Laser Clinics Australia (LCA) are once again making headlines after an exposé on A Current Affair dove further into previous allegations of mismanagement of its franchises.
LCA has experienced significant growth over the past few years sparked by the growing market demand for laser hair removal and device-based skin treatments like microdermabrasion. Its significant growth can be attributed to US Private Equity Firm Kohlberg Kravis Roberts that purchased LCA for $650 million four years ago. Since KKR purchased LCA, its network has expanded into the UK, New Zealand, and Singapore growing from about 80 clinics to 180 clinics, with 137 in Australia.
According to A Current Affair, a group of LCA franchisees are mounting an almost $80m compensation claim against LCA for alleged breaches of their shareholder agreement. This comes after mediation carried out earlier in the year broke down between LCA and a number of its franchisees.
Franchisees are alleging that LCA’s marketing strategies and hefty mark-ups on Candela laser devices required to operate a franchise are causing them to fall into the red while paying hundreds of thousands of dollars in royalty payments.
Is aggressive discounting to blame?
The major concern for the franchises taking action against LCA is the frequent heavy discounting strategy taken by head office. This has resulted in much of their treatment menu being offered at prices up to 50% off for more than half the year leaving franchisees unable to make a profit on the treatments.
LCA isn’t the only laser clinic franchise to resort to eye-catching discounts and promotional periods with the practice fairly common game across mulitple Australian laser franchises. The claims of LCA franchisees sparks the question whether this marketing strategy is a sustainable option.
Shannon Luxford, the General Manager of Laser Clinics Australia told SPA+CLINIC, “Laser Clinics Australia operates in a highly competitive market and runs profitable promotional campaigns for clinics to offer great value to clients. Any promotional campaign we launch is designed to improve clinic profitability, particularly given Laser Clinics Australia co-invests in every franchise-owned clinic.”
Major mark-ups are causing concern
According to the story by A Current Affair, another tactic LCA is using to make money off its franchisees is on-selling laser devices at eye-watering mark-ups.
They wrote that a leaked email from manufacturer Candela, the only approved supplier for franchisees, shows LCA paid $101,500 for laser machines in 2018.
Another email from Candela’s national marketing manager in the same period reveals LCA was on-selling the lasers to franchisees for $181,500 at a mark-up of almost 80 per cent.
It’s important to note that no evidence of these emails was shared by franchisees or A Current Affair in the story.
SPA+CLINIC reached out to representatives from Candela who declined to comment.
Two sides to every story
Despite the upset of a number of its franchisees, LCA maintains they’ve always maintained their obligations to franchisees and want it to be clear that a solution was offered prior to the story breaking with A Current Affair. In a statement they wrote:
“Laser Clinics Australia is fully compliant with the obligations outlined in our franchise agreements and under the Franchising Code of Conduct. We reject any allegations that we have acted unlawfully in any way.
We entered mediated discussions this year to discuss concerns raised by a group of franchisees. As part of these mediated discussions, Laser Clinics Australia also made an offer to purchase the franchise of anyone who wished to exit our network at a value in line with recent clinic sales.
Unfortunately, a group of franchisees have continued to orchestrate a campaign of deliberate disinformation and disruptive behaviour, designed to pressure the company into paying above market value for their franchises.
LCA believes there to be no legal basis for the claims made against the company.
The actions of this group are not only damaging for the Laser Clinics Australia brand, but the businesses of the many franchisees who continue to operate successfully and profitably with us around the country.”
While no formal legal action has been taken against LCA, it’s clear that a number of franchisees have serious concerns. These latest cases join a growing list of controversies surrounding cosmetic franchises in Australia bringing many to question how long these franchises will be able to remain on top.
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