The Magic touch

The company claims the average weight loss on its program is 2 pounds a week. It also claims an 80 per cent success rate. The chain has 330 stores, most of them franchises, though one of Hudson's first moves was to close 20 stores and buy back 80 underperformers. The average outlet has a lot of excess capacity, he says. But the big opportunity lies south of the border.

The Toronto Star
October 13, 2009

The Magic touch
From finance to hair, it seems Steve Hudson's done it all. As CEO of Herbal Magic, he's back in Canada to show he can still conjure results
Dana Flavelle

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Former high-flying financial tech whiz Steve Hudson is now at the head of Herbal Magic, with plans to expand the national diet chain into the U.S. KEITH BEATY/TORONTO STAR

The actor Philip Seymour Hoffman comes to mind when you first glimpse Steve Hudson, former financier, political fundraiser, philanthropist and man about town.

The long, blonde hair, swooping Hoffmanesque forelock and luxurious layers partly reflect Hudson's most recent role as the head of Hair Club for Men. Then there's the suit that hangs just a bit loose on Hudson after taking charge at Herbal Magic, a leading chain of Canadian weight loss clinics, last February. (He's shed 22 of the desired 40 pounds so far, he says.)

All befitting Hudson's latest incarnation as a health and beauty entrepreneur.

It seems like a stretch from the previously buttoned-down looking accountant (short brown hair, conservative wire-rimmed glasses), an image that fit his previous role as founder of Newcourt Credit Group.

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Former Canadian Olympic medallist Elizabeth Manley, shown in 2001, is a celebrity endorser for weight loss chain Herbal Magic. In a move away from TV ads, the chain has been hosting Manley's blog and videos on its website. ADRIAN WYLD/CP FILE

Hudson had built Newcourt into North America's second-largest nonbank lender before it was swallowed up in 1999 by New York's CIT Group in a deal valued at $2.2 billion (U.S.) He was earning $3.8 million a year, and owned a condo in New York and a mansion in Rosedale that straddled two properties.

Ask him what's the connection between his previous life and this one and he just shrugs.

What is known is that Hudson withdrew from plans to be head of the merged Newcourt-CIT entity after Newcourt issued unexpectedly poor results in mid-negotiations, and the value of the offer plunged from the original $4.1 billion on the table.

Hudson was then briefly involved in a strategic alliance with Borealis Capital Corp., a controversial vehicle created by the Ontario Municipal Employees Retirement System to invest in private-public infrastructure projects. It was later dismantled.

In between, Hudson got involved in a variety of community projects, the most notable being Toronto's bid for the 2008 Olympic Games. He also set up his own private equity firm, Cameron Capital Corp., named after his eldest son.

Now, back from self-imposed exile in the American Midwest as operator and part-owner of the Hair Club for Men, he is home, having shown his detractors he can still work the magic. He and his business partner at Toronto-based EdgeStone Capital sold Hair Club to Regis Corp., the world's biggest hair salon company, for $210 million – about nine times what they paid for it four years earlier.

"I love this business," Hudson said at a business breakfast to launch the Bay St. store for Herbal Magic, flush with friends and supporters.

Here is Steve Small, the Toronto dental anaesthetist who helped get Hudson his start. Hudson was just 26 when he presented Small with an eight-page business plan for what would become Newcourt. They started out selling and leasing back hospitals, not just the buildings, but the bedpans and everything else except the land, Small said.

Here is former Ontario Premier Mike Harris, a Tory for whom Hudson helped raise funds. Despite his Tory credentials, Hudson will tell you it was he who persuaded NDP Jack Layton, then a Toronto city councillor, to support the city's bid for 2008 Olympics by calling on his background as a poor boy from Scarborough.

The record will show Hudson has also fundraised for Liberal Brian Tobin. Is there anyone in this town he doesn't know? Hudson just grins.

Here is Duncan Robinson, chief marketing officer at Herbal Magic and one of the people Hudson brought with him from Hair Club.

Formerly with Procter & Gamble, Robinson describes himself as a numbers guy. "Brand marketing is all about gut. I'm not very good at gut. Direct response is about numbers. I love numbers."

For Herbal Magic, he's set up about 50 different 1-800 numbers, each tied to various advertising pitches to see which one is gaining the most traction. Every morning he looks at the numbers to see how many leads the ads generated has generated, how many people have signed up.

The pitch is simple: call now for a free consultation and some kind of special offer, he explains.

"We have a guarantee. If you don't lose up to 20 pounds in two weeks you get your money back."

Robinson brags about getting rid of the company's former advertising agency and the "big, expensive TV" campaign that focused on brand image, and replacing it with cheaper print, radio and Internet ads that feature testimonials by real people from the local area plus a few celebrities – including former Olympic figure skater Elizabeth Manley.

Like Hair Club, the business generates recurring monthly revenue, a financial model Regis chairman and chief executive officer Paul Finkelstein compared to an annuity, calling it a high margin gem.

Herbal Magic clients pay an upfront fee of $799 (Canadian) for a one-year membership, plus $200 a month in dues.

The dues cover one-on-one counselling, regular weigh ins and advice on navigating grocery stores, avoiding the calorie-laden centre aisles and supplements that suppress the appetite.

The company claims the average weight loss on its program is 2 pounds a week. It also claims an 80 per cent success rate.

The chain has 330 stores, most of them franchises, though one of Hudson's first moves was to close 20 stores and buy back 80 underperformers. The average outlet has a lot of excess capacity, he says. But the big opportunity lies south of the border.

After the launch, Hudson was off to California in search of ways to take Herbal Magic into the U.S.

His timing couldn't be better. The Canadian dollar is almost at par. Obesity is a national obsession south of the border, and Herbal Magic has just spent $1 million (U.S.) investing in its diet supplements.

The supplements have all been granted natural product number under a new program that identifies products whose health claims have met certain scientific tests. Hudson figures Health Canada's seal of approval will help him enter the U.S. market.

The industry is ripe for consolidation south of the border, he says, adding he knows of at least four U.S. chains that are struggling. Are they for sale? No, but that has never stopped Hudson.

Cameron Capital and its partner, TorQuest Partners Inc., will be paying with cash, he said, not debt.

He's already planning his next move, one that could involve offering shares in Herbal Magic to the public.

http://www.thestar.com/business/article/709102--the-magic-touch


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