Retail Franchising – December Feature Article
Although clothing readily springs to mind when talking about retail franchising, the fact is that it stretches across a large number of different industries and has a significant impact on people’s daily lives.
In fact, it cuts such a vast swath, the United States Bureau of Labor Statistics (BLS) classifies retail as a “super-sector” that comprises both store and non-store retailers within the broader trade, transportation, and utilities category.
The North American Industry Classification System (NAICS) specifies 75 retail store types, examples of which include:
- furniture stores
- health and personal care stores
- clothing and general merchandise stores
- florists and gift stores
- photographic services
- new car dealers
- used car dealers
- computer and software stores
- home centers…and many many more
Store retailers, as the label implies, have a storefront at a fixed location that is aimed at attracting walk-in customers. They have large displays of merchandise and most of them use mass media advertising like radio and TV.
While they usually sell merchandise to the general public for personal use, some also sell to business and/or institutional clients. They commonly supply after sales service like repair and installation.
Like store retailers, non-store retailers sell merchandise to the general public, but rather than doing so from a fixed location that people can go to, they employ different tactics, like “infomercials,” direct-response advertising, catalogs, door-to-door solicitation, in-home demonstration, selling from portable stalls like mall kiosks or street vendors, and vending machines.
Economics and Demographics
Like many other businesses, retail franchises are affected by the relative strength of the economy. When the economy is strong, people have more disposable income to spend on merchandise. But, conversely, when the economy hits a bumpy patch, that disposable income dries up.
Demographics also play a significant role in the success of a retail franchise. Opening in the wrong neighborhood can spell disaster for a retail outlet. Changing demographics of the country will also have an effect on the retail industry, as minorities — any race other than non-Hispanic, single-race whites — within the United States are set to become the majority, according to Census data.
This is due to happen within the next generation. These changing demographics mean retailers will have to adapt their promotional efforts to attract customers from this rapidly changing customer base.
Having to adapt to changing demographics and ride out the tough financial times makes franchising attractive for a lot of entrepreneurs. A franchise provides the backing of established brand recognition and economies of scale.
They also tend to provide marketing and sometimes administrative support and will do marketing for the overall brand to supplement their franchisees’ marketing of their individual locations.
Providing they utilize the franchising system in place, franchisees tend to have a better chance at being successful than independent startup businesses.
Obviously, having products that people want and having the basics like great customer service are important, but for retail outlets that have a physical storefront, location is probably the most important factor in its potential success.
Having the best products in the world won’t help if you’re in an area where there is no demand for them.
The location should be in an area that is highly visible and that has a significant amount of traffic so as to attract potential walk-in customers. A visible and easily accessible location will prompt people to come in and look around and try the products. Convenience can be right up there with price as a motivating factor for a person to make a decision about patronizing a place.
Helping you find the right location is among the many advantages of opening a franchise business. The franchisor knows better than anyone what type of neighborhood its business will thrive in and many franchisors will have access to demographic data about areas they are actively trying to expand into. Most franchisors will retain the right to approve the selected site and may help with things like financing and renovations.
When looking for a site, consider the following:
- Does the area fit the brand? The neighborhood should match the franchise’s brand image. A business-to-business franchise that sells metal for industrial and commercial purposes is going to look more natural in an industrial area even though the area may not be aesthetically pleasing, per se.
- Are there similar businesses nearby? For many types of businesses, such as restaurants, having a similar business next door would be terrible. However, for other types of businesses, it can be advantageous to have similar businesses nearby because it draws more potential customers to the area. Most cities tend to have unofficially designated areas for things like car dealerships or farm equipment dealerships. If you’re opening a farm equipment dealership, you’ll want to be in the area associated with them because that’s the most likely place people looking to buy that will head to.
- How much work will the building or site require? If you’re building from scratch, you’ll be able to build to whatever specifications you require. But, often you’ll be taking over an old building and that will require renovations. You may even need to tear the existing building down and start building from scratch. You’ll need to figure those into the total cost, along with costs like tax rates, rent or mortgage and utility costs. Even if you’re buying an empty lot, there still may be environmental cleanup to be done before you can start building. All this needs to be factored into the total cost.
- Is there enough traffic in the area and how accessible is the spot? It’s not just the amount of traffic that passes by that counts. You may find what appears to be the perfect spot on a major road, meaning thousands of people will be driving by every day. But if there is no easy way to pull off that road and get to the business, the spot may not be suitable after all. You’ll need to also consider parking, how easy it is for pedestrians to get to the business and traffic patterns in the area.
- Can the spot even be used for what you want to use it for? You’ll need to check what uses the property is zoned for (i.e. residential, commercial, industrial). If it’s not zoned correctly for what you want to use it for, you’ll need to submit a request to the municipal government to have the zoning amended. Looking for a site is usually a team endeavor between franchisee and franchisor. As mentioned previously, franchisors often have or can arrange to procure demographics of the area, but the franchisee, being a local, will have a better understanding of the feel of the area. The ultimate decision will likely be a combination of gut feeling and hard numbers.
Appealing to the Online Customers
We all know that online purchasing continues to increase and continues to pull people away from physical shopping centers with the promise of lower prices. As an extension of that, mobile shopping (people shopping via their smartphone) is also on the rise. Direct mobile commerce sales were estimated at $3 billion in 2010 and by 2016 that number is estimated to grow to $31 billion.
It’s likely that most franchises have online shopping set up already or will help you set up online shopping for your business. But, you’ll still want to draw people into your location and you can do that by giving shoppers the one thing they can’t get online: the shopping experience. It’s one thing to sit in front of a computer screen and simply look for an item at the lowest price, but it’s a completely different thing to be able to talk with a knowledgeable sales person and be able to touch the merchandise and interact with it.
While franchisors will be doing their part with large scale, ongoing marketing campaigns, franchisees can do their part to draw customers in with knowledgeable, friendly salespeople who are customer service oriented; making things like exchanges, repairs and returns as easy as possible; creating an inviting environment with the design of the store and adding some entertainment elements; using in-store promotions and loyalty programs to cultivate good relationships with customers; and using social media to maintain contact with customers and potential customers.
People do like buying locally and will use platforms like Facebook and Twitter to check out a local business. The more you can engage people locally, the better it will be for you. Let people know that even though the brand they see may be national in scope, the franchisee is a local business person. As with marketing, the franchisor will likely have a social media presence itself, but will usually encourage franchisees to cultivate their own social media presence for the purposes of localizing their efforts.
With such a variety of industries to choose from, retail franchising has opportunities for every entrepreneur who is looking to start a business. With backing from an established brand and a lot of hard work, retail franchising can be a lucrative endeavor for those who are willing to put in the effort.
About the author : A former journalist, Rob Swystun, has been writing professionally since 2006 and now concentrates on freelance writing. He lives in Winnipeg and is currently an Athabasca University student studying for a BA in Communications.