ENTREPRENEURSHIP CASE STUDY
Faculty of Business and Information TechnologyinBusiness ManagementTHE HEAD SHOPPE | qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnm Table of Contents

1.0 Introduction 3 1.1 The Head Shoppe Limited 3 1.2 Personal Background 3 1.3 Strategic Options 3 2.0 Findings 4 2.1 Market 4 2.1.1 Target Market 4 2.1.2 Market Trend 4 2.1.3 Customer 5 2.2 Strategic Options 6 2.2.1 Geographic Expansion 6 2.2.2 Backward Integration 10 2.2.3 Diversification - Software Proposal 11 2.3 Major Problems 12 2.3.1 Shortage of hairstylist 12 3.0 Recommendation 13 3.1 Long Term – Geographic Expansion 13 3.2 Short Term – Diversification 15 3.3 Implementation 17 4.0 Conclusion 18

1.0 Introduction

1.1 The Head Shoppe Limited

The Head Shoppe Limited was the largest chain of hairstyling salons in the Canadian provinces, with salons in six major centres in Nova Scotia and New Brunswick and their annual sales approaching six million dollars.

1.2 Personal Background

The Head Shoppe Limited was first opened in 1968 by Wayne Drew. He was the son of a barber and had grown up in a small Nova Scotia town and entered his father’s trade at 18.

1.3 Strategic Options

The Head Shoppe has three strategic options to choose from in order to prolong their future business growth. One of the options is to expand their market geographically. Another options is to consider backward integration while lastly, The Head Shoppe need to consider whether to diversify their market to distribute computerized accounting system.

2.0 Findings

2.1 Market

2.1.1 Target Market

Market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. While target market refers to a group of people or organizations for which an organization designs, implements and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges.

The Head Shoppe targets their market in the demographic segment, which is the age group, specifically between 18 to 45 years old. It represents the 60% of the total population and has the shortest cycle for repeat business. The average cycle for 18 to 45 years old is slightly less than six weeks, while the other age groups take as long as three months for repeat business.

2.1.2 Market Trend

The traditional men’s barber shops and women’s beauty salons had been almost totally being replaced by three types of salons, all which provide services to both sexes. First is the discount salon, which targeted the price-conscious consumers. Secondly is the full-line salon, which targeted the mainstream of consumers. Lastly is the up-scale salon, which targeted the small minority of consumers who were more conscious of personal image and concerned about being on the leading edge with changes in fashion and style. The target market of Head Shoppe, which is the age group of 18 to 45, is regular users of full-line salon.

2.1.3 Customer | 1985 | 1986 | 1987 | 1988 | 1989 | | $ | $ | $ | $ | $ | Revenue | 3,423,000 | 3,657,000 | 3,905,000 | 4,196,000 | 4,194,000 | Franchisee Revenue | (1,500,000) | (1,500,000) | (1,500,000) | (1,500,000) | (1,500,000) | Franchisee Fees received | (75,000) | (75,000) | (75,000) | (75,000) | (75,000) | Revenue | 1,848,000 | 2, 028, 000 | 2,330,000 | 2,621,000 | 2,619,000 | Average consumer spends | 25 | 25 | 25 | 25 | 25 | No. of clients | 73, 920 | 83,280 | 93,200 | 104,840 | 104,760 |

The table above shows the estimated number of clients of each year which divided by average price. The number of clients increase from 1985 to 1988 which shows the Head Shoppe is in a growth stage of the product life cycle however by 1989, there’s a slight decrease by 80 people which goes to show that The Head Shoppe Limited is now in a maturity stage of the product life cycle.

2.2 Strategic Options

There are three strategic options that Head Shoppe can consider if they want to achieve future growth. First one is geographic expansion to more regions, secondly is backward integration to be their own hair care product supplier and lastly diversify into distributing computerized accounting system.

2.2.1 Geographic Expansion

The Head Shoppe had been very successful with developing the existing chain of shops with the capabilities of the management, key success factors in the industry, and distinctive competencies being developed. Head Shoppe has 19 shops altogether by the year 1990 and are all located in the urban centre. Peter Mahoney, the director of operations for Head Shoppe, felt that further geographic expansion is essential going outside the Maritimes. By expanding the market, Head Shoppe can gain more market with the expansion of the business and sales will also increase as market share increase.
However, market in large urban centre in the region appeared to be saturated and shops in smaller centre could not be expected to produce the level of return necessary to make them attractive. Despite that, the supply of qualified hairstylists was inadequate although Head Shoppe already operated two hairstyling schools. Even though the market size in other region was bigger but there are competitors which were large established chains targeting the full-line segment and the other regions also have the problem of greater shortage of qualified hairstylists.

Populations of Major Urban Centres in Atlantic Canada

Areas | Total Population | Number of shopscurrently | Target Market(60% of the population) | Proposed new shops unit | Newfoundland | | Comer Brook | 22,718 | - | 13,631 | - | | Mount Pearl | 20,293 | - | 12,176 | - | | St John’s | 96,215 | - | 57,729 | 3 | New Brunswick | | Bathurst | 14,683 | - | 8,810 | - | | Fredericton | 44,722 | - | 26,833 | 1 | | Moncton/Riverview | 71,106 | 1 | 42,664 | 1 | | Saint John | 121,265 | 1 | 72,759 | 3 | Nova Scotia | | Glace Bay | 20,467 | - | 12,280 | - | | Halifax | 295,990 | 14 | 177,754 | - | | New Glasgow/Stellarton | 15,281 | 1 | 9,169 | - | | Sydney | 28,115 | 1 | 16,869 | - | | Truro | 12,124 | - | 7,274 | - | Prince Edward Island | | Charlottetown | 15,572 | - | 9,343 | - | Looking at the table above it is safe to say that there are four more areas where Head Shoppe can target their market at, namely St John’s, Fredericton, Moncton/Riverview and also Saint John. From the look of the large population of their target market in those areas, which is 60% of the total population, Head Shoppe can start their expansion with opening 1 more shop in Fredericton and Moncton/Riverview, and 3 more shops in Newfoundland’s St John’s and New Brunswick Saint John. Expansion in other areas can be started after expanding in those areas with bigger market.
In order to overcome the problem of shortage of qualified hairstylist, hairstyling schools can be set up in other region, especially those regions that have shorter supply of qualified hairstylists. The hairstyling schools should be open up in areas with large number of population, like Saint John which is one of the metropolitan areas.
Other than finding new hairstylists, Head Shoppe should also try to improve their staff’s productivity and maintain their staff turnover rate and continue being the lowest in turnover rate in the industry. From the extracts of Head Shoppe Management Report in Exhibit 1 given in the case study, we can see that the stylists were conscious of educations and seminars related to the profession and staff meetings were felt to be beneficial. Top quality education and seminars related to the profession was recommended and records for the education and seminars should be recorded for assessment purposes and ensure that the skills are appropriately applied. Meetings between management and staff should be conducted on a regularly monthly basis in all locations. Points of interest should be used to stimulate discussion and prevent boredom; manger should take note of the staff’s feedback and viewpoint as well.
Money was not first priority when it comes to the hairstylist’s job but job security was thought to be the most important aspect. Improving stylist’s sense of job security and motivate them from time to time is essential. Performance appraisal should be administered on a semi-annual basis to evaluate employee performance and determining increases in compensation, benefits and promotion to senior status. Factors Considered in Selection of a Hairstyling Salon | Rank | | Importance | 1 | Skill/Experience of Hairstylist | 96 | 2 | Convenience of Location | 45 | 3 | Specific Hairstylist | 44 | 4 | Price | 35 | 5 | Overall Quality of Service | 20 | 6 | Cut | 18 | 7 | Friendliness of Staff | 14 |

The above table shows the most important factor that affects clients in choosing a hair salon is the hairstylist’s skill and experience. This shows significance in setting up hairstyling schools and teaching the stylists the appropriate skills that they should have.
Convenience of location is ranked 2nd, so Head Shoppe should consider opening new shops in the urban shopping centre or suburban strip mall. Metropolitan areas like Saint John and Halifax are required to have more salons as they have more population. Other areas that Head Shoppe do not have a branch there yet should also be consider as they have potentials to gaining the market share as well. For example Fredericton, St John’s, Comer Brook and there’s more location that Head Shoppe can consider.

2.2.2 Backward Integration

By becoming one’s own supplier appeared to be worthy of serious consideration. This is because retail product sales had become a major new emphasis in the industry and dramatic growth was anticipated for the future. With a possible mark-up of 40% of the selling price, it was seen as a very attractive option to consider. Competitors were not much because product lines were distributed through very few supply companies, and each line was exclusively available through only one supplier. Head Shoppe represented about 18% of Maritime Beauty Products’ sales, which is the biggest supplier in the market with 35% of the market share. Product loyalty was high among consumers as well, so having the popular lines would be the key to success for Head Shoppe.

However, Head Shoppe might have a hard time with this as they are still new to the market, while Maritime Beauty Products already have experience. Securing the distribution rights are going to be difficult also as Maritime Beauty Products already had exclusive distribution rights for these product lines.
2.2.3 Diversification - Software Proposal Peter Mahoney view diversification out of the hairstyling industry has the most attractive possibility on this front which lay in the introduction of retail operating systems for computers.

The Head Shoppe had successfully introduced a computerized accounting system in early 1989, with a terminal in each salon. By the end of 1989, the system had already begun to return benefits in terms of improved record-keeping, reduced staff time required for accounting, employee satisfaction, and indications that the tracking of clients it allowed was improving repeat business.

When The Head Shoppe enters the contract with the designer of the system, Head Shoppe was given an option to be the exclusive distributor of the software and for similar systems to be designed for other segments of the retailing industry. There were only less than 1% of hairstyling salons in Canada that had computerized accounting systems and the same with other retailing operations. The Head Shoppe would get approximately $2,500 per system sold, even after allowance was made for the provision of training and trouble-shooting services. Discounts on the hardware could be provided to system purchasers who lacked the hardware necessary to implement the system as well.

Although Head Shoppe had successfully implemented the software system in its own operations, but its experience, expertise and success was limited to the hairdressing industry.

2.3 Major Problems

2.3.1 Shortage of hairstylist

The biggest problem in the hairstyling service industry was the shortages of qualified hairstylists. This is due to the low prestige associated with the profession and also the low income compared to other professions. Although a top hairstylist is able to earn as much as $70,000 per year, but most of the hairstylists only earned a little more than the minimum wage. All these reasons highly affected people’s decision when choosing a profession. Most hairstylists only had a high school education or less and that could be the reason of people having a negative perception with hairstylists. There was no significant change in the profession that will attract people to take up that job, and supply of qualified hairstylists was expected to continue to lag behind demand.

Qualified hairstylists in the region were still in short supply although Head Shoppe already has two schools operating. More efforts are to be done if Head Shoppe wants to attract more workers to be their hairstylists. Head Shoppe can try to give more fringe benefits as well as give training or educate the stylists on area related to the profession. This not only will attract more workforces but also avoid the current staff from moving to another competing salon.

3.0 Recommendation

3.1 Long Term – Geographic Expansion
It is recommended that Head Shoppe select option 1, which is geographic expansion in order to achieve profit and growth continuously in the long run. Population of Major Urban Centre in Atlantic Canada (Figures round off to one decimal point) | Area | Total Population | 60% of Population | St John’s | 96215 | 57729 | Fredericton | 44722 | 26833 | Moncton/Riverview | 71106 | 42664 | Saint John | 121265 | 72759 | Total | 333308 | 199985 |

For the target market with age 18-45 years old, which is 60% of the total population, it takes them an average cycle of 6 weeks for repeat business. There are 52 weeks in a year and if we want to calculate how many times the client comes for a haircut in a year, we’ll take 52 weeks divided by 6 weeks, which we will get 8.67 times in a year. It is stated that average client spent from $20 - $30 per month on hair care, including retail products. Assuming that all of the population goes to Head Shoppe for haircut and spending around $25, we will be getting $43,346,748.75 of revenue from that.

Working:
Total population of target market – 199,985 people
Average cycle for repeat business– 6 weeks
One Year – 52 weeks
52weeks/6weeks = 8.67 times in a year
Average spending of client - $25
Revenue in a year = 199,985 x 8.67 x $25 = $43,346,748.75

Compare this to the company’s 1989 revenue of $4,194,000; it is a very big difference. If Head Shoppe can expand their business to other areas and successfully get into the market, it is possible for them to gain revenue that is many times of the year 1989’s revenue.

3.2 Short Term – Diversification

Head Shoppe Company Limited Statement of Income For the period 1985 to 1989 (000s)

The Head Shoppe started implementing the computerized accounting system in early 1989; each salon had a terminal in it. The system begun to return benefits by the end of 1989, in terms of record keeping, reduced staff time required for accounting, employee satisfaction, and indications that the tracking of clients it allowed was improving repeat business. The proof can be seen from the Head Shoppe’s statement of income, where income has increased by $29,000 from year 1988 to 1989. Although revenue has decreased by $2000, but income from shop operations and income before tax has both improved by $33,000 and $38,000 after the system was implemented.
Head Shoppe was given the opportunity to become the exclusive Canadian for the system and for similar systems to be designed for other segments of the retailing industry. Less than 1% of hairstyling salons in Canada had computerized software, so the market for this software is pretty big as it not only has 99% of the hair styling industry but also other fields of retailing operations. Moreover, each system sold will get an approximately net return of $2,500, even when allowance was made for the provision of training and trouble-shooting service.
This proposal will only work probably in the short run only because once the 99% of the hairstyling industry and other retailing industry already bought the system; Head Shoppe will have a hard time in finding the buyers. Also if after 5 years later some competitors come up another more advance system, this accounting system that Head Shoppe has would prove to be worthless. Head Shoppe should try to gain as much profit as possible when they still have big opportunity in this market.

3.3 Implementation

Strategic Options \ Month | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | Diversification - Software Proposal | | | | | | | | | | | | | Geographic Expansion | | | | | | | | | | | | | St John's | | | | | | | | | | | | | Fredericton | | | | | | | | | | | | | Moncton/Riverview | | | | | | | | | | | | | Saint John | | | | | | | | | | | | |

Head Shoppe can start off with the software proposal and focus on it for the first 4 months. Meanwhile, geographical expansion can start on the fifth month and open the next shop after the next two months. Head Shoppe should begin with expanding into areas with bigger target market, which are St John’s in Newfoundland, Fredericton, Moncton/Riverview and Saint John in New Brunswick. More time will be needed for St John’s and Saint John as there are 3 proposed shops to be open in that area, while Fredericton and Moncton/Riverview only has one proposed shop each.

4.0 Conclusion

If Head Shoppe were to gain further profit and growth for its company, they have to consider investment for short term, that is diversify into distributing software and also generating revenue in the long term, which is expand their market geographically. Both strategic options were very profitable and Head Shoppe should not let this chance pass by them.