Jim Reynolds, Senior Real Estate Manager at Great Clips

Guest: Jim Reynolds, Senior Real Estate Manager, Great Clips

Host: Chris Hatch

Listen on Spotify

Summary

Chris Hatch talks with Jim Reynolds, who is nearing 25 years in real estate at Great Clips. Jim traces his path from a University of Oregon grad learning shopping center development in Seattle, to 10 years as a broker, to joining Great Clips in 1999, when it had about 1,400 salons. Today it has about 4,450 and Jim covers much of the West and Canada. He explains the single-unit, local-owner franchise model, why visibility and the Great Clips app now matter more than being in the anchor center, the 1,000-square-foot prototype, and why customer service can beat a marginal location. He and Chris also cover the field goal kick promotion, Great Clips' six-week sabbatical, why so little multi-tenant shop space is being built, an idea for occupancy-based rents on mixed pads, the power of networking, and why stepping away from early Walmart work in Washington was a lesson.

Key Takeaways

• Great Clips sells franchises one location at a time to owners who live in the market. There's no private equity, and the average franchisee owns about four salons.

• Visibility and access are the two biggest real estate keys. With the app driving almost 70% of visits, a visible pad across from the grocery anchor can work as well as being in the anchor center.

• Great Clips is in the customer service business. How people are treated inside the salon can outweigh the real estate.

• The prototype is about 1,000 square feet with eight or nine stations. Total occupancy cost matters more than exact size or dimensions.

• Be first into a growth area, even if it means feeding a store until the rooftops fill in, because the best sites are gone once everyone arrives.

• Very little multi-tenant shop space has been built since COVID, yet stable service tenants still need it. Developers should add shop space to oversized pads.

• Jim's suggestion for mixed pads: set each tenant's rent to what its occupancy cost supports, instead of pricing everyone off the Starbucks rent.

• Everything starts and ends with leasing. If nobody pays the rent, the rest doesn't matter.

• Start networking early. It's not who you know, it's who knows you, and in the end reputation brings business to you.

• Purposeful time away, like Great Clips' six-week sabbatical, is a real reset.

Transcript

[01:30] Chris Hatch: Welcome back to the Dirt Dog Pod. I have a great guest today, Jim Reynolds.

[01:42] Jim Reynolds: Hey. Thank you.

[01:43] Chris Hatch: Welcome. Jim, you're a senior real estate manager at Great Clips.

[01:46] Jim Reynolds: Correct.

[01:46] Chris Hatch: And you've been there for a while.

[01:49] Jim Reynolds: It'll be 25 years in February.

[01:51] Chris Hatch: That's pretty amazing.

[01:52] Jim Reynolds: It's unheard of nowadays, but yeah, it's been a remarkable run.

[01:55] Chris Hatch: I was going to say, honestly, in the big scheme of things, it's so infrequent to hear about somebody being at one company for 25 years.

[02:04] Jim Reynolds: Right. Well, I think it all comes back to the company itself. It's still privately held, and the same people run it. The values I signed up for are the same values today, and the mission is simple; we're just trying to execute. Most people in these kinds of jobs have to hop around because things change. Companies open stores, they close stores, and the real estate people are the first to go. It's just been the same culture at Great Clips ever since I started. So there's no reason to go anywhere else.

[02:29] Chris Hatch: How did you end up at Great Clips?

[02:32] Jim Reynolds: I went to college at the University of Oregon. By the way, the Ducks are number one in the country.

[02:37] Chris Hatch: Go Ducks.

[02:38] Jim Reynolds: I grew up in San Diego and moved to Oregon when my family bought a family restaurant business when I was 15. So I got out of high school in a small town in Oregon and then went to the University of Oregon. Then my roommate got a job in Seattle with a developer. His older brother was a banker in Seattle who lent this fellow, Basil [Vyzis] was his name, money in the mid-'80s to go build a bunch of shopping centers. So that's how I got to Seattle: to work for this shopping center developer. I had no background in it. I was just fresh out of college, 23. I viewed my six years there as paid graduate school, just learning the business. After that, I was a broker for 10 years here in Washington, and then I got the job at Great Clips.

[03:21] Chris Hatch: And when you started at Great Clips, what was your territory? What were you doing?

[03:26] Jim Reynolds: They had just bought out a regional franchisee, which is something we don't do nowadays. Nowadays, Great Clips Inc. owns everything, but when they were starting out, they had regional franchisees, and that group owned from San Francisco up through the Northwest and Western Canada, Alberta and B.C. When Great Clips Inc. bought them out in the fall of '99, they needed a real estate person and an operations person for the Northwest. So they hired me and an operations person. Great Clips has been in Canada for 25 years. Great Clips started in 1982, so we're 42 years old at this point. That regional group was struggling, Great Clips Inc. bought it back and brought it in-house, and then they needed a real estate person.

[04:02] And talk about how small the business is: I grew up in San Diego, and my best childhood friend was Ted Frumkin, who's now at Heritage Grocers, formerly at Sprouts, et cetera. Ted's dad was a big real estate guy, Neil Frumkin. He worked at Jack in the Box, and Ted got a Payless Shoes or Pizza Hut job. So ironically, we both ended up in the business. When I was wanting to leave brokerage, Ted hooked me up with Dean Weber, who was head of real estate for Great Clips. Dean called me, or I called Dean, and that's how I got the Great Clips job. It's just a small world.

[04:40] Chris Hatch: When you joined the company, how many stores did they have?

[04:45] Jim Reynolds: They had about 1,400 at the time.

[04:47] Chris Hatch: Okay. And what's the count today?

[04:51] Jim Reynolds: About 4,450.

[04:51] Chris Hatch: And you've opened, as you and I were texting back and forth, 10% of those.

[04:56] Jim Reynolds: I've been involved in those, yeah. I don't know what the real number is. Most of the population in the U.S. is still east of the Mississippi, so I cover a huge territory, but there aren't a lot of people in a lot of it. But it's been a great run.

[05:10] Chris Hatch: And that's your territory today, more or less? Mississippi west?

[05:12] Jim Reynolds: Well, a lot of the western states, and Canada.

[05:15] Chris Hatch: How many stores are in Canada?

[05:17] Jim Reynolds: About 165.

[05:18] Chris Hatch: Let's talk for a moment about how ownership of a Great Clips works. You got rid of the regional franchise model.

[05:27] Jim Reynolds: Every store is owned by a franchisee, and in the major markets, we don't have any franchise development groups that own a region and then sell the franchises. We sell every franchise on a one-off basis. If a franchisee wants to open another store, they buy another franchise. There are some small markets where we'll sell the market to one person. Say Palm Springs: it's only going to have 10 or so stores, so we won't have multiple franchisees there, and we'll sell those to one. But other than that, it's one franchise application per store. Our largest franchise groups have about 80 stores. The average is about four. We have about 750 franchisees for 4,400 stores. A lot of people own 10 or 15 of these, but we want them invested in the local market. We don't want somebody in Ohio owning a Great Clips in Seattle. If you want to be a franchisee in Seattle, you need to live in Seattle. It's your money you're investing, and we want you close to your business. There's no private equity. That's how Great Clips operates.

[06:31] Chris Hatch: That's an interesting business model. It's always interesting talking to corporate real estate people who interact with franchisees and operators on the ground. So why Great Clips? Why do people become franchisees?

[06:53] Jim Reynolds: I think the biggest thing is that it's a proven business model, and everybody needs a haircut. A lot of franchisees don't want to work in their store. If you're a Subway franchisee, you can make the sandwich. You can't really make the haircut at a Great Clips. Most of our owners weren't in the hair business before they came to us. There are some stylists who work their way up and get some capital, and maybe their franchisee will sell them a store; we do have that. But generally these are investor folks who want to own a franchise they can touch and work on, but where they don't have to be there all the time.

[07:28] I'll give you an example: our franchisee in Helena, Montana, Kyle Eckman. He worked for the Federal Reserve Bank of Minneapolis, and his wife's a chiropractor. They moved to Helena, where there was a Federal Reserve branch, and he started with Great Clips. His wife had her business, and he was working at the bank. Pretty soon he had enough Great Clips that he didn't have to work at the bank anymore. Raising three boys, life is great, and he's got 40-some salons now. That's a great Great Clips success story, but it's very typical. We have folks who come in doing something else, who want to own a business and not just put money in the stock market or something like that.

[08:05] Chris Hatch: What characteristics go into a strong-performing Great Clips location? You're out scouting the next great spot, or helping one of your people do that. What are you looking for?

[08:19] Jim Reynolds: My thinking has changed over time as technology has changed. When I started at Great Clips, it used to be that we wanted to be in the dominant grocery-anchored shopping center in the trade area, in the suburbs. We're a suburban growth tenant. We wanted the number one or number two grocer in the trade area, because that's where people come three or four times a week. Obviously they're not getting a haircut that frequently, but the car has to be on autopilot. Visibility is still the best thing ever for retail real estate. Visibility and access, in my view, are our two biggest keys. So for the first several years, we'd just go into that grocery-anchored shopping center.

Now I'm much more visibility-driven. We have the Great Clips app, which everybody should have on their phone. I'm going to blow this number, but it's been downloaded something like 40 million times, and it's almost 70% of our business. So the phone is going to tell you where to go. We just need to be visible and accessible. Where we might once have waited for a spot to open in that grocery-anchored center, now we're talking to guys like you who are going to build a pad across the street and put three or four tenants in it. We need to be at the solid daily-needs epicenter intersection, but we don't necessarily need to be in the anchor center all the time.

And in real estate, everybody likes to default to "location, location, location." I don't necessarily agree with that. I think Great Clips is in the customer service delivery business. We're using hair as our vehicle. If we treat people right, they'll come back. I could point you to locations with marginal real estate that are fabulous performers, and to sites that should work great and don't. It really comes down to how customers get treated once they're inside the store. We still want the great real estate, because that's where all the people are, and if we get the better real estate, the competitor doesn't. So we're not going to forgo the location question. But if we treat people right, they come back, and if we get that part right, we can get by with lesser real estate.

[10:07] Chris Hatch: Is that difficult with the franchise model? Because it's really the franchisees' employees you're talking about when it comes to treating customers right. How do you keep that consistent across markets?

[10:20] Jim Reynolds: Our operations and marketing group is the biggest group at Great Clips. There are a few of us real estate people, but once the store is open, our people are in touch with them. Every one of our point-of-sale computers is on the same protocol. We get real-time information into Great Clips. We monitor everything: wait times, how long customers are waiting, how many customers walk in and walk out, all those sorts of things. So our operations folks can tell how efficiently a salon is being run, and they work with franchisees daily on maximizing their schedules, putting people to work at the hours customers want to come in. We measure all of that. We do focus groups all the time. We spend lots of time and energy understanding what customers want and relaying that down through the operations and marketing teams to the franchisees. So there are no franchisees who just go off on their own and run their business. Great Clips is in the royalty collection business, and the franchisees are in the hair salon business. So it's in our best interest that they train their staff and have solutions for the times when a salon isn't operating properly.

[11:24] Chris Hatch: Tell us about the prototypical Great Clips today. What's the size? How many stations?

[11:29] Jim Reynolds: It's around 1,000 square feet. We just did some deals in Honolulu that are 800 square feet, because the rent's very high. Sorry, landlords. Then we have some Midwest legacy salons that are probably 1,500 to 1,800 square feet. But we can do all the haircuts we'll ever need to do in 1,000 square feet, which gives us eight or nine stations, a shampoo bowl or two, depending on the regulations, a back room and a restroom. That's basically it. And we can do almost any kind of format or layout. We can take a 20-by-40 space; we can take 15-by-80. So when people ask what square footage we need, I talk about total occupancy cost. What's my total occupancy cost? Then we can make it work.

[12:14] Chris Hatch: And what are you typically targeting, or what does the franchisee target? How many haircuts? A haircut a week? A day?

[12:20] Jim Reynolds: Great Clips Inc. is focused on customer counts, not sales volumes. Pre-COVID, we were at 500 haircuts a week as a chain, across 4,400-some stores. Now we're at about 420 haircuts a week. So we focus on haircuts per week, growing that number and giving the franchisees the tools to do it.

[12:40] Chris Hatch: And does pricing change between markets? Back to the Honolulu rent being different from an Omaha rent, for example.

[12:48] Jim Reynolds: Yes, it does. Franchisees control that. We're not allowed to tell them what to charge for a haircut. They base it on the local market, and the co-op of franchisees in each market agrees on those prices. So there is variability. There will be different price points in Seattle, depending on which salon you go to, but they're all pretty close.

[13:06] Chris Hatch: We were talking about the Yelm, Washington store yesterday, because I was down there looking at some real estate. Tell me about that Yelm salon. Why did you choose that location?

[13:18] Jim Reynolds: That store's been there over 15 years. We're generally a growth-chasing company. When Walmart was coming in down there and a lot of growth was happening, we did Hawks Prairie, we did Tumwater, and we did that store, all within the same two- or three-year period. When I'm looking at a market, I'm looking at where the growth is happening. We always want to be on the leading edge of that. If a major grocer is going out there, there are usually enough people for Great Clips. I want to be in the best site the first time. And our franchisees are obviously the ones paying the rent, so they have to agree to this, but we're willing to go in and subsidize it for a while, or they have to feed it for a while, until everybody moves in. We can't get the great site if we come in late, once everybody's already there. Yelm is perfect: younger families, solid median income growth and good retail synergy in the trade area. That's what really works for us.

[14:14] Chris Hatch: I want to pivot for a minute and talk about one of the marketing programs Great Clips has done, which I think is genius: the Kick a Field Goal program. Who came up with that?

[14:25] Jim Reynolds: We've pivoted our marketing program. Lisa Hickey, our VP of marketing, and her team just do a fabulous job. They've pivoted quite a bit, and now we're one of the major supporters of college football. You'll see Great Clips splattered all over college football and the Oregon Ducks games...

[14:43] Chris Hatch: I love the Ducks plugs.

[14:45] Jim Reynolds: ...and March Madness. We're also the official hair salon of the NHL, so when you get to the Stanley Cup Playoffs, you'll see us all over the boards. We used to be heavily into NASCAR and some other things, but we've moved on from those. Lisa and her team come up with all that creative, and we've made a big investment in those three groups over the last several years. You'll see elevated exposure this year with our new agreements with those folks.

[15:12] Chris Hatch: For anybody who isn't aware of it, from a college football perspective... if your favorite team's stadium doesn't do this, at least at the University of Utah and BYU, they bring out a fan, and the fan gets an opportunity to kick a field goal. If they make it, there's either a massive discount on haircuts or free haircuts, depending on where you are.

[15:32] Jim Reynolds: That may not be a national program. I know our Salt Lake franchisees are very connected. I've been to several events with some of our marketing partners, like a ski day or a golf day, and the franchisees are very involved. So that could be a University of Utah program they've partnered on locally, where we may not have the field goal kick across the country. The local franchisees drive that a lot of the time.

[15:55] Chris Hatch: Joe Mills, who's been my business partner for a long time, has of course opened a bunch of salons with you.

[16:04] Jim Reynolds: Joe's the best there is. Pound for pound, at five foot six, he is the most talented tenant rep broker out there, I guarantee you. And again, I've got a lot of great ones, and I don't want to slight any of them, but Joe's at the top of the list. He's great.

[16:17] Chris Hatch: So he's a die-hard Cougar, and I'm a Ute. And one day he mentions to me that he has access to the people who decide who's going to kick the field goal.

[16:28] Jim Reynolds: Interesting.

[16:29] Chris Hatch: He just kind of shares this with me. And the next thing I know, he doesn't tell me, but I get a video from a whole bunch of people of Joe Mills kicking the field goal at a BYU football game, and he completely shanks it. I think the ball might have been out of the air before it hit the paint in the end zone. Nowhere close.

[16:48] Jim Reynolds: Not even close.

[16:49] Chris Hatch: So then we're sitting at a game. I sit by a lot of family members, and one of my cousins, who was a quarterback in high school, has his real Uncle Rico moment. He's making fun of the participant trying to kick the field goal at Utah that day, and he says, "I could do that with my eyes closed." I said, "Oh, really? You think you could do that, huh?" And he said, "Oh, it wouldn't even be hard. I've got this." And I said, "Okay, no problem." So I'm literally texting Joe right then. We have him signed up for the next game.

[17:19] Jim Reynolds: Oh, sweet.

[17:20] Chris Hatch: So then I tell him, in front of all our family members, "Are you sure you can do this?" He said, "Absolutely." I'm like, "Great. You're kicking next week." And now he has to, right? He has no choice.

[17:30] Jim Reynolds: He's been talking trash all game.

[17:34] Chris Hatch: So he practices all week. I don't think he did anything for work that week. He didn't help out with the kids. He didn't do anything at the house.

[17:39] Jim Reynolds: Or sleep, either.

[17:40] Chris Hatch: No. He was just out at his local high school. So he gets all trained up and goes out there. Well, you put on a Great Clips University of Utah jersey. And my cousin has grown slightly since high school, so the size medium probably would have fit him back in the day. But now it's a medium, which made it so much better. But he went out and drilled the field goal.

[18:03] Jim Reynolds: Yes.

[18:03] Chris Hatch: It was unbelievable. And he's been talking smack ever since.

[18:06] Jim Reynolds: That's great. Glad he showed up and made it happen.

[18:09] Chris Hatch: The whole stadium roared. Perfect. Let me pivot with you a little here. You're an avid outdoorsman.

[18:15] Jim Reynolds: Love it. Absolutely.

[18:15] Chris Hatch: You and I were talking tiger muskies. What do you have on the docket?

[18:19] Jim Reynolds: I'm going to do a little duck hunting over the Christmas holiday, and some steelhead fishing down in Oregon with a good buddy of mine. My dad got me into the outdoors when I was a kid, just like your dad did, and I've had the love ever since. Obviously I love living in the Pacific Northwest. We've got great outdoor activities. I own a fly fishing raft, and I'm out on the water as much as I can. So I'll be chasing some ducks and some steelhead over the Christmas holiday.

[18:47] Chris Hatch: So that's your peace, if you have the choice.

[18:50] Jim Reynolds: Yep. And we were talking about your kids earlier: anything we can do to help people appreciate time away from the tech and all the normal things, with everybody just racing along these days. That's the peaceful spot.

[19:08] Chris Hatch: I think that's what I love most about it. You get out there, and first off, you have to turn your phone off, because you have to be quiet for hunting anyway. And you're usually in some remote spot where people can't find you. It's kind of nice.

[19:21] Jim Reynolds: I just went on a six-week sabbatical with Great Clips this last summer, and it was fabulous. Another great reason to work at Great Clips. They turn off your access to Great Clips. My boss, Nate, took care of my business while I was gone. I tried to make sure everything was lined up so there were no big fires going on. But I couldn't check in, couldn't do email, couldn't do anything. I'd never done that before. I think taking that time away, purposefully disconnecting, is a great thing.

[19:52] Chris Hatch: Tell us about the sabbatical program.

[19:55] Jim Reynolds: You have to bank the sabbatical hours yourself, which is fine. But once every five years, they allow you to take up to six weeks and check out.

[20:08] Chris Hatch: And they literally turn off your access? To email?

[20:11] Jim Reynolds: Yeah. The technology team comes in and cuts me off.

[20:15] Chris Hatch: That's amazing.

[20:15] Jim Reynolds: And everything goes to Nate, my boss in this case, who watches over my business.

[20:20] Chris Hatch: Fabulous. And then you come back with zero emails in your inbox. So it's every five years. This isn't your first?

[20:30] Jim Reynolds: It is my first sabbatical. They haven't had it the entire time I've been at Great Clips, but I'm an idiot; I should have done this years ago. It was wonderful. And I just think, generally, with everything we're doing at work... I mean, you're the busiest guy I know in real estate. But whatever we're working on, it'll be there tomorrow. Unless the house is burning down, people need to balance out a little, take some time for themselves and appreciate things. My wife and I go on a walk every day, and maybe it's because I've got gray hair, but we're looking at the birds, watching the clouds go by, listening to everything going by. And everybody who walks by us has their headphones on and is looking at their phone. Totally checked out. I guess they're walking to make sure they're mobile. And the kids I drive by on my way to work... when we were kids, we'd be throwing rocks at each other while we waited for the bus. Now there are 10 of them standing next to each other, staring at their phones. They might be texting each other, but they're standing right next to each other. So the outdoors, for me, really is a reset.

[21:35] Chris Hatch: What did you do during your sabbatical?

[21:38] Jim Reynolds: My wife and I took a raft to Montana for a week, which was fabulous. It was also our 20-year anniversary, so we did that. Then we came back, our son came back for a week, and our daughter and son-in-law joined us for two weeks in Europe. We went to Switzerland for a week and Tuscany for a week. I'd never been to Europe, so it was fascinating, other than that I'm not going to do a 10- or 12-hour plane ride again. That was great. Then I came back and went on a little boys' trip out to Lewiston to chase steelhead on the Clearwater for three or four days, and then went back to work.

[22:10] Chris Hatch: That's great. What a great program. So that's available to anybody at corporate who's been there more than five years?

[22:17] Jim Reynolds: Yes.

[22:18] Chris Hatch: Wow. What a great hiring mechanism, and a good way to retain your talent.

[22:23] Jim Reynolds: Absolutely.

[22:23] Chris Hatch: The landscape is evolving pretty rapidly. It's been interesting because, as you know, I'm kind of a third-generation developer. I grew up around the dinner table as a kid, seeing my dad's perspective on building shopping centers. Now I've gone into my own perspective, doing net lease development, which we really ramped up in January of 2020. What an amazing time to start a development company, by the way.

[22:50] Jim Reynolds: Sure.

[22:51] Chris Hatch: Costs have been running up, and the pro formas are nearly impossible to solve. How are you getting deals done right now? It might be one of the more difficult times we've ever had.

[23:02] Jim Reynolds: I think right now, nobody has really built shopping center space at scale since before COVID, and certainly not after COVID. So one of our challenges is that if nobody's building space and all the good spaces are leased, we're going to have a tough time. I think the '08-'09 recession really started the decline in aggregate growth of shopping center space. There were a bunch of projects teed up in that period. Then the recession hit, they all went on pause, and that's what got built after the recession, up until '17, '18. And then COVID hits in 2020. So we have to pivot.

Nowadays... I just looked at my deal sheet before I came out here today. Half of my deals were new construction, and half were existing. And a lot of the new construction sites we're dealing with aren't building shop space at scale either. We just signed a lease at a King Soopers-anchored site in Colorado, a brand-new big center with only one or two shop pads. We're talking 20,000 feet of shops in 250,000 feet of space.

[24:15] Chris Hatch: I think it's important to differentiate here, because some of our listeners, who might just be customers interested in this podcast or in what you have to say, might think, "Wait a minute. I've seen a McDonald's come in. I've seen a Starbucks come in. I've seen a Dutch Bros come in." But what we're talking about is multi-tenant: where the sub sandwich shop, the haircutter and the nail salon are located. The stuff next to the grocery store.

[24:41] Jim Reynolds: Back in the day, you'd build a 100,000-foot shopping center with 20,000 or 30,000 feet of shops. Now we're seeing 200,000-foot shopping centers built with seven pads on the front: Starbucks, Chipotle, every freestanding food guy, or a bank or something like that. And they still have a bunch of shop tenants needing space. With the cost of construction, I see you and some of my other developer friends lamenting, "I can't get switchgear for a year." For some of these buildings, it's easier just to ground lease or sell the pad to In-N-Out, and you're done, right? So we know that's a challenge. Interest rates are a challenge, all those things. But from our standpoint, it doesn't do us any good if we can't get onto the site.

I almost lost a deal in a market that will remain nameless, because you'd figure it out. We had a lease ready to sign, and the developer came back and said, "I'm doing a car wash." I'm like, "What are you doing?" "Well, my switchgear won't be here for a year, and I can't go with the glulams now because they're too expensive. I'll just ground lease to the car wash; those guys are beating my door down." "Don't do that." Eventually, they did build our building, and off we go. But it's just difficult. Luckily, we're privately held and our franchisees are successful. Not everybody's growing in every market, so we can really fish where the fish are. Pre-COVID, we were doing 200 to 250 new leases a year. This year we're going to do 115 to 120. So we're at half the rate, but that's okay, in the sense that we'll do the deals that are available to do. We want some regeneration of real estate. A lot of developers are looking at their huge parking lots that aren't making them any money anymore. And now you've got the Curbline Properties of the world and all these folks coming out and realizing, "Maybe we should be buying, developing and redeveloping some of these shop pads." We're hoping that creates more opportunities. Hopefully folks like you will build some buildings for shops when it makes more sense. And we're just keeping our relationships going and keeping the pipeline rolling.

[26:37] Chris Hatch: What does it cost to build out a typical store right now?

[26:42] Jim Reynolds: If we can get a white box from a landlord, which is getting rarer and rarer, by the way... It used to be that only Texas gave you the dirt floor and a check. Now it's almost everywhere, and a small check. But if we get a white box, it's going to cost $100,000 to $150,000 to build a Great Clips, plus about $40,000 to $50,000 in equipment.

[27:05] Chris Hatch: Going back to the building-at-scale concept, it does make me wonder how we ever get back to that. It's interesting. There was a narrative for a long time, which was really wrong, that retail was dead. It's obviously not dead. It's obviously thriving. We're still building grocery stores. We just aren't building any of these shop spaces anymore. It blows my mind.

[27:31] Jim Reynolds: Well, ironically... and I think there will be a reset at some point. I'll use Regency Centers as an example. They're one of our biggest landlords in the country, and fabulous people. They build the same kinds of centers, targeting the same demographics we do. They want best in class, and we want best-in-class owners who empty the garbage and mow the lawn and all those things. Pre-'08-'09, they were building 25 new grocery-anchored shopping centers a year, and we'd get our share of those. But certainly since COVID hit, nobody's been building any shop space or really any shopping centers. You've got people just buying and selling from each other. Some people came to the Northwest, bought eight or 10 shopping centers and later sold the same eight or 10. It's the same eight or 10. So now the bigger groups have been buying and selling these and just jacking up the rent, and there's no new space coming online. That's what I've observed in the big landlord marketplace over the last 10 years.

[28:28] And I'm hoping... the grocers were doing this pre-COVID: they had to get their online and multichannel delivery systems ramped up, and they were investing a lot of money in remodels and infrastructure for it. Then COVID hits, and oh, they're the darlings. Hallelujah. It was a great time to be a grocer and a landlord of a grocery-anchored shopping center. But they had to really ramp up at warp speed during COVID. Walmart did it, Kroger did it, everybody did it. Now that's all done, I think. I'm not talking to them, but it's done. Now I want them to invest. Not only is there a focus on the suburbs after the COVID experience, but I'm hoping they and their developer partners will invest in more aggregate shopping center space that will give us more opportunities.

[29:17] Chris Hatch: It is interesting. I have two multi-tenant buildings under construction right now, and everything else is basically single-tenant. The market has shifted over the last six months, and it's almost impossible to solve a pro forma for a single-tenant building anymore. So a lot of what we're doing is fee developing for a brand that balance-sheets the property. That's how we can still get stuff built. What's fascinating, though, is that multi-tenant actually still generally pencils. That's probably what blows my mind most about all this: nobody's really building it, but it still pencils.

[29:57] Jim Reynolds: And when I look at the tenants, the T-Mobiles and Great Clips and Chipotles and UPS Stores, we all need space, and we're all doing great. There was the argument that single-tenant is just easier, the cap rates are so low, et cetera. Pre-COVID, we did a few deals with Panda Express, for example. The CFT folks might buy a pad for Panda, but it's too big for just the Panda. So they can put in two or three more tenants, but they don't want food users. So hair makes perfect sense. Pacific Dental, those folks buy pads all the time, and sometimes they're too big. So we need folks to think about that, instead of just running with the Starbucks or whoever. If the pad is big enough, add more space.

And I know a lot of the time, when you get to the spreadsheet side of things, which you deal with, this is sort of a novel, maybe stupid, idea. But I'm in the last quarter of my career, so I'm not too worried about it. I would love for somebody to look at average unit volumes, or percent of sales, and say, "Okay, Starbucks is going to do this amount of sales, the UPS Store is going to do this, Great Clips is going to do this. We'll charge you all based on your occupancy cost." Great Clips is at 11% across our system. So maybe the Starbucks rent is $87 and the Great Clips rent is $40, because each tenant pays whatever its occupancy cost supports. Where I've run into problems is developers who run with Starbucks. They'll overpay for the land, and whatever it costs, because they've got Starbucks. And the next thing you know, the rent is $90 in Modesto, and there isn't a $90 rent in Modesto. We can't pay $90. So that's my shout-out to the development community: we're so stable. Everybody needs a haircut; that's not going away. But we need space. If you're going to develop that pad with these top-tier brands, find a way to make our space smaller. Find a way to work the pro forma to make it work.

[31:58] Chris Hatch: So you have some of these units built next to a Panda. How do those units typically perform? Panda is a company that rarely misses on real estate.

[32:06] Jim Reynolds: No, they're great. And we don't have a lot of those, maybe a half dozen. They're still there; they've been there for years. The last one I did, when you mentioned Aaron Harris at Dutch Bros, was in Grants Pass. We did the Panda Express in front of the WinCo there, and it's a great location.

[32:24] Chris Hatch: It's actually an interesting match, I would think, profile-wise. Is the Great Clips customer typically male or female? I assume male.

[32:31] Jim Reynolds: 70% male, yeah.

[32:33] Chris Hatch: And I'd assume that's probably in line with Panda's customer demographic as well.

[32:38] Jim Reynolds: Could be. We're a barbershop. We don't do color. Most of our customers are men. They want a good-quality experience, but they don't want to be there all day. They want to get their haircut and go do something else.

[32:49] Chris Hatch: Like I said, it's still a way to solve the pro forma. It'll be interesting to see what happens over the next few years. One thing I've found, at least in my experience, is that I don't feel like I have a lot of competitors in the retail development world.

[33:03] Jim Reynolds: I find that hard to believe, though. Do you? I look at your posts on LinkedIn and the meteoric rise of your company, and I'm thinking, the tenants are pretty well known, and they need people to build these buildings. So I'm just very impressed by the run-up you've had.

[33:23] Chris Hatch: I just think a lot of people have retired or left the business, and there aren't a whole lot of new retail developers coming in. To me, if you want to be a developer and own a jet, you should go be an apartment developer, or build or buy industrial properties. If you want to live on Delta, Southwest, American and United and make the top tier of every frequent flyer program, be a retail developer.

[33:47] Jim Reynolds: And I think, and you can correct me, since I don't know anything about the economics of your business, but you look like you're hitting singles and doubles all day, and no home runs. I'm like, don't invest everything in the home run. Hit the single or double and move on.

[33:59] Chris Hatch: Yeah.

[34:00] Jim Reynolds: And that's exactly how you get to scale. I also just love it when you post that you take care of your brokers. You make sure everybody involved in producing a deal is recognized. You and I have been around a long time, and there aren't a lot of people who think that through enough to recognize how many things it takes to make a deal happen. So if you can make your fee on the developer side, hit singles and doubles, and spread the accomplishment and the wealth with the entire team, you're just going to keep rolling.

[34:34] Chris Hatch: Well, as you know, the entire process doesn't even start until the broker finds the deal, right? Ninety-nine times out of 100, a broker finds the deal and calls me or you or anybody else. So to me, the credit is always due. They initiated the whole process, and then it takes an entire team to get it done.

[34:53] Jim Reynolds: Exactly. When I was starting out, we built a big shopping center out here in Mukilteo, and I was the head leasing guy. I'd go to these meetings with the developer, and there were two land use attorneys, architects, this and that, and a banker, all of this going on. And I'm like, "Guys, it starts and ends with leasing. You should be asking me: what can we get in rent? What quality of tenants can we get? Let's start from there." I can't tell you how many times while developing that shopping center I had to tell them, "Hey guys, nobody's going to lease that space. It's in the shadow. The setback is too far from the front of the grocery store." They've got that fascia that goes in and out, which looks great on an architect's rendering, but you can't split up the space. Then you have no flexibility to move or expand a tenant. So you're right: brokers are the key. Everything starts and ends with leasing. If nobody pays the rent, the rest of it doesn't mean anything.

[35:50] Chris Hatch: It's also just amazing, still owning and running a brokerage, when you catch that little sparkle in an agent's eye because they've found something. They can see it instantly.

[36:02] Jim Reynolds: Yes. And it certainly is a business where you cannot be oriented toward instant gratification. You're taking people whose whole lives have been "do this, see the result." You've got to look a long way out, find that nugget fulfilling, and then see the end result down the road.

[36:22] Chris Hatch: If you could jump in the time machine, the DeLorean, Back to the Future style, what would you tell your 25- or 30-year-old self, just getting into commercial real estate as a rookie trying to figure out what to do? What would you tell yourself to do differently?

[36:39] Jim Reynolds: I'd understand the power of networking much earlier. That's the first thing I'd do. I'd get to know who the players are and develop relationships with them, not just transactional relationships. Find out who's around and who's going to be around. When I look back on it, I thought it was all about dollars and cents, size and rent and things like that, and I missed that for the first several years. Granted, in my first job I was the in-house leasing guy, and all the infrastructure was there, so I really didn't have to go out and network a lot. Later, as a broker, we weren't just taking orders; we had to go out and cold call and all that fun stuff. But that base of people you know is impactful. They're going to be around for a long time, and at some point they're going to need you, and you're going to need them.

You and I are both mentors at ICSC, which is a great thing. And I just tell people: do what you say you're going to do. And make sure you understand that at the end of the day, it's not who you know; it's who knows you. My first boss was the guy who said, "Jim, when I was starting this development company, I was begging the bankers, and they would never return my calls. Now they're calling me." Obviously they don't want him to go broke; they've lent him too much money, so he's got to keep going. But it really was one of those things where, once you get to that level, more business comes to you because of your reputation and how others have talked about you over time.

[38:11] Chris Hatch: What a great piece of advice. And it's kind of interesting: there are a couple of people I've met through social media who are putting together informal cocktail parties and get-togethers. [Ashley Casey] with The Shopping Center Group down in the Southeast has her little lunch-and-learn program. I can't remember the name of it, and I probably butchered it, but something like that. It's wild. She'll get a couple of retailers to do a little panel, and 100 to 200 people will show up. She's doing one in New York for ICSC next week. And the other one is [Daniel Harold], a sales broker at [North Park], who keeps putting together informal cocktail parties. For example, at ICSC Red River in DFW in January, he'll start a cocktail party, and 300 or 400 people will show up. I think our world is starved for more networking. Anytime there's one of these networking events, it kind of blows my mind. Another friend of mine is Linda Day Harrison. Her event is called Let's Get Social, and she throws it on the Sunday night before the ICSC Vegas show. Same thing: it's grown from a tiny little thing to, I think, 300 or 400 people this last year. It's just wild.

[39:18] Jim Reynolds: Well, I started my year at the ICSC Whistler conference.

[39:21] Chris Hatch: That's a good way to start.

[39:21] Jim Reynolds: It's the big show for Canada. The secret's out: it's the best ICSC meeting there is. But the action happens in the village, at the dinners and the cocktail parties. It's important to have the meetings and all those fun things, but that's not where the action happens. It really is the networking, because when you get people off to the side, out of the normal business talk track, you get the backstory. You find out what's really going on.

[39:51] Chris Hatch: I always like to ask each guest to tell me about a big mistake they've made in business, and more importantly, what they did to fix it. I find most people learn more from other people's mistakes than from anything else.

[40:07] Jim Reynolds: I think the biggest mistake... I look at it as a mistake from a career standpoint, but from a quality-of-life standpoint, I don't. Back when I was a broker, again through Neil Frumkin and Ted Frumkin, Ted ended up going to Bentonville, and I became one of Walmart's first brokers when they came to Washington with a mandate. I thought there were going to be a couple of us doing this. I put together the whole expansion plan and got the first couple of deals teed up, and then the relationship wasn't working out, so I backed out of it. Looking back now, it probably wasn't the wisest business move for me. But at the time in my life, it was taking 100% of my time, this and that, and things weren't working out too well. So I backed out, probably a little too soon. I turned the account over to a fabulous guy, Rick Barr, who made a ton of deals in Washington. But looking back, I probably jumped out of that one a little too quickly.

[41:05] Chris Hatch: Was this the '90s?

[41:07] Jim Reynolds: Yeah, the mid-'90s, whenever they first opened in Washington.

[41:14] Chris Hatch: So I guess the lesson there... because it's common in our world to have personnel changes at the companies you work with... is that sometimes it's worth sticking around and giving it a better go.

[41:26] Jim Reynolds: Though I think, too, I was a small-town guy. Seattle's a small town, Walmart's the big dog, and I just didn't realize what a machine it was. The first store that opened, in Omak, was a deal I started working on. Rob Walton flies out, and Tom Seay, and the whole thing, and they're landing on a little dirt strip in Omak. And there's little Jim going, "Okay, so where are we going to lunch? We've got Burger King or Arby's. Which one do you want?" Looking back now, I was a little naive. If I'd been a broker in one of the bigger cities and realized what was ahead of me, I probably would have stuck with it longer.

[42:00] Chris Hatch: What did they choose? Burger King or Arby's?

[42:01] Jim Reynolds: We went to Burger King.

[42:03] Chris Hatch: Did they really? And what did Rob Walton order?

[42:06] Jim Reynolds: Oh, I don't know.

[42:07] Chris Hatch: A Whopper, I assume.

[42:08] Jim Reynolds: Yeah, right. But they were all very nice people. Everything was fine. I just didn't realize what a machine it was, and I probably should have stuck with it a little longer.

[42:20] Chris Hatch: How entertaining. That's a great share. Thank you for that. Like I said, especially on social media, everybody constantly wants to talk about their wins and victories. But in the few cases where somebody opens up, is vulnerable and shares something they did wrong, those are usually the lessons that stick with you forever.

[42:40] Jim Reynolds: Sure, absolutely.

[42:41] Chris Hatch: We've talked a lot about Great Clips, your franchisees, the company culture, which is awesome, and the sabbatical, which is amazing. If you're a landlord listening to this, why should you choose Great Clips? What's the benefit? Why are you the best? Why is this an easy decision?

[43:04] Jim Reynolds: I think Great Clips has stayed true to the basic tenets of the business. Where is the most value in the haircutting category? It's in the haircuts. When I started at Great Clips, all the other brands, Supercuts and Cost Cutters and those guys, fantastic companies, were just haircut places. Then they all morphed into color and other things, and Great Clips stayed in its lane, thanks to the owners of our company. The business really is in being good at this one thing. We're the largest hair salon brand in North America. We recently surpassed Regis, which used to be the biggest; we now have more stores than they do. As a collective, I think we've stayed focused on one thing. Ultimately, it's making sure the franchisees have everything they need to run a great business, because they're running the stores. I've seen franchisors that miss that a little. They get too big, too full of themselves. Great Clips has stayed true to what we're good at. We innovate around our core, which is haircuts.

[44:05] So I think it's the consistency. We have everybody at Great Clips corporate pulling on one oar: one brand, one methodology, and a very tight measurement and evaluation strategy to understand what's happening in the salons. We're just consistent. If you get a Great Clips in your shopping center, it's probably not going anywhere. We're not the sexy new kid on the block. But what we do, we do really well, and we try to maintain that focus on taking care of the customer, being where they want us to be and making it easy. Our business is about being convenient for the customer. We have 115 salons in Phoenix, and we're adding five more next year. If customers didn't dial into us, we wouldn't be that successful.

When you look at Great Clips overall, it's the consistency factor. And it's not elective: you've got to pay somebody for your haircut. Yes, there are people who cut their own, or whatever, but generally speaking, it's a category that's not going to become a dot-com business. We're not going to have to go to an online model. So the franchisees are consistent and reliable when it comes to paying the rent. We also have a lot of franchisees transitioning their legacy to the second generation. Nick is a second-generation franchisee, a classic example of how Great Clips works: the people who started it are getting older, and they transfer it to the next generation. Great Clips is all about family and legacy and staying true to our core values. A lot of things come at us: "Should we do this? Should we change that?" We innovate around what we do, but we're still doing the same thing I signed up for 25 years ago.

[45:53] Chris Hatch: Well, that's great. Thank you for coming on the pod, Jim, and for telling us the story of Great Clips.

[45:57] Jim Reynolds: Love it. Thank you.

[46:13] Chris Hatch: Wonderful.