Retail Franchising is Still Going Strong
The month of December is prime time for shopping. During the holiday season many people frequent retail franchises and drive business to those locations. It might involve purchasing holiday decorations at the nearby Ace Hardware, shopping for gifts at your local Pet Supplies Plus or getting together with friends to try that new Popeyes Chicken Sandwich that everyone is talking about. Many of these establishments have significant brand recognition, and their familiarity with its customers can mean big business during the holiday season.
Of course, not all retail franchises benefit from increased sales during the holidays. Regardless, for those who are considering purchasing a retail franchise, there are several important things to know about the benefits, challenges and overall outlook about these types of businesses.
What is a Retail Franchise?
Retail franchises operate from a storefront location and sell products and services directly to its consumers. They can encompass a wide variety of industries, including food, clothing, health and personal care, just to name a few. They can also be well-known brands with hundreds or thousands of locations across the country, which is part of their value.
Location, Location Location.
One of the first and most important decisions revolves around location. Retail businesses typically attract customers from a several-mile radius, and their success if often determined by high visibility, easy access and strong, consistent in-store traffic. When considering retail franchises, it is important to work with the franchisor to identify territories that will be able to support the business in that specific area.
In order to grow the business, owners will need to open additional units. Each of these locations will have its own radius of attraction around it. In some cases, this growth can be planned in advance and owners will sign a multi-unit development agreement. This contract contains language that includes the number of units that a franchisee will open and a specific time frame to have them operating.
Non-retail businesses tend to be more service-driven and can be operated from a home, office or warehouse. They generally have larger exclusive territories and don’t require multiple locations in order to grow. Their business growth is more organic building up its customer base over time.
Is a Retail Franchise Right for You?
Owning a retail franchise is not for everyone, and careful consideration should be given before investing in one. There are some unique aspects of owning a retail franchise that can be challenging to some people, but not a major concern to others. It depends on the individual’s comfort level and what they want to get out of the ownership experience.
First, most retail franchise have extended hours. Since business is dependent on customers coming through the door, those franchises need to be open not only during the day but also when people are most available to come and shop. That often means hours in the evenings and on weekends. Running a retail business is not a 9-to-5 operation, and people should be prepared for that.
To cover these long hours, a franchise owner will need to be comfortable hiring, training and managing a large staff. It can be a challenge to find and retain good employees, especially when the workers can be younger and some positions are only part-time. Turnover is inevitable and the experience of having to fire someone is unpleasant. Human resources is a big part of owning a retail franchise, and that only increases if there are plans to add multiple locations.
Although operating longer hours and managing a large staff is part of owning a retail business, franchisees don’t need to be there from open to close and make every personnel decision. Many retail franchises can be manager-run, in which the owner can hire a manager to oversee the day-to-day operations. That situation is often not the case with non-retail businesses.
Having a manager-run model is a distinct advantage in owning a store-front operation and it helps greatly when a franchisee wants to scale their business by adding multiple locations. The owner doesn’t have to actively run each location and can focus on growing their business. In some cases, people can keep their full-time job while starting off in franchise ownership, which allows them to maintain some income while initially building their business.
In certain cases, retail franchises also come with a degree of brand awareness. If someone buys a SuperCuts franchise, they are benefitting from the customer’s knowledge and comfort from the brand, giving them edge over a local mom-and-pop barber shop.
The only problem with that, however, is that this advantage comes at a premium for retail franchisees. They have a higher amount of fixed costs, with inventory, employees, insurance and the lease and maintenance of a physical storefront location. People should anticipate this added cost and be able to build an accurate P&L to project when their revenues will be able to meet and exceed their expenses.
As a franchise coach, I hear from a number of people who are concerned how a potential recession in the future may impact a retail franchise. My response is that retail businesses and franchises don’t necessarily change based on the economy. The key factor is what industry the franchise is in. If someone owns a retail franchise that provides low-cost haircuts, it will probably be fairly recession-proof. But if it is a retail franchise that does high-end framing and the economy goes down, then the number of customers may decrease as well.
Retail franchising, like all other businesses, has its own set of pros and cons. Despite any economic downturns or competition from online retailers, it will always occupy a large slice of the American consumer landscape. People who are interested in a retail franchise will just need to think about these factors and determine if it is the right fit for them.
Rick Bisio is a leading franchise coach with FranChoice, the creator of the FDD Exchange and the Franchise Glossary and the co-host of Rick Bisio’s Franchise Focus. Since becoming a franchise coach in 2002, Bisio has assisted thousands of aspiring entrepreneurs nationwide explore the dream of business ownership.