EXECUTIVE SUMMARY

Merle Norman Cosmetics reclaimed the top spot from Hilton Hotels Corp. among Los Angeles franchisers. Despite losing two franchised units, Merle Norman finished ahead of Hilton by 157 units. In total units, however, Hilton still dominated, with 2,045 compared to Merle Norman's 1,888.

IHOP added 129 franchises in 2002, the most of any firms on the list. Ten of the new franchises were in L.A. County. The company totaled 1,026 franchised units companywide.

Vagabond saw the largest percentage gain, increasing its franchises by 19 units, a 70.4 percent increase over the year earlier. Vagabond, which moved up six spots to No. 18, also closed three company-owned units.

Overall, franchisers fared well in the depressed economy. No. 5 World Gym was the only franchise to show double-digit losses, losing 36 franchised units or 12 percent, to close the year at 265 franchises.

Food was the predominant product on the diverse franchisers list, with six fast food franchisers and three restaurant Franchisers, including newcomer Tapioca Express.

Nicole Taylor

THE PACESETTER

Merle Norman Cosmetics


Merle Norman Cosmetics beat out Hilton Hotel Corp. by more than 150 franchised locations to claim first place on the franchisers list.

Family-owned Merle Norman opened its first studio in Santa Monica in 1931. The company was founded by its namesake Merle Norman and was later joined by her nephew J.B. Nethercutt, who has run the company since Norman's death in 1972.

The retail cosmetics seller has one company-owned and 13 franchised studios in Los Angeles County, including the studio in Del Amo Fashion Mall, which is second in sales nationally.

Chief Executive Arthur Armstrong said that while there has been a slight decline in the number of franchises, revenues have gone up over the past year due to the greater sales per outlet among newer franchisees. "In general we are getting larger franchisees who are more familiar with the rigors of business."

Armstrong said the economic climate has not adversely affected the cosmetics industry or his company's franchising prospects. "The kind of economy we've had over the past few years makes people more interested in starting their own business and exploring franchising opportunities. So in that sense, it has been better for us."

Merle Norman, which relies solely on franchisees' product sales for income, saw revenue growth of three percent to five percent in 2002, closing the year at just under $100 million. Armstrong expects a similar increase in 2003. "I expect an increase in per outlet revenues and to continue to lose older stores and replace (them) with a smaller number of more business focused studios."

Nicole Taylor

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