Dita De Boni, NBR:

The lead-up to Christmas is usually a busy time for the likes of beauty clinics and hairdressers, as their mainly female clientele rush to squeeze in their final body maintenance treatments before going away on holiday.

This year sees double the festive demand for many, particularly in Auckland, where beauty clinics have been closed for more than 100 days. With Christmas just weeks away, the pent-up demand for Botox injections, laser hair removal, and skin rejuvenating has exploded: it won’t make up for weeks of lost business but is an encouraging sign, Fran Caliari-Pearce, CEO of Fab Group, owners of New Zealand’s 64-strong Caci clinic franchise said.

“What a relief,” she told NBR.

“There are a lot of customers who have been waiting for it … as much as we've had a couple of practice runs beforehand, of course, being in and out of lockdowns over the last 12 months … nobody could foresee this one going for as long as it has.

“Being in the front line, the nature of a close-contact business, it's been a heck of a ride.”

Caliari-Pearce's time in the top job so far can also be aptly described as a ‘heck of ride’. She was chief of staff when new 47% shareholder Direct Capital came aboard in June 2020, just after the country’s first level 4 lockdown, and shortly thereafter got the top job when then-CEO Drift Stoddart left on maternity leave, before Delta tore through the country.

CEO of Fab Group, owners of the Caci clinic franchise, Fran Caliari-Pearce.

With 20 years in the business, first as a beauty therapist, Caliari-Pearce is no novice to either beauty or business, but admits there have been some particular challenges around Covid, and not only that half of Caci clinics were closed in Auckland’s extended lockdown.

“For me, one of the hardest things was making sure we kept that sense of connection,” she said.

The business did things like setting up a space on Facebook for its 550 or so staff with video content, pictures and puzzles; it even bought in a psychologist to give online talks to its 46 franchise owners, some solo owner-operators were doing it tough. All, though, missed their clients, she said.

“Just given the nature … of touch that comes with what we do, I think that was really hard for myself included – I love nothing more than being in the office and we're about energy and delivery and drive and performance and all of a sudden it's like, 'oh, here we are at home'; we’ve got to try and keep that momentum and keep everybody driven and passionate so they can come out the other side and deliver it to our customers.”

Business to date
Caci, founded 25 years ago, first listed on the small cap NZAX board when the alternative market was launched in 2003, but de-listed in 2007 after a takeover by Cosmedex Investments, set up by original founders David and Jackie Smith to buy back the company.

The Smiths told NBR at the time the listing on the untested market had been “a disaster” and it took years to buy the company back and get it on track, after placing too much reliance on outside advisers who didn’t know the business.

However in 2016 the company was considering listing again, with former NZ Venture Investment Fund chief executive Franceska Banga appointed to chair of FAB Group, owner of the Caci Clinic brand, to spearhead the listing plan.

That plan was also abandoned but the need for outside capital to fulfil ambitious growth targets remained. Caci clinics have roughly a third of the highly competitive and fractured beauty services market but within that target the niche of older women needing more complex and long-term treatments including laser hair removal, which is expensive and often done over months, and Botox, which needs regular re-doing. The company’s revenue stream was cemented with a subscription plan, a rather novel idea at the time in the beauty sector.

A profitable group of businesses generating more than $60 million in sales a year, the clinics caught the eye of Direct Capital director Gavin Lonergan, who told NBR at the time Direct looked for leading private companies within growing sectors. Caci, owned ultimately by Caci Group Holdings, is now 47.51% owned by the Smiths and 47.51% by Direct Capital.

Of the year just been, Lonergan said Direct had made the investment during the first round of Covid and knowing the pandemic was not going to disappear anytime soon, built it into its modelling.

"We found last year we caught up quite quickly so within a few months we had caught up to where we needed to be, so it would be our expectation that would happen again this time around – it's proven to be a really sustainable model that this business has got and it's obviously the largest skincare group in New Zealand so it's got a brand value that has really proven its worth in this environment."

One thing Direct did soon after buying in was to introduce a share ownership scheme to head office staff, representing the 4.99% outstanding ownership of the company. The firm has done this with many of its investments going back almost 30 years: "the cultural impact it makes is really significant; everyone walks around feeling as though they are part owners, and they are. In our experience it is the biggest, most impactful thing we can bring to a company."

For her part, Caliari-Pearce said the private equity firm had not brought any structural change but offered both access to capital and financial expertise that has helped Caci scale its business.

“It’s been a beneficial partnership, and here we are, again, having just come through another lockdown with the complete support of our shareholders, so it's been a really great almost 18 months now of that partnership.”

Scaling up
To the layperson, there seems if anything to be a surfeit of beauty clinics nationwide. But since Direct Capital bought into Caci last year, when there were some 50 clinics, that number has shot up to, at the end of this week, 66 clinics (two pop-ups have emerged in the last week, in Whanganui and Te Awamutu, temporary operations holding beauty ‘events’ that aims to gauge interest in a community for Caci services). There are 46 individual franchise owners.

Caliari-Pearce said the business had more scope for growth yet, particularly regionally, and does not rule out doubling the company’s touchpoints in five years.

Is there a saturation point? Apparently not: “the benefit of our business model is that we can reach much smaller regions with the franchise," the chief executive said.

"We've got a couple of different versions of the business model – we have the owner-operator version for really small locations, which might be a registered nurse that actually owns the clinic, but she's also on the tools, so depending on where we're going, we can adapt the model to make sure we can reach out into some of those areas. For example a place like Kerikeri – we've got a very successful clinic up there.

"Our competitors wouldn't necessarily be prioritising some of these regions. It's something that we try and make sure that we can adapt the model to reach the masses."

Future
But the key to growth may not be bricks-and-mortar clinics in each of the pinpointed locations, the CEO said.

“Maybe growth won't necessarily be footprint driven, it may just be ‘how do we continue to build a Caci community?’ The online presence is just huge in how we continue to engage the audience,” she said, with online sales of beauty products a growing strand of the business.

Revenues are expected to stay stable at around $60m this financial year but grow thereafter through a mix of more clinics and more online sales, although the CEO acknowledged that some travel budgets were being repurposed towards beauty and that may come off as the border opens again.

Profits will be grown by finding more efficiencies ‘below-the-line’; a warehouse run by the franchisor uses its scale to drive a better deal for gloves, needles, wax and other consumables required by franchises while keeping standards consistent, for example.

Head office has also this year helped negotiate rent rebates for its clinics and bought an employment lawyer on board as the franchisees grapple with mask mandates, vaccine passports and government regulations on the way they operate.

Covid-19 has also meant that the definition of a ‘sick employee’ has changed. These days, a mere sniffle is enough to keep a therapist off work for the day so Caci has developed a ‘roaming team’ of workers who can fill in at any nearby clinic (like a substitute teacher, but for beauty), Caliari-Pearce said.

"That's probably one of the things that we'll continue to do, particularly for the remainder of the financial year, just to make sure that all of our clinics are coming out at the same trajectory as we went into Covid."