What changed in this filing

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Item 1. Business

2020-11-24 compared with 2019-11-25 · 126 added, 36 removed, 141 unchanged (53% of the section changed)

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For each of the fiscal years ended September 30, 2020, 2019 and 2018, over 80% of our consolidated net sales were from customers located in the U.S.

Our leading channel positions and multi-channel platform afford us several advantages, including hair color and hair care expertise, strong positioning with suppliers, the ability to better service the highly fragmented beauty supply marketplace and economies of scale.

Through our multi-channel platform, we are able to reach broad, diversified geographies, and customer segments using varying product assortments.

The breadth, depth and professional quality of our hair color and hair care assortment provides us with a differentiated core business in an industry which is otherwise fragmented.

Due to our long presence in the category, our brand heritage, our product and process-specific knowledge and our training of associates, we provide unmatched hair color and hair care expertise to consumers.

We also have strong positioning with suppliers given our focus and our economies of scale of purchasing.

Because we service retail and professional customers through a variety of channels, we are able to reach broad, diversified geographies and customer segments using a variety of product assortments and tactics.

Our stores are conveniently located and offer a wide selection of competitively priced beauty products, beauty solutions and expertise delivered by our knowledgeable salespeople.

We also offer a comprehensive selection of multi-cultural products we believe further differentiates us from our competitors.

We believe that our DSCs distinguish us from other full-service/exclusive-channel distributors by providing us with a better understanding of our professional customers’ needs.

We also offer a comprehensive selection of textured hair products that we believe further differentiates us from our competitors.

On our professional side of our business, we believe that our DSCs distinguish us from other full-service/exclusive-channel distributors by providing us with a better understanding of our professional customers’ needs.

In addition to placing orders through our DSCs, our customers have the ability to order and pick up the products they need between visits from our DSCs by visiting a nearby BSG store.

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Our mission is to empower our customers to express themselves through hair.

Our strategy is to be the expert and leader in hair color and care for the consumer and the salon professional.

We focus on hair color and care through our strategic product assortment, leading experiences in color, and building compelling customer experiences while also increasing our operating efficiency and profitability.

Our strategic product assortment includes being the partner of choice for brands and influencers.

Our strategy is to be the expert in hair color and hair care for the consumer and the salon professional.

We emphasize hair color and hair care through our strategic product assortment and compelling customer experiences, while also focusing on our operating efficiency and increasing profitability.

We believe that we offer our customers a strong and differentiated value proposition by providing salon-quality products, including an extensive collection of owned and exclusive-label brands and solutions at attractive prices.

Our focus and experiences with color include a strong emphasis on our sales force.

Our focus and experiences with hair color include a strong emphasis on our sales force.

We believe our approach to recruiting, training, and compensation results in a highly knowledgeable and effective sales force.

Our goal is to create an appealing shopping environment that embraces the retail consumer and salon professional and highlights our extensive product offering.

We believe that our initiatives to create a compelling shopping environment, over time, will help drive increased customer traffic to our stores and increase their sales productivity.

Our digital strategy is evolving from a largely transactional-based experience to a more content-rich experience that enables customers to learn about the latest trends and techniques from influencers and engages them with our latest product launches and research products.

We believe that these efforts will, over time, drive traffic and improve sales from these sites.

Also, as the partner of choice for established brands, as well as product innovators, we offer our customers a broad strategic product assortment.

Our goal is to continue to drive additional customer traffic to our stores to increase their sales productivity.

In connection with this goal, we believe that creating an appealing shopping environment that embraces the retail consumer and salon professional and highlights our extensive product offerings will create a compelling shopping environment, and over time, will help drive increased customer traffic.

Our digital strategy continues to evolve from a largely transactional-based experience to a more content-rich experience that enables customers to learn about the latest trends and techniques from experts and influencer communities and engages them with our latest product launches and research products.

As a result of the novel coronavirus (“COVID-19”) global pandemic, we have seen customers adjust their shopping habits to practice social

Going forward we will continue to focus on enhancing our digital offerings, refining those options and adding new services like buy online, pick-up in store, all while tying in with our mobile apps.

We believe that these efforts will drive additional traf fic and improve sales in the future.

Professional Beauty Supply Industry Distribution Channels

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BSG is one of the leading full-service distributors in the U.S.

and Canada, with its nationwide network of professional-only stores and DSCs.

In addition, BSG offers its products for sale to salons and salon professionals through e-commerce platforms (including www.cosmoprofbeauty.com, www.cosmoprofequipment.com and the CosmoProf mobile commerce-based app).

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salon industry is highly fragmented with salons and barbershops.

Given the fragmented and small-scale nature of the salon industry, we believe that salon operators will continue to depend on full-service/exclusive distributors and open-line channels for a majority of their beauty supply purchases.

Given the fragmented nature of the salon industry, we believe that salon operators will continue to depend on full-service/exclusive distributors and open-line channels for a majority of their beauty supply products.

Rapidly evolving consumer trends.

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to continue to drive sales growth in certain professional beauty product categories, including through an increase in the usage of hair color and care products.

Furthermore, due to the impact of COVID-19, we believe that consumer shopping habits have changed.

As consumers exercise socially responsible distancing measures, we started to offer curbside pick-up and quickly pivoted our digital capabilities to including ship-from-store at SBS and same-day delivery at BSG.

Increasing use of owned and exclusive-label brand products.

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The number of chair renters and suite renters has significantly increased as a percentage of total salon professionals in recent years, and we expect this trend to continue.

Chair renters and suite renters, given their smaller and more frequent purchase patterns, are dependent on frequent trips to professional beauty supply stores.

We expect that these factors will continue to drive demand for conveniently located professional beauty supply stores, like BSG and SBS.

Chair renters and suite renters, given their smaller and more frequent purchasing patterns, are dependent on frequent trips to professional beauty supply stores.

We expect that these factors will continu e to drive demand for conveniently located professional beauty supply stores, like BSG and SBS.

Business Segments

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Store Design and Locations

SBS stores are designed to create an appealing shopping environment that embraces the retail consumer and salon professional and highlights SBS’s extensive product offering.

Sally Beauty Supply

SBS stores are designed to highlight SBS’s extensive product offering and differentiated position in hair color and hair care.

and Canada, SBS stores average approximately 1,700 square feet in size and are located primarily in strip shopping centers, which are occupied by other high traffic retailers such as grocery stores, mass merchants and home improvement centers.

SBS applies strong category management processes, including centrally developed guides, to maintain consistent merchandise presentation across its store base.

Store formats, including average size and product selection, outside the U.S.

and Canada vary by marketplace.

Store formats, including average size and product selection, vary by marketplace.

SBS balances its store renewals, remodels and expansions between new and existing geographies and regularly evaluates each store’s performance and strategically closes stores as necessary.

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(including Puerto Rico), with the remaining 891 company-operated retail stores located in Canada, Mexico, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands, Spain, Chile and Peru.

SBS also supplied 13 franchised stores located in the United Kingdom, Belgium and certain other European countries.

SBS also supplied nine franchised stores located in the United Kingdom, Belgium and France.

Beauty Systems Group

BSG stores, including its franchise-based Armstrong McCall stores, are designed to create a professional shopping environment that highlights its extensive product offering and embraces the salon professional.

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BSG store layouts are designed to provide variety and options to the salon professional.

Stores are segmented into distinctive areas arranged by product type, with certain areas dedicated to leading third-party brands.

segmented into distinctive areas arranged by product type, with certain areas dedicated to leading third-party brands.

The selection of these and other brands varies by territory.

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In addition, as of September 30, 2020, BSG supplied 134 franchised stores.

SBS stores and websites carry an extensive selection of professional beauty supplies for retail customers, salons and salon professionals, featuring an average of 8,000 stock keeping units, or SKUs, of beauty products in our stores across a variety of product categories including hair color and care, skin and nail care, styling tools and other beauty

All SBS and BSG stores have implemented recommended practices and procedures within stores to ensure our customers and employees experience a safe and healthy environment, including, but not limited to, increased cleaning frequency and social distancing signage.

Sally Beauty Supply

SBS stores and websites carry an extensive selection of professional beauty supplies for retail customers, salons and salon professionals, featuring an average of 8,000 SKUs of beauty products in our stores across a variety of product categories including hair color and care, skin and nail care, styling tools and other beauty products.

SBS’s stores and e-commerce platforms carry products from one or more of the leading manufacturers in each category, including third-party brands such as Wella ® , Clairol ® , OPI ® , Conair ® and Hot Shot Tools ® , as well as an extensive selection of owned and exclusive-label brand products.

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As beauty trends continue to evolve, SBS will continue to offer the changing professional beauty product assortment necessary to meet the needs of retail consumers and salon professionals.

In addition, SBS offers an extensive selection of owned and exclusive-label brand professional beauty products that are only available at SBS stores and through its e-commerce platforms.

We believe that SBS’s owned and exclusive-label brand products offer equal or better quality products than higher-priced leading third-party brands, providing the customer attractive alternatives to those brands at lower prices.

Generally, SBS’s owned-brand products have higher gross margins than the leading third-party branded products and, we believe, offer continued growth potential.

In addition, SBS’s extensive selection of owned and exclusive-label brand professional beauty products are only available at SBS stores and through its e-commerce platforms.

We believe that SBS’s owned and exclusive-label brand products offer equal or better quality than higher-priced leading third-party brands, providing the customer attractive alternatives to those brands at lower prices.

Generally, SBS’s owned-brand products have higher gross margins than the leading third-party branded products and, we believe, offer continued sales and profit growth potential.

During the fiscal year ended September 30, 2020, owned and exclusive-label brand products accounted for approximately 45% of SBS’s product sales in the U.S.

SBS intends to continue to invest in the growth of its owned and exclusive-label brands and to actively promote these products.

Beauty Systems Group

BSG’s stores and e-commerce platforms carry an extensive selection of third-party branded products, such as Paul Mitchell ® , Wella ® , Matrix ® , Schwarzkopf ® , Kenra ® , Goldwell ® , Joico ® and Chi ® , for salons and salon professionals at competitive prices.

We feature an average of 10,500 SKUs of beauty products in our BSG stores across a variety of product categories including hair color and care, skin and nail care, styling tools and other beauty items.

We feature an average of 10,500 SKUs in our BSG stores across a variety of product categories including hair color and care, skin and nail care, styling tools and other beauty items.

Additionally, BSG has exclusive and non-exclusive distribution rights for well-known brands in certain geographies with several key vendors.

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We continue to invest in new talent and capabilities in our digital commerce, brand marketing and strategy and global sourcing.

As part of this effort, we have realigned our marketing and digital functions to create a new structure in which every team supports and fuels the growth for both SBS and BSG.

As part of this effort, we have realigned our marketing and digital functions to create a new structure in which every team supports and fuels the growth for the U.S.

and Canadian operations of both SBS and BSG.

This allows us to leverage strong, centralized teams for areas such as e-commerce, loyalty and brand strategy, rather than trying to build duplicative capabilities for both segments.

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We target existing and potential customers through an integrated marketing approach designed to reach the customer through a variety of media, including digital advertising, email, social media, text messaging, direct mail and print advertising.

We continue to refine the strategy for sallybeauty.com and other e-commerce platforms, shifting from largely transactional-based to a more content-rich experience that enables customers to learn about the latest trends and techniques from influencers, engage in our latest product launches and research products.

In fiscal year 2020, we launched a private label rewards credit card for both SBS and BSG that will make it even easier for our customers to shop with us.

We continue to refine the strategy for sallybeauty.com and our other e-commerce platforms, shifting from largely transactional-based to a more content-rich experience that enables customers to learn about the latest trends and techniques from influencers, engage in our latest product launches and research products.

We frequently update the home page to enhance its appeal to our existing and prospective customers.

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SBS’s customer loyalty and customer relationship management (“CRM”) programs in the U.S.

and Canada, allow SBS the opportunity to collect valuable point-of-sale customer data as a means of increasing its understanding of customers’ needs and enhancing its ability to market to them in more personalized, relevant ways.

and Canada help generate loyalty through our Sally Beauty Rewards Program and our recently launched private label rewards credit card.

In return, SBS is able to collect valuable point-of-sale customer data as a means of increasing its understanding of customers’ needs and enhancing its ability to market to them in more personalized, relevant ways.

We continue to assess and update our customer loyalty and CRM programs in an effort to further enhance the customer experience and promote repeat sales from both retail customers and salon professionals.

In our fiscal year 2019, we replaced our existing loyalty program, which required a nominal annual fee for discounts, with a more traditional points-based loyalty program.

Outside the U.S.

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We believe that DSCs with broad product knowledge and direct sales experience are more successful in driving sales.

Our sales commission program is an important component of our DSCs compensation, which is designed to drive sales and to focus DSCs on selling products that are best suited to individual salons and salon professionals.

Our sales commission program is an important component of the compensation of our DSCs, which is designed to drive sales and to focus DSCs on selling products that are best suited to individual salons and salon professionals.

Our Customers

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and the availability of desirable store locations.

We face competition from certain manufacturers that use their own sales forces to distribute their professional beauty products directly or that align themselves with our competitors.

We face competition from certain manufacturers that use their own sales forces to distribute their professional beauty products directly or th at align themselves with our competitors.

Some of these manufacturers are vertically integrating through the acquisition of distributors and stores.

We also face competition from authorized and unauthorized retailers and internet sites offering professional salon-only products.

We also face competition from authorized and unauthorized retailers and internet sites offering professiona l salon-only products.

Our Suppliers

We purchase our merchandise directly from manufacturers through supply contracts and by purchase orders.

For the fiscal year 2019, our five largest suppliers – Coty, Inc., the Professional Products Division of L'Oreal USA S/D, Inc., or L’Oreal, John Paul Mitchell Systems, Conair Corporation, and Henkel AG & Co.

KGaA – accounted for approximately 45% of our consolidated merchandise purchases.

For the fiscal year 2020, our five largest suppliers – Coty, Inc., Henkel AG & Co.

KGaA, the Professional Products Division of L'Oreal USA S/D, Inc., or L’Oreal, John Paul Mitchell Systems, and Conair Corporation – accounted for approximately 38% of our consolidated merchandise purchases.

Products are purchased from these and many other manufacturers on an at-will basis or under contracts which can generally be terminated without cause upon 90 days or less notice or expire without express rights of renewal.

Our Employees

As of September 30, 2019, we employed approximately 30,050 full-time and part-time employees.

At September 30, 2020, we had approximately 30,000 global associates and we believe they are our greatest asset with their combined skills, knowledge, work/life experiences and capabilities.

At the front line interacting with our customers or behind-the-scenes supporting our field teams, our associates play a huge role in our business.

While we often emphasize our technology-based transformation and our wide variety of amazing hair and beauty products as key attributes, nothing happens or succeeds without our people.

In return for what they do for us, among many other things, we strive to:

Ensure our associates work in a safe, healthy environment – the importance of which has only risen in light of COVID-19;

Provide competitive total rewards packages that attract and retain talent in every facet of our business – stores, direct sales, distribution centers and corporate headquarters;

Provide meaningful, engaging learning and development that grows our associates’ knowledge and capability with respect to our business and skills that will help them in business and life;

Create an environment and culture that where everyone can bring their true self to work, because our differences are what make us beautiful.

At SBH, we believe that our focus on Diversity, Inclusion & Belonging are crucial to improving how we interact with and influence our associates, customer environments and broader communities.

We are committed to being a force for change.

Associate Health & Safety

We strive to create a safe and healthy work environment for all associates

SBH places a high value on the health and safety of our associates, customers, suppliers and vendors.

This commitment is evidenced, in part, by our background check policy for new hires, training and policy implementations related to handling both associate and customer incidents, partnerships to maintain the stores and make necessary repairs, as well as ongoing support in the field and at the support center.

Additionally, SBH values our partnerships with suppliers and vendors and understands the impact they can have on our associates.

Thus, SBH has included rules that govern their conduct, both with respect to expectations while interacting with our associates, and, with our foreign suppliers, assurances that they too are providing a safe and healthy working environment for their associates.

Calendar year 2020 presented special challenges with respect to the health and safety of our associates and customers.

With the COVID-19 pandemic, we had to quickly adapt our priorities to make it possible for all of our associates to stay safe and reduce any exposure to the virus.

While this involved temporary store closures for our entire network, mostly during our second and third fiscal quarter, we also had to change our procedures and offer new customer engagement options.

When local requirements allowed us to re-open to the public, we quickly developed requirements and procedures for how to do so as safely as possible – both for our associates and customers.

We adopted additional safety protocols such as detailed cleaning protocols, personal protective equipment requirements, visual cues regarding social distancing and limitations on occupancy of stores during business hours.

We also installed rolling rapid testing for COVID-19 at three of our distribution centers.

We have continued to maintain these protocols, monitor for compliance and make improvements and adjustments where needed throughout fiscal year 2020.

Labor Practices

We provide competitive wages and benefits in a positive work environment where we focus on doing what is right

We are an Equal Opportunity Employer with up-to-date policies, procedures and practices with respect to such important issues as safety, discrimination, harassment and retaliation.

We provide focused training on these issues to our associates and managers.

We clearly communicate that any concerns related to issues such as discrimination, harassment, retaliation – and other issues such as wage law compliance and fraud – should be reported immediately.

We also communicate the avenues available to our associates to do so through our “SBH CARES” communications and posters.

The reporting avenues include options to do so by phone or online through our “Employee Concern Line”, and to do so anonymously if an associate prefers to take that approach.

We ensure compliance with other important labor and employment law issues through a variety of processes and procedures, using both internal and external expertise and resources.

We also emphasize the importance of taking care of our associates in our Company’s Code of Business Conduct and Ethics, which is the standard of conduct that applies to all of our associates, executive officers and Board of Directors.

The Code reflects the core principles of conducting our business as a good corporate citizen in compliance with all laws, rules and regulations applicable to us and the conduct business with regard for the welfare of our associates and providing equal opportunity to all associates and job applicants.

You can review this important document at http://investor.sallybeautyholdings.com .

Associate Engagement, Development and Culture

We live our values, listen to our associates and take action

We make significant efforts to ensure our associates are engaged and excited about the work they are doing and contributions they are making to our Company and our customers.

We are committed to providing associates with what they need to thrive and grow their career.

We significantly invest in our talent processes and set clear expectations around leadership competencies and our cultural values at all levels in the organization.

At SBH, we consider the whole end-to-end talent cycle of an associate to ensure we select exceptional people to represent our business and best serve our customer.

This includes, robust interviewing processes as well as comprehensive onboarding programs to ensure new hires are set up to succeed in their early stages of joining SBH.

There is also a strong cadence on completing regular cycles of performance management, linked to our Company values and leadership competencies, as well as regular reviews of our talent and succession pipelines.

Importantly, we devote significant effort and resources to the development of our associates, including providing almost all of our associates access to state-of-the-art learning management systems.

We use these platforms to provide specifically designed and interactive e-learning courses in sales and service, product and hair knowledge, compliance training, and health and safety.

We also place significant value and attention on responding to feedback and input from associates.

This includes surveys regarding issues such as Diversity, Inclusion & Belonging and our annual engagement survey.

We review our team’s input and comments, identify common themes and set out action plans to respond.

We believe that listening is crucial, but that taking action and making commitments are even more important.

A core focus of our associate engagement and culture are our efforts focused on Diversity, Inclusion & Belonging, discussed below.

Diversity, Inclusion & Belonging

We come together to create a culture for “One & All”

Diversity, Inclusion & Belonging are at the heart of who we are as a Company – at the Board level, throughout our global workforce, and in our shared commitment to serving a diverse customer base and their communities.

Our Diversity, Inclusion & Belonging Mission Statement:

We find beauty in YOU!

Finding beauty in diversity is in our DNA because our differences are what make us beautiful.

Our diversity, inclusivity, and self-expression are what fuel our innovation and growth.

At SBH, we come together to create a culture for ONE & ALL.

At the Board Level :

Our Board’s composition leads the Company’s commitment to Diversity, Inclusion and Belonging.

Having diverse voices on our Board enhances the Board’s expertise, broadens its viewpoint and sets the

tone to encourage leaders at all levels of the Company to listen to the concerns of our associates and customers alike.

Our Compensation Committee has taken the recent step of expressly adopting Talent into its charter, and will provide hands-on oversight of our Diversity, Inclusion & Belonging initiatives.

Our Board believes that listening and responding to diverse voices is crucial to the Company’s success and long-term sustainability.

In Our Workforce :

Our SBH Team in the U.S.

& Canada is over 91% female and over 50% racially/ethnically diverse.

In 2019 and 2020, Forbes named our Company one of America’s Best Employers for Diversity.

We recognize and celebrate the bedrock values of workforce diversity, inclusion, belonging and engagement within our teams.

For us, these are key drivers of the success of the business, as our associates should – and do – reflect the various qualities of our customers and what they desire and expect from SBH.

In Our Customer Base :

Our customers span the entire continuum of gender and ethnic diversity.

We sell products to treat and style every kind of hair;

we deliver a tailored assortment of beauty products that serve the local communities where our over 4,200 U.S.

and Canadian stores are located.

Serving the diverse demographics and needs of our customers drives a culture and workforce that embraces and reflects the communities we serve.

We will continue to develop and evolve how we enhance Diversity, Inclusion & Belonging throughout SBH.

We recognize the value these initiatives bring to our Company, our associates, our customers and the communities we serve.

We are subject to a wide variety of laws and regulations, which historically have not had a material effect on our business.

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We also face comprehensive regulation outside the U.S., focused primarily on product labeling and safety issues.

As of September 30, 2019, SBS and BSG supplied franchised stores located in the U.S., Mexico and certain countries in Europe.

As of September 30, 2020, SBS and BSG supplied franchised stores located in the U.S.

and certain countries in Europe.

As a result of these franchisor-franchisee relationships, we are subject to regulation when offering and selling franchises in the applicable countries.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business