its services.
Expanding personnel training centers: The company aims to hire 300–350 stylists (full-time employees) annually by opening more of its in-house LogiTHcut Professional Stylist Schools and upgrading its training systems as well as enhancing and strengthening its salon manager training curriculum.
Opening more salons in Japan: The company aims for a net increase of at least 115 salons in five years (554 at end-June 2019).
Expanding its network overseas: The company aims for a net increase of at least 50 salons in five years in countries where it already has a presence (127 at end-June 2019) as well as expanding into two cities overseas for the first time.
Developing and growing new formats: In addition to FaSS, the company aims to develop and roll out a new format, QB Premium.
Improving the value of its services: The company plans to develop apps and invest in salons (reduce waiting time and launch functions for appointments, client haircut records, and prepayment).
The company aims to hire 300–350 stylists (full-time employees) annually by opening new LogiTHcut Professional Stylist Schools and upgrading its training systems as well as enhancing and strengthening its salon manager training curriculum.
LogiTHcut Professional Stylist School: QB Net Holdings first opened LogiTHcut Professional Stylist School in September 2012 and a total of five schools are now opened in Tokyo, Sendai (Miyagi), Nagoya (Aichi), Osaka, and Hakata (Fukuoka) as of August 2019. The opening of LogiTHcut Professional Stylist Schools has contributed to a broader pool of employees (by expanding job candidates), a higher job retention rate, and a uniform quality of service. According to the company, people who possess a barber or beautician certificate but have no practical experience exceeded 60% of the 1,855,000 certified barbers and beauticians in Japan. In both FY06/18 and FY06/19, the company hired about 100 employees without previous haircutting experience. It explains that its LogiTHcut Professional Stylist Schools have in-house expertise to train even newcomers how to cut in as little as 10 minutes, which is contributing to growth in its salon network and earnings.
LogiTHcut Professional Stylist School expansion: In its medium-term plan the company plans to open satellite training facilities in Tokyo in addition to new schools in Hiroshima prefecture and Sapporo. It plans to boost personnel training expenses by at least JPY1.4bn during the five years of the plan to train 650 newcomers to cut hair.
Hire 300–350 stylists annually: In addition to graduates of LogiTHcut Professional Stylist School, the company aims to recruit about 200 stylists yearly for a total of 300–350 (it hired 265 full-time employees in Japan in FY06/19). The company aims to reduce turnover in the medium term (it is already in a downtrend), but Shared Research estimates that net payroll increase will be about 170–220 assuming the 8.6% turnover rate from FY06/19 continues and the company hires 300–350 stylists yearly.
The medium-term plan factors in a net increase of at least 115 additions to the QB House network domestically and at least 15 in new formats, and a net increase of about 30 salons yearly from FY06/21. A three-seat salon operating a standard 10-hour day implies labor demand of 900 hours per month. Assuming a 40-hour workweek per employee (170 hours per month) requires about five employees per salon. A net increase of 30 salons thus requires at least 150 employees. Shared Research understands that some salons with high utilization rate may need more seats, so the company needs to boost net headcount by the aforementioned 170–220.
The company plans to expand its LogiTHcut Professional Stylist School network in the medium-term plan. In addition to this measure, Shared Research thinks that the company has laid the groundwork to recruit enough personnel to open new salons, including the March 2018 stock market listing, declining employee turnover between FY06/12 and FY06/19, and February 2019 domestic price hikes and improved employee compensation.
March 2018 stock listing, declining turnover rate from FY06/12 to FY06/19: The turnover rate of full-time employees was down to 8.4% in FY06/19 versus 31.8% in FY06/10. According to the Ministry of Health, Labor and Welfare’s Survey on Employment Trends, the average employee turnover rate in personal services and amusement services industries is 23.9%, well above the current turnover rate at QB Net. The company said that initiatives to improve skills and motivation (see “Business” section), wage rates for hairdressers that are above the industry average (salaries of around JPY3.6–3.8mn and an average age of about 40 years versus industry averages of about JPY3.02mn and 32.0 years), and initiatives aimed at improving interpersonal relations among employees were useful in lowering employee turnover. Another factor was the March 2018 stock listing, which boosted its employees’ perception of their own social status.
Salary hikes following price rises: In the past, the company raised the average base pay for employees by about 3% every year. The February 2019 price hike have given it the means to raise salaries and further improve employee benefits, which should in turn lead to declining employee turnover and increased recruitment, in Shared Research’s view. More specifically, the additional compensation for the company’s stylists is expected to add about JPY350mn to personnel costs in FY06/20 versus the previous year. It appears that the average annual salary for the company’s stylists will increase to about JPY4.0mn.
Net additions to salon network have slowed from late 2000s: The company opened the first QB House salon in Japan in 1996. In the early 2000s, it had stepped up its salon-opening pace, achieving an annual net increase of around 50 salons. In 2006, it had over 300 salons. Spearheaded by the founder, QB Net expanded the network with franchises and outsourced labor (OL) salons. From the late 2000s, growth continued but the net increase slowed to around 20 salons per year. Between 2006 and 2019, the company added just 230 salons in Japan. Following his appointment as president in 2009, Yasuo Kitano changed the salon opening model to focus on utilization rates and improving service quality. QB Net worked to build up in-house equipment, personnel, expertise, and standardized services. Toward this end, the company shifted its salon opening strategy from opening new locations using franchises or outsourced labor (OL) salon formats, as it had been doing, to using directly managed/direct labor (DM/DL) salon formats. As this change in approach necessitated the hiring more employees for the directly managed salons, and the pace of new salon openings naturally slowed.
|No. of salons||291||337||357||378||395||408||417||440||463||480||492||515||542||552||567||582|
|Customer count ('000)||8,034||9,534||10,590||11,341||12,034||12,554||12,736||13,370||14,064||14,637||15,156||15,958||17,023||17,901||18,406||15,623|
|Customer count per salon ('000)||30.9||30.4||30.5||30.9||31.1||31.3||30.9||31.2||31.1||31.0||31.2||31.7||32.2||32.7||32.9||27.2|
Recent net increases in Japan: Net additions to the company’s domestic salon network slowed down to 10 salons in FY06/18 as the company was forced to close 14 outlets as a result of changes in circumstance on the property owner’s side (such as renovation work at train stations). Net additions to its domestic salon network are expected to increase to 15 in FY06/20, with the company again closing 14 outlets as a result of changes in circumstances on the property owner’s side.
Aims to open at least 115 QB House salons in Japan over five years: The company is targeting an annual net increase averaging 23 salons, but Shared Research thinks this will require about 30 openings yearly in light of closures. FY06/20 will see a large number of outlets in train stations close due to renovation work ahead of the Tokyo Olympics, so the company is planning a net increase of 19 and about 25 yearly from FY06/21 onward.
Scope for new openings: The company has a presence in just 14% of commercial facilities with space of at least 10,000sqm (1,769 as of end 2016), so there is plenty of room to open salons here.
Cash flow required to open salons: QB Net aims at a net increase of 40 salons a year including those overseas and new formats (discussed below). According to the company, it costs JPY20mn to open one salon, comprising JPY15mn for equipment and facilities, JPY3mn for guarantee deposits, and JPY2mn for sales promotion when the salon opens. 50 new salons and a net increase of 40 salons would require JPY1.0bn, which Shared Research thinks could be covered by operating cash flow (consisting of depreciation of JPY769mn in FY06/19 and projected profit of JPY1.4bn in FY06/20).
Time until new salons turn a profit: Customer numbers at QB’s new salons tend to grow over time as local residents and those commuting to work or school become more aware of it (about JPY2mn for sales promotion when the salon opens). On a monthly basis, new salons therefore start in the red and take roughly 10 months until they are in the black. New salons are a drag on profit only during their first fiscal years.
Net increases overseas: The company’s overseas expansion started in April 2002 with the opening of its first Singapore salon, followed by Hong Kong, Taiwan, and the US, at a pace of about 10 net increases per year. As of end-FY06/19, QB Net had 127 directly managed salons overseas (versus 119 at end-FY06/18): 36 in Singapore (versus 36), 61 in Hong Kong (versus 57), 27 in Taiwan (versus 24), and three in the US (versus two).
Recent net increases overseas: Net additions to the company’s overseas salon network was down to two in FY06/18 as the company slowed its overseas expansion activity in the face of a temporary labor shortage.
Plans to add at least 50 overseas salons in existing markets and 15 in new markets in medium-term plan: The company’s medium-term plan aims for a net increase of at least 50 salons over five years in its existing markets overseas. It also plans to expand into two new cities overseas and open fifteen salons there. Most of the net increase in existing overseas markets will take place in Hong Kong, Taiwan, and the US.
Singapore: 36 salons at end-June 2019. The company aims to have 40 salons at end-FY06/24.
Hong Kong: 61 salons at end-June 2019. The company aims to have 80 salons at end-FY06/24. The company aims to have one salon for every 100,000 members of the population, so it thinks there is room to open a maximum of 100 salons in Hong Kong. It aims for 80 salons at end-FY06/24.
Taiwan: 27 salons at end-June 2019. Aims at 50 salons by end-FY06/24. The recruitment situation is improving, and the company thinks there is plenty of leeway for it to open salons moving forward.
US: The company opened its first salon in New York in June 2017, and had three in June 2019. Aims at 15 salons by end-FY06/24. That city has over 8mn residents, so there is ample room for expansion.
The company intends to roll out its new FaSS-format salons to expand profit opportunities in markets not covered by QB House in Japan in the medium term, as well as the development and rollout of its new format, QB Premium. The medium-term plan targets at least 15 new salons in the new formats (13 as of end-FY06/19 and 30 in FY06/23).
FaSS format: FaSS (Fast Salon for Slow Life) is targeted at men and women from their 20s to 40s. Services comprise haircuts and styling, taking roughly 20 minutes for JPY2,000 (excluding tax). It is possible to roll out this format without cannibalization due to its different positioning and the fact that the main target demographic for QB House is men aged over 30.
FaSS salon rollout: The FaSS format was launched in July 2011. As of June 2019, the company had 13 FaSS format salons in trendy areas such as Naka-Meguro, Futago-Tamagawa, and Daikanyama. Between FY06/12 and FY06/18, the company opened around one salon per year and three at most. It opened two FaSS salons in FY06/19.
QB Premium salons offer haircuts and styling at a higher price point than QB House, and have already been rolled out in Singapore and Hong Kong. QB House Premium in Singapore charges SGD15 versus SGD12 at QB House, and in Hong Kong QB Premium charges HKD100 versus HKD70 at QB House.
Rollout of QB Premium in Japan: QB Premium in Japan will offer haircuts and styling for JPY1,500 (excluding tax) and the company is investigating appointments to reduce waiting times and measures to make customers more comfortable such as offering beverages. It plans to open the first domestic QB Premium salon in spring 2020.
The company sees QB Premium as a template to conduct research into a vision of QB House 10 years in the future and its services. The company said it was thinking of trial runs of new services at QB Premium, and rolling out the better ones and those with positive customer feedback at QB House in 10 years, and raise prices accordingly.
|FaSS and QB PREMIUM||13||14||14||17||20||30|
The company plans to develop apps and invest in its salons to improve the value of its services including reducing waiting time, introducing appointments, keeping records of customer haircuts, and allowing prepayment. The company has factored in spending of JPY350mn on app development and new ticket machines in its medium-term plan.
QB Net plans to resolve customer and employee issues and improve the value of its services with its new apps. As of November 2019, the company was aware of customer complaints such as long waiting times and difficulty of communicating the desired hairstyle. The employees had difficulties in trying to understand the customer’s desired hairstyle and understanding customer feedback. In the medium-term plan, the company plans to reduce waiting times through the development of an app to make appointments. It also aims to develop an app to record the details of salon treatments to bridge the gap between the hairstyle the customer wants and the treatment they receive.
The new ticket machines will help the company cope with cashless payments and new banknotes.
Under the medium-term plan QB Net aims at 900 salons in 2023 (up 206 from FY06/19), revenue of JPY30.0bn (+43.8%, CAGR of 7.5%), and operating profit of JPY3.3bn (+67.6%, CAGR of 10.9%). On the debt front, it is contracted to repay JPY700mn yearly, and at the repayment deadline of March 2024 it plans to repay JPY3.0bn as part of refinancing, and aims to reduce borrowings to JPY5.1bn in FY06/23 from JPY11.3bn FY06/19.
Due to changes in the IFRS accounting standard in FY06/20, the company shifted to book total expected future salon rental payments and the book value of usage rights, resulting in increases in right-of-use assets on the assets side and lease liabilities on at the liabilities side of the balance sheet.
|FaSS and QB PREMIUM||13||14||15||14||17||20||30|
|Operating profit margin||9.4%||1.3%||4.8%||9.8%||10.1%||10.4%||11.0%|
|Profit attributable to owners of the parent||1,272||104||557||1,403||1,600||1,700||2,100|
|Domestic: Growth in QB House network||JPY2.8bn|
|Domestic: Growth in QB House comparable store sales||JPY3.6bn|
|Domestic: Growth in FaSS and QB Premium salons||JPY600mn|
|Overseas: Growth in existing markets||JPY1.5bn|
|Overseas: Opening salons in new markets||JPY700mn|
The company expects revenue growth of JPY2.8bn from a net increase of 115 salons. This equates to JPY24mn per salon, and is set low compared to revenue per directly managed salon of about JPY35mn in FY06/19 (Shared Research estimate). The company forecast incorporates the fact that awareness of new salons among passersby such as commuters and residents is insufficient in the first year of operations, so customer traffic gets off to a slow start, as well as the negative impact of salon closures.
The company expects growth of JPY3.6bn in domestic QB House comparable store sales. Shared Research thinks that this effectively translates to comparable store sales growth of about JPY3.0bn in light of the impact of February 2019 domestic price increase and the drag on sales from the October 2019 hike in the consumption tax.
Customer count at new salons tends to grow rapidly in the first five years of operation as the salon becomes better known among local residents and commuters. Comparable store sales growth incorporates this effect. Given that the company plans to open 30–40 salons yearly, growth in comparable store sales of about JPY3.0bn excluding the effect of price revisions and the consumption tax hike seems reasonable.
Shared Research thinks that the company expects customer traffic to grow at a pace of less than 1% per annum for salons already operating as of end-FY06/19.
The company plans to open 17 FaSS and QB Premium salons in its medium-term plan. A revenue impact of JPY600mn from these amounts to JPY35mn per outlet. This means that the company assumes revenue in line with the figure of about JPY35mn for directly managed salons in FY06/19 (Shared Research estimate).
The company expects revenue growth of JPY1.5bn from the addition of 58 salons in markets it already has a presence in. Prices vary country by country, but Shared Research estimates that in FY06/19, revenue per salon overseas was approximately JPY27mn. Given that the company plans to increase its network by 58 salons in these markets, additional revenue of JPY1.5bn seems reasonable.
The company plans to open 15 salons in two new cities overseas. It expects revenue of JPY47mn per salon, markedly above the JPY27mn overseas average per salon in FY06/19. Shared Research thinks that this means the company is looking to enter cities overseas where prices are relatively high.
|Increase in gross profit accompanying revenue growth||JPY2.2bn|
|Domestic: SG&A expenses due to increase in area managers accompanying growth in outlet numbers||-JPY300mn|
|Domestic: Investment in HR development to strengthen training program||-JPY100mn|
|Domestic: Investment in brand, going cashless, and upgrade in waiting systems||-JPY100mn|
|Overseas: Management costs accompanying revenue growth in existing markets||-JPY200mn|
|Overseas: SG&A expenses to open salons in new cities||-JPY100mn|
The company expects growth of JPY2.2bn in gross profit on revenue growth of JPY9.2bn. The company does not expect any major changes in GPM in its medium-term plan period. The GPM on the extra revenue is 24%, in line with the 23.3% GPM figure for FY06/19.
The company expects a rise of JPY800mn in SG&A expenses (simple sum). It expects an SG&A expense to sales ratio in the 12% range based on its FY06/24 revenue targets, lower than the 13.6% in FY06/19. The plan calls for careful control of expense growth while the company increases salon numbers, improves services, and expands overseas operation. The company targets an operating profit margin of 11.0% in FY06/24, up 1.6pp from 9.4% for FY06/19.
The increase in human resources development spending accompanying moves to strengthen its staff training includes over JPY1.4bn over five years to expand its human resource training. In FY06/19, the company booked operating expenses (salaries for employees during training) for its LogiTHcut Professional Stylist Schools. There will be an increase of about JPY100mn p.a. in this area.
Investment in brand, going cashless, and upgrade in waiting systems entails an increase of about JPY100mn in expenses. The company plans to spend JPY350mn to improve services during the plan, but the increase in expenses should just be JPY100mn as it plans to capitalize and depreciate assets.
|Total current assets||3,982||6,544||4,300||4,800||5,500||4,500|
|Cash and cash equivalent||2,489||5,117||2,800||3,300||3,900||2,800|
|Other current assets||1,493||1,427||1,500||1,500||1,500||1,600|
|Total noncurrent assets||20,299||26,716||26,600||27,100||27,800||30,500|
|Tangible fixed assets||2,327||1,857||2,400||2,500||2,500||3,100|
|Other noncurrent assets||2,542||3,367||2,500||2,600||2,800||3,200|
|Total liabilities and equity||24,282||32,721||31,000||32,000||33,400||35,000|
|Lease liabilities (incl. right-of-use assets)||465||5,993||6,700||7,000||7,500||9,500|
|Cash flows from operating activities (excluding lease accounting impact)||2,370||312||2,200||2,500||2,700||3,300|
|Cash flows from operating activities||2,370||2,747||4,600||5,000||5,400||6,600|
|Depreciation following IFRS lease accounting||-||2,435||2,400||2,500||2,700||3,300|
|Cash flows from investing activities||-961||-838||-900||-1,000||-1,000||-1,500|
|Cash flows from financing activities (excluding lease accounting impact)||-916||3,087||-900||-1,000||-1,000||-3,500|
|Cash flows from financing activities||-916||721||-3,300||-3,500||-3,700||-6,800|
|Contract repayment of borrowings||-700||-700||-700||-700||-700||-300|
|Prepayment of borrowings||-||-||-||-||-||-3,000|
|Net change in short-term borrowings||-||3,982||-||-||-||-|
|Repayments of lease liabilities following IFRS lease accounting||-||-2,366||-2,400||-2,500||-2,700||-3,300|
To address this, the company intends to deploy and improve its wait time notification system to reduce customer stress stemming from in-store wait times and to minimize the accompanying opportunity loss. As of May 2021, two QB House salons in the Kanto area have introduced an online place reservation system. The online place reservation system is a generic system that enables customers to use their smartphones or tablets to check queue lengths from home or elsewhere and reserve a place in line.
Business description: QB Net Holdings is the holding company of QB Net Co., Ltd., which operates QB House, Japan’s largest chain of haircut-only salons, by number of locations and sales. QB House was the first chain to offer 10-minute haircuts in Japan, providing the value of time to the customers. No reservations or designations of stylists are accepted. Offering only haircuts enabled it to provide services with affordable prices (standard price in Japan is JPY1,200 including tax). Since its founding in 1995, the company pioneered the quick haircutting business in Japan and expanded operations in the country’s post-bubble deflationary economy. As of FY06/21, the company have 579 salons in Japan and 135 salons overseas (in Singapore, Hong Kong, Taiwan, and the US).
Characteristics of haircut-only salons: Haircutting specialized salons only give haircuts, which are completed in a short time. Traditional hairdressers in Japan require reservations and provide a full set of services (including haircut, shampoo, shaving, and styling), take around 60 minutes, and charge JPY5,000 to JPY6,000. The company has two brands, QB House and FaSS. QB House salons mainly target businessmen and focus on haircuts, which they provide in roughly 10 minutes at the standard price of JPY1,200 (including tax) in Japan. Meanwhile, FaSS salons, which target those in their 20s through 40s, provide haircut and styling services in around 20 minutes for JPY2,200 (including tax). QB House salons do not offer shampooing and shaving services, allowing them to reduce equipment. These salons operate efficiently with original devices developed in-house, such as an Air Washer (a special vacuum cleaner to remove hair clippings), a ticket vending machine, and a congestion indicator (that indicates waiting time to customers).
QB Premium: The company operates one QB Premium location in Japan (haircut and styling for JPY1,650 including tax), which is serviced by specialists selected from among QB House stylists equipped with both technical and customer service skills.
How QB House stand out from peers: QB Net stands out from peers in several ways. It has the most haircutting salons in Japan (as of September 2021, 714 as of September 2021 compared with 271 for 3Q Cut, the second-largest operator), it operates primarily in prime locations such as commercial facilities and train stations, it directly manages the majority of its salons with its own staff (franchises are more common at peers), its shares are listed, and it uses salon data to continuously improve its business and its services. The company also operates in-house personnel training centers, where stylists learn the necessary skills to give haircuts through six months of training (compared with roughly two years of training at other hairdressers).
QB House salons: QB House salons occupy a floor space of about 10 tsubo (33sqm) per salon and can be opened in the “dead space” inside buildings that may not be suitable for other commercial purposes. They are typically opened in areas with high foot traffic, such as inside train stations and commercial facilities, and concentrated in prime locations for a dominant presence. The initial cost to open a QB House salon is about JPY20 million (including salon equipment and guarantee deposit), and they typically turn profitable in about 10 months after opening.
QB Net operates a chain of haircut-only QB House salons in Japan and overseas; it operates the largest number of haircut-only salons in Japan (714 compared with 271 by 3Q Cut, the second-largest operator).
It is the only listed company among haircut specialists (others are unlisted).
It concentrates salons in prime areas with high foot traffic (e.g., inside train stations and commercial facilities) for a dominant presence.
It directly manages most of its salons and operates them with its own employees (directly managed/direct labor [DM/DL] salons), while franchises are more common at peers.
It collects work data from all seats at all salons to monitor service length and improve services.
The company operates its LogiTHcut Professional Stylist Schools, in-house personnel training centers, in five locations in Japan. These schools have an established system through which stylists learn the necessary skills to give haircuts in six months of training (compared with roughly two years at other hairdressers).
Haircutting specialized salons provide only quick haircuts. Traditional hairdressers in Japan require reservations and offer a full set of services (including haircut, shampoo, shaving, and styling) in roughly 60 minutes at prices ranging from JPY2,000 to JPY6,000. On the other hand, QB House salons mainly target businessmen and offer only haircuts, which they provide in roughly 10 minutes at the standard price of JPY1,200 (including tax) in Japan. Meanwhile, FaSS salons which target those in their 20s through 40s, provide haircut and styling services in around 20 minutes for JPY2,200 (including tax).
In the following figure, we classify hairdressers into four quadrants, with service price on the y-axis (from low-priced on the top to high-priced on the bottom) and aesthetic satisfaction on the x-axis (from practical/functional on the left to fashionable on the right). According to this matrix, haircutting specialized salons fall under the second quadrant. Salons in this quadrant offer services targeted at customers who emphasize low price, practicality, and functionality. They occupy a unique position in Japan’s hairdressing industry, differing from traditional hairdressers (for more details, see the “Market and value chain” and “Main competitors” sections). Main customers of haircut-only salons are typically men in their 30s or higher. According to the company, about 90% of QB House customers are men and most are in their 30s or older, while customers in their 20s comprise about 10%.
The company also operates FaSS salons, which offer haircut and styling services targeted at customers in their 20s to 40s who put a priority on aesthetic satisfaction (e.g., emotion, sensitivity, taste).
Haircutting specialized salons do not offer services such as shampooing, shaving, and styling and thus do not need equipment like reclining chairs used for shampooing. QB House salons streamline operations with devices such as an Air Washer (a special vacuum cleaner to remove hair clippings) and a ticket vending machine, so that stylists can focus on giving haircuts and complete the work quickly. These salons also display a congestion indicator* to show waiting times to customers.
*Congestion indicator: Located at the storefront. Lights up to three different colors (green, yellow, and red), indicating different levels of congestion. Green means there is no waiting time, yellow means a waiting time of five to 10 minutes, and red means a waiting time of over 15 minutes.
QB House salons do not need shampooing equipment, so the company has decided on a standard of compact salons, which only require very limited floor space. They come equipped with devices and tools that minimize the walking distance of stylists. The company leverages and continues to improve its originally-developed equipment, know-how, and systems, which were previously unused at full-service hairdressers. QB House salons systematize operations to ensure that the service is completed in about 15 minutes, including 10 minutes for cutting and 5 minutes for cleaning.
At QB House salons, a “system unit” stores all the devices necessary for haircutting in one place. This equipment helps minimize the time stylists spend on activities other than cutting by reducing their walking distances.
QB House’s system unit
Source: Company photo
Main devices inside a system unit
Air Washer (photo, right edge): A special vacuum cleaner to remove hair clippings used instead of shampooing. Eliminating shampooing equipment reduces equipment space and contributes to lower capex. (By reducing the time spent on shampooing, QB House salons can give a haircut at an affordable price (standard price in Japan is JPY1,200 [including tax]) and in a shorter time than conventional full-service hairdressers.)
Terminal (photo, right): Records the number of customers served and the time spent per customer for each employee, as well as customer attributes. The device connects to the storefront congestion indicator, which provides customers with approximate waiting times.
Ultraviolet sterilizer (photo, center): Most salons only have one unit per store, but QB House salons have one for each unit.
Closet (photo, left): The space behind the mirror is used to salon customer belongings (e.g., coat, luggage).
The company typically opens QB House salons initially with three seats and expands that to four seats when the operating rate is high. Each salon only occupies about 33sqm of floor space, so they can be opened in “dead space” that is often too small for other commercial purposes.
The company targets salon openings in areas with high foot traffic, such as inside train stations and commercial facilities, as this is conducive to high utilization rates (for more details, see the “Salon openings” section). It can attract customers without promotions (except when opening a new salon) and thereby reduce advertising expenses by opening salons in prime locations.
The company strategizes its salon openings to gain a dominant presence in prime areas. For instance, when the number of customers increases at an existing salon, it opens another one nearby. This way, it boosts customer awareness, moves stylists between salons more easily, and uses customer traffic data at existing salons to make more accurate predictions of customer traffic at new salons.
As of June 2021, the company operated 566 QB House salons (including one QB Premium) and 13 FaSS salons (haircut and styling targeted at customers in their 20s to 40s) in Japan. Outside of Japan, it operated a total of 135 salons in Singapore, Hong Kong, Taiwan, and the US.