Winners / Selection Rationale

In Japan, only barbers or beauticians certified by the Minister of Health, Labor and Welfare can provide haircut services because of the public health concerns related to haircutting. Each shop has to be registered as either a barbershop or as a beauty salon. Although these businesses are subject to different laws and regulations, both barbershops and beauty salons alike must meet specified sanitary standards from a public health perspective. Traditionally, barbershops are where men have gone for grooming (haircuts and shaves). Beauty salons are where people go to improve their aesthetic appearance. Barbers can use razors, but there are some limitations regarding the perming of hair. Beauticians, on the other hand, can perm hair, but there are some limitations regarding their use of razors. (*1) However, the line separating barbershops and beauty salons is becoming blurred, because barbers have started offering new types of perms (such as the so-called "iron perms," which do not violate the regulations). In order to reflect this reality, perming hair at barbershops and cutting hair at beauty salons became officially permitted in 2015. (*2) Still, barbers and beauticians are not allowed to work in the same shop, and beauty salons have some limitations regarding the use of razors.

There are reasons why the barbershop industry has been shrinking. One is that barbers were not providing the kind of hair styles that young customers wanted. Young customers were going to beauty salons to have their hair cut by beauticians. On top of that, in the mid-1990s, middle-aged men, the main customers of barbershops, were visiting barbershops less frequently--they were becoming more frugal after the bursting of the bubble economy in Japan. Meanwhile, the number of beauty salons also showed a continuous declining trend, albeit a gradual one. The number of beauty salons peaked at 145,000 in 1986, remained at the 140,000 level from 2000 onward, and then dropped to 137,000 in 2007. (*3) The market size for beauty salons is about 1.6 trillion yen, and barbershops is 700 billion yen, for a combined total of 2.3 trillion yen. Although customer demand remained robust and the industry did not experience a deep dive in sales like other industries experienced during the economic downturn that was triggered by the financial crisis in 2008, the industry's market size in terms of value declined due to deepening polarization (the trend toward lower prices vs. the pursuit of differentiation through increased value added). (*4)

(*1) Notification No. 149 Environmental Health Director, Ministry of Health, Labor and Welfare, December 5, 1978.
(*2) Ministry of Health, Labor and Welfare, July 17, 2015, No. 0717-2, "Regarding application of the laws for barbers and beauticians."
(*3) Ministry of Health, Labor and Welfare, Health Service Bureau, Environmental Health Division. "The reality of the beauty salons business, and direction for improvement." March, 2012,p.38　http://www.mhlw.go.jp/seisakunitsuite/bunya/kenkou_iryou/kenkou/seikatsu-eisei/seikatsueisei22/dl/h22/riyou_housaku.pdf
(*4) Yano Research Institute Ltd. "Press Release: Research on the barber shop and beauty salon market has been conducted (2017)." April 21, 2017. http://release.nikkei.co.jp/attach_file/0443205_01.pdf

Executive Summary

The first QB HOUSE barbershop was opened on November 11, 1996, in the bustling Tokyo business district of Kanda-Mitoshirocho, where office buildings with reasonable rents and restaurants are located. Targeting business people who are pressed for time, QB HOUSE came up with the service concept of a "10-minute grooming service" that offers haircuts only, using "convenience" as the value proposition. Before QB HOUSE, the activities of barberhops in Japan were being guided by an industry association. As a result, all the barbershops had almost the same business hours, were closed on the same days, and were charging about the same amount as the service fee. They offered a nearly identical set of services, which included shampooing before and after the haircut, the shaving of facial hair, and a quick massage. Thanks to QB HOUSE, business people have developed a new pattern of customer behavior--making a quick stop for a haircut in their spare time, like during their lunch break or on their way. (QB HOUSE barbershops were located at train stations). As of June 30, 2017, QB Net Holdings was operating 542 shops in Japan and 117 overseas. The average number of seats per shop is 3.5.

QB HOUSE's main target customer is business people who are pressed for time. To these busy individuals the company offers "Five Conveniences": (1) a low price; (2) a 10-minute haircut; (3) accessibility (shops are conveniently located in places with high foot traffic); (4) a haircut-only service; and (5) no reservations accepted.

1) Low price: When the first QB HOUSE opened in 1996, the average price for a haircut at a barbershop was above 3,000 yen. After QB HOUSE introduced haircuts for 1000 yen, the barbershop industry experienced a polarization of prices at the high and low ends.

2) Short time: Traditional barbershops provided a full set of services that included shampooing, the shaving of facial hair, and a massage. This all took a long time. Even when customers ordered only a haircut, it would take more than 30 minutes because barbers tried to add value by consulting with the customers about their preferences. The barbers eventually persuaded customers to request more services and spend more. In contrast, QB HOUSE proposed "just a trim," (i.e. cutting back the hair to the length of the previous haircut). Trimming the hair requires much less time than a new hair style would, and minimizes the stylist's risk of failing to meet the customer's expectations. Also, by just trimming the hair, QB HOUSE could get customers to visit the company's shops more often.

3) Accessibility (the shops were located in places with high foot traffic): QB HOUSE shops are located in places with high foot traffic (i.e., inside train stations, outside train stations, and in shopping centers). Because QB HOUSE shops do not provide shampooing services, these shops do not need facilities that can ensure access to a massive supply of water. This gives the company more options with regard to its choice of locations. QB HOUSE shops are designed to be small, with only three or four seats, so they can be located in small spaces that are normally not suitable for commercial use. This enables the use of dead space within the train station (i.e. spaces that are no longer being used, places like the old Stationmaster's office, the night-duty rooms and the stockrooms). This way, QB HOUSE provides customers with the convenience of having their hair cut at the train station they always use. This gives railway companies the opportunity to turn dormant real estate into profit-making assets. Having shops in places with high foot traffic contributes to brand building and the reduction of advertising expenses. Traditional beauty salons, on the other hand, tend to choose larger spaces for their shops. In order to save on rent, beauty salon operators tend to select a street-level shop facing a road with less traffic, or a shop on the second floor or higher. This does not improve customer convenience.

4) Haircuts only: Many barbershops try to increase sales by selling haircare products, while many beauty salons will offer nail services and a kimono dressing service. In contrast, QB HOUSE limits its services to haircuts. Instead of shampooing, QB HOUSE uses an "Air Wash" (a special vacuum cleaner that the company has developed). There is no cash payment--payment is made at a vending machine, where the customer, upon arrival, buys a ticket with a number on it, and gets into the waiting line. In this way, QB HOUSE minimizes the time hair stylists spend doing things other than giving haircuts.

5) No reservations accepted: Conventional beauty salons would run the risk of making customers wait for a longer time if there were no reservations, because each customer service would take longer. To avoid having to make customers wait and minimize opportunity loss, many beauty salons take reservations. Even without a reservation system, QB House customers will not have to wait too long because the company's hair stylists finish the haircut in such a short time. The opportunity cost for QB HOUSE is minimal too. For customers, this approach is more convenient because they do not have to be bound by any time restrictions. They can also make efficient use of any free time that suddenly becomes available. Each of QB HOUSE's shops has a sign that indicates how long customers will have to wait. This helps customers decide whether to wait or not. Customers can check the length of waiting time at neighbor shops by accessing the company's website on their smartphones. If they see that their first-choice shop is crowded they can go to another nearby QB HOUSE shop.

QB HOUSE's value chain has realized "Five Conveniences."

Store development
QB HOUSE' shops are located in places with high foot traffic, places that customers frequent during the course of their daily lives, such as train stations and shopping centers. The Store Development Team analyzes locations, and identifies good spaces for the company's shops. The team negotiates with real estate developers to achieve favorable rental terms and conditions. In the case of small dead spaces in train stations, such as the old Stationmaster's office, the night-duty rooms and the stockrooms, railway companies are not aware that such spaces can be utilized for commercial purposes. The company's staff approaches the management of these facilities directly, and proposes the opening of QB barbershops. The design and layout of individual shops take into account the features of the particular space in question, including the characteristics of the physical surroundings and the scenery of the neighborhood, with the aim of optimizing the usage of space and the placement of equipment. Less than 1% of QB HOUSE shops are closed within the first year due to poor business performance.

Haircut services
QB HOUSE provides a haircut in a short amount of time (10 minutes), with uniform quality. Customers pay in advance by buying a ticket at a vending machine, and then wait for their turn. A sign outside of each shop indicates the length of time that customers will have to wait for a haircut. Customers can also check on the congestion at nearby shops by using their smartphones. QB HOUSE tries to minimize any mismatch between the customers' expectations and the actual results. "Trimming" minimizes this risk. ("Trimming" does not require a change in hairstyles; the stylist just cuts back the hair to the length of the previous haircut.) When customers want to change their hairstyles, they can refer to the ten hairstyles shown on QB HOUSE's smartphone application. This helps the stylist to immediately understand the kind of haircut the customer has in mind. After the haircut, there is no shampooing--the stylist removes the hair clippings using a special vacuum cleaner (called the "Air Wash").

Store operations
QB HOUSE has developed its own store management system. The company collects and analyzes the following data: daily sales; the number of customers; the average time required for a haircut, broken down by time of day, age, and gender; new or returning customers; average waiting time; and seat utilization rates. The company periodically arranges for a third party to undertake "mystery shopping" to conduct surveys and determine the level of customer satisfaction at each shop. Based on these results, the company improves shop operation through a fast-moving PDCA (plan-do-check-act) cycle. Shops at the train stations get crowded during lunchtime and evening hours, while shops at shopping facilities get congested in the afternoon. QB HOUSE can predict the flow of customers to each shop with precision, and moves stylists between shops on an hourly basis to meet these fluctuations in the demand.

R&D
QB HOUSE has developed original equipment, such as the "Air Wash" (a special vacuum cleaner that eliminates the need for shampooing); signals to notify the public of congestion at stores; and furniture that can store everything a stylist would need (such as an Air Wash device, a sterilizing unit, a closet, and a monitor). The company has also developed its own original approach to haircutting, as well as proprietary training programs. In addition, QB House has revised its shop operation manual to improve its services.

Human resources management
QB HOUSE hires not only experienced stylists but also individuals who have no experience (and no certifications). The company will also hire people who have taken time off for maternity leave or parenting leave, and people who have left the industry to pursue a career in another industry.

QB HOUSE develops stylists at its in-house training program, called the "LogiThcut School." Customized training is provided, depending on each stylist's amount of experience and capabilities. LogiThcut Schools are located in Tokyo, Osaka and Nagoya, where designated educators, called "trainers," teach the stylists. Employees without any experience can develop the necessary skills within six months. Experienced stylists, who are tested as part of the interviewing process, will focus on upgrading their skills to meet the company's standards.

QB HOUSE does not have a retirement age, and its turnover rate is low. Stylists at QB HOUSE can expect to have a stable income because QB HOUSE experiences less seasonality in demand, and there is no practice of designating stylists. This decision to depart from the standard industry practice of using designated stylists helps individuals who would prefer a flexible working style for various reasons, such as raising children.

Each of QB HOUSE's "Five Conveniences" mutually strengthens the others. Because only a haircut is provided, the service can be done in a short time, and at a low price. Because the shops are located in places with high foot traffic and the price for a haircut is low, customers visit QB HOUSE barbershops often. The more frequently customers visit QB HOUSE, the higher the occupancy rates will be for the shop as a whole and for the seats. This high occupancy rate is what enables QB HOUSE to maintain a low price. When we look into each activity that supports the "Five Conveniences," many of the activities contribute to more than one convenience. This is a sign of a good fit among activities. (Please refer to QB Net Holdings Co., Ltd.'s activity system map, which appears at the end of this report.)

• Realization of the unique value proposition of the "Five Conveniences": (1) one low price; (2) a 10-minute haircut; (3) accessibility (shops are opened in places with high foot traffic); (4) a haircut-only service; and (5) no reservations accepted.
• Use of an "Air Wash" (a special vacuum cleaner), an approach developed as a substitute for shampooing.
• Use of a ticket vending machine, and the requirement of advanced payment. (Eliminates the need for staff to work at cash registers.)
• Use of furniture in which all the necessary tools for haircutting services can be stored. This furniture surrounds the stylist's seat, which reduces the distance that stylists will have to walk and helps them to save time. (The design for this furniture is registered.)
• Development of the smartphone application, "Cut Karte," to help stylists quickly get an idea of the kind of cut the customer wants.
• Use of signals to indicate the length of time customers will have to wait for a haircut. The company's system measures how long it takes for a customer to be seated at a stylist's station after purchasing a ticket at the vending machine. This indicates the degree of congestion. The signals use three different colors to show three levels of crowdedness.
• Turning dead space in train stations into shops, to help the company minimize expenditures for rent, while taking advantage of strong demand in places where foot traffic is high traffic areas. Such prime locations contribute to reductions in advertising expenses.
• Use of "QB shell-type" shops, a type of pop-up shop that can be easily assembled and dismantled. This innovation has made it possible to set up temporary shops.
• Development of its own "Theory on Haircuts," which is easy to understand.
• In-house training centers ("LogiThcut Schools), which produce a large number of stylists who can offer haircut services with a uniform level of quality after only six months of training.
• Store management system that accumulates extensive data, including the time required to complete a haircut. This data is used for the evaluation and assignment of stylists.

• Does not target customers who want high quality. QB HOUSE targets customers who put a priority on convenience.
• Does not provide full services. (No shampooing, hair coloring, perming, shaving, or styling.) The decision not to provide a shampooing service has a major impact on the value proposition. By foregoing shampooing, QB HOUSE's shops eliminate the need for large-scale water operations. This gives the company a broader choice of shop locations, shortens the time required for haircuts, and significantly reduces water and electricity costs.
• Does not set different prices for stylists of different ranks.
• Does not encourage stylists to develop skills based on craftsmanship, which is often dependent on a subjective (and very individual) sense about the desired level of quality to be attained. Instead, QB HOUSE provides stylists with a standardized technique that is based on theory.
• Does not choose spaces that are too large, and does not make the shop interiors too showy.
• Does not adopt the practice of designating stylists.
• Does not take any reservations.
• Does not use cash registers.

QB HOUSE opened its first shop on November 1, 1996 in Kanda-Mitoshirocho. This shop provided only the haircut services that customers would have difficulty doing themselves. With the service concept of a "10-minute grooming service," QB House shops offer customers the value proposition of convenience. Next, the company redefined "convenience." Instead of "convenient price," the company began focusing on "Five Conveniences," and the store location strategy evolved. Still, by improving customer convenience, the company has been able to maintain the core component of its strategy, which is to raise its seat occupancy rates.

Since the beginning, QB HOUSE's target customers have been business people with busy schedules. The company has opened shops in locations with high foot traffic to achieve high seat occupancy rates and increase customer awareness. QB HOUSE quickly opened shops in places with high foot traffic by: (1) arranging franchise contracts with the subsidiaries of railway companies that manage the real estate properties of their parent companies; and (2) consigning the operation of shops to independent stylists.

In the mid-2000s, large shopping malls were opened after the Large-scale Retail Store Law was changed. Although QB HOUSE had developed a brand image as "QB HOUSE shops at railway stations," the company aggressively began opening wholly owned shops inside shopping centers. Wholly owned shops, which at one time had accounted for less than 30% of all QB HOUSE shops, exceeded 70% in 2009, and have continued to show a slight upward trend. The customer portfolio was expanded to include children and elderly men in addition to businessmen. This has spread demand throughout the day, and helped to alleviate somewhat the high concentration of demand during evening hours on weekdays. In the fiscal year ended June 2016, the average number of customers per shop did not fall below six customers between 9am and 8pm on weekdays, and did not fall below 10 customers on weekends between 9am and 7pm. Opening shops at shopping centers leveled demand, increased sales, and improved profitability.

Meanwhile, a growing number of barbershops were being forced to close as the shop owners got older, lost customers, and had greater difficulty in hiring barbers due to a decline in the number of newly certified barbers. Similarly, the beauty salon industry experienced slower growth as consumers visited beauty salons less frequently because they were becoming more frugal, and female customers were less inclined to pay for perms and hair coloring. The competition intensified and the average price decreased. QB HOUSE recommended that female customers use different salons depending on the service required. They could go to beauty salons for hair coloring or a perm. However, customers do not need to get a coloring or perm every time. If they didn't go to a beauty salon, they would have the option of going to a haircut-only shop to get their hair trimmed. Accompanying the increase in the hiring of female stylists, QB HOUSE has seen a rise in female customers, who accounted for about 20% of all customers at the end of 2016.

QB HOUSE has entered overseas markets by focusing specifically on large cities with a high population density in economically developed countries. The company's overseas expansion has been fueled by the belief that the haircut business has no borders. The company entered Singapore in 2002, Hong Kong in 2005, Taiwan in 2012, and the U.S. (Midtown Manhattan, New York) in 2017. The company offers the same value proposition in all of these countries, namely, a haircut-only service offered at a low price, and in a short time. (The price varies, depending on local cost of living and the living environment. The same 10-minute haircut service costs 12 Singapore dollars, 60 Hong Kong dollars, 300 New Taiwan dollars, and 20 U.S. dollars.) By operating its business overseas, QB House has succeeded in strengthening its business while maintaining the core components of its strategy. For example, the company has had to develop from scratch its training programs for stylists. In the Asian countries where the company operates, stylists are not required to become certified because there is no national certification system. The company has redefined what stylists should learn, and has fundamentally redesigned its training program. This has resulted in a training program that is easier to understand. This program is now being taught at LogiThcut Schools, the company's in-house training centers that have been operating in Japan since 2013. The higher rents in Hong Kong have resulted in the development of "QB Shell Shops," pop-up shops which have only one seat. In Asian countries, where haircut-only, low-priced barbershops are very common, QB HOUSE distinguishes itself from the competition by providing clean shops with good taste, highly skilled stylists, and a nice personal touch. The brand image of QB HOUSE is a haircut shop with good customer service skills and good taste. In Manhattan, where "a low price" is often assumed to be "low quality," QB HOUSE has emphasized the convenience of its haircut services to business people for whom the opportunity cost of time is very high. The company's experience in New York will be applied when the company enters other parts of the U.S. and Europe where the barbershop and beauty salon industries are mature and there are a significant number of very busy people with a high level of income.

Both the five-year average return on invested capital and the return on sales exceed the industry average by a wide margin. (Profitability analysis was conducted by PwC Japan.)

Note: QB Net Holdings Co., Ltd.'s predecessor is QB Net Co., Ltd., which was established in 1995 by the founder. In 2010, the company's ownership changed to JAFCO Co., Ltd., one of Japan's oldest venture capital firms, through a leveraged buyout (LBO). Then in 2014, Integral Corporation, one of the leading investment firms in Japan, gained ownership through an LBO. Therefore, QB Net Holdings' financial statements include the loans to fund the LBOs and the goodwill that was recognized at the time of the LBOs. The Porter Prize evaluates how a business can create profit from invested capital, and the analysis below excludes the influence of the LBOs.

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