‘It’s a complete s***show’: Inside the franchising scandal at global cosmetic giant Laser Clinics
- by Admin
- May 12, 2024
“Con artists”, “amateurs”, “Avoid! Avoid! Avoid!” are some of the more polite reviews that lit up social media when a global retail franchise network started closing stores with little thought for its customers who had pre-paid for services.
Laser Clinics, which offers laser hair removal, injectables and other non-surgical cosmetic treatments, first opened in Australia in 2008 and now has more than 200 clinics globally. It’s battling a PR crisis as some of its UK stores close, attracting the wrath of customers on social media, in newspapers and on TV.
It comes as some franchisees threaten legal action, claiming they are being driven out of business by the owner of the franchise, private equity giant KKR, famously referred to as “barbarians at the gate”.
The Laser Clinics website includes a map with more than 100 stores in Australia, 20 in New Zealand, 50 in the UK and seven in Canada. Its Asian clinics have disappeared from the website after the franchise expanded there just a few years ago.
The bad publicity is spreading like wildfire, with one customer posting on trustpilot.com: “One after the other the clinics are closing down … This is the downfall of [the] major Australian company Laser Clinics … The customers are left with no notice of the closures, the management should refund all customers’ hard-earned money. Media has unveiled the reality about their methods of operations, so public is not duped.”
On May 8, the BBC’s popular consumer program, Watchdog on The One Show, shone a national spotlight on the situation when it interviewed a series of customers who had bought treatments in advance only to find the clinic had shut down. They said they were either told they couldn’t get a refund or advised to go to the nearest clinic that was still operating, which was an hour away by transport.
It isn’t the first time Laser Clinics has found itself at the centre of controversy.
In 2021, the company made headlines in Australia when 52 of its franchised clinics sent the firm a legal letter alleging they were being gouged on costs for equipment and supplies and by an aggressive discounting of treatments.
That stoush ended when KKR did a deal with most of the 52 aggrieved clinics to buy them out.
Since then, things have gone downhill for many franchisees, both here and overseas. COVID hit, more competitors entered the industry and, in Australia, a series of regulatory reforms including advertising restrictions made it harder to attract and retain customers.
A case study in what happens when franchising goes wrong
Laser Clinics first opened in Australia in 2008 as a franchise network set up by former actuary Babak Moini and legal IT expert Alistair Champion. It was sold in 2017 to KKR, which expanded its footprint globally, including opening in the UK in 2019.
Unlike the original founders, who franchisees described as passionate about the business and having treated the franchise as a partnership, franchisees say the very nature of private equity is to buy assets with a view to squeezing as much out of them then flipping them in three to seven years. They say decisions are made based on numbers and with a short-term horizon.
Franchising represents almost 10 per cent of Australia’s GDP, employs more than half a million workers and, according to the Franchise Council of Australia, includes 1,200 franchisors and 94,000 franchise outlets, many of them hard-working Australians who have used their retirement savings to buy a ready-made business with a brand and systems in place.
When franchising works, it works well — but when it doesn’t, it can be devastating for franchisees and workers.
In the past few years, the industry has been dogged with scandal after scandal, including convenience store giant 7-Eleven, which was recently sold, Retail Food Group, whose brands include Donut King, Brumby’s, Gloria Jean’s, Pizza Capers, Crust Gourmet Pizzas and Michel’s Patisserie, and came under scrutiny when it was found to have squeezed its franchisees mercilessly with a string of fees, royalties, rebates and refurbishment costs. Others include listed pizza giant Domino’s, which was exposed in 2017 over some unscrupulous business practices.
To put it into perspective, in the past 30 years there have been 18 inquiries into franchising. The last one, in 2019, found that the regulatory system had “manifestly failed to deter systemic poor conduct and exploitative behaviour and has entrenched the power imbalance”.
It likened what was happening in the franchising sector to the bad behaviour uncovered in the banking royal commission.
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Franchisees ‘cannot wait to leave’
This behaviour has spread to the UK, with a number of disgruntled Laser Clinics franchisees speaking to me on the condition of anonymity.
One, who still runs a clinic in the UK, said Singapore had gone and Canada was also struggling. She said it was difficult to find a buyer for franchisees trying to exit the Laser Clinics network.
“No-one will invest in this company … It’s a complete shit show,” the franchisee said.
“Articles in the national newspapers, franchisees going legal. It’s just crazy. I simply cannot wait to leave.”
Another said a marketing strategy of constantly discounting the treatments was a tipping point for many. Pricing is controlled by the head office and franchisees in the UK and London claim that customers have been conditioned to wait for the sales.
In the UK, some stores are being bought back from KKR for one pound. This offer has been made to walk away from the clinic while still possibly incurring further costs of tens of thousands of pounds but being relieved of the main debt and released from any personal guarantees other than for laser machines bought on finance if the clinic is to close permanently. So far four franchisees are said to have accepted the offer.
Some of the stories are harrowing, including couples investing their life savings only to discover their dream of running a small business with global partners was more like being an employee trapped by their money.
“Despite working 15 to 17 hours a day, seven days a week, I received no support from Laser Clinics system and head office staff,” said one of the many current and former franchisees I spoke to.
The franchisee, who asked for anonymity due to fears of retribution, said Laser Clinics had destroyed them in ways they never thought possible.
“This lack of guidance and assistance took a toll on my mental and physical health, resulting in severe depression and heart palpitations and even drove me to contemplate suicide,” they said.
Another said the experience of becoming a Laser Clinics franchisee had been devastating.
“In such a short time my marriage, family and friendships have collapsed and I’m not living with my children anymore. I am now unable to even pay [for] the most basic [things] like food, and all my bills and debts are uncontrollably continuing to soar,” they said.
Some franchisees sent a legal letter in February this year outlining their concerns. The letter claimed that head office misrepresented the financial outlook of the clinic they bought into and that operating costs were understated, such as inaccurate assurances as to the number of staff required to run each clinic adequately. It said fixing prices at which the clinics could sell treatments had an adverse impact on business.
“As such, they have been saddled with franchise operations that are far less profitable than anticipated and, in some cases, loss-making and likely to remain so,” the legal letter said.
Laser Clinics was sent a list of questions. It ignored some of them and instead provided a statement that said it continued to invest strongly in its leadership, offering and people “as we deliver on our ambition of being the global leader in skin treatments”.
It said its goal was to support the long-term success of all its franchisees. “They are front and centre of our strategic plan and their success is pivotal to our growth and to our joint venture model.”
In the UK, it said it was working to re-open and invest in several clinics. For those that had been permanently closed, it said, where possible, any pre-paid treatments had been transferred to the closest available clinic. “If a suitable alternative is not available, Laser Clinics is working with the client to consider their options in line with our legal obligations.
“For our clients and team members in our larger clinic network in the UK, this change has no impact and it is business as usual.”
But the poor treatment of some UK franchisees and the brand damage caused by mishandling some customers has sent a chill wind through the global network which it will need to address. If it continues to brush it off as “business as usual” it may find itself holding an asset with limited appeal.
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