3 Unique Challenges to Franchising a Retail Business
Brick-and-mortar retail is not dead.
That fact runs contrary to the popular belief that retail stores are dying out because online shopping is so popular right now. The truth is, brick-and-mortar retail is far from dead.
However, the notion that physical retail stores are being replaced by shopping on the Internet is so pervasive that it has become one of the biggest challenges facing retail concepts that want to franchise. Other challenges emerging retail franchisors have to contend with in order to grow are unfamiliarity with the amount of work required to operate a store and cost. But, there are ways to navigate around these obstacles.
1. RIP Brick and Mortar
Consumers mistakenly believe that all U.S. retail commerce goes through Amazon. While Amazon does make up roughly 49.1 percent of all e-commerce ($258.2 billion in 2018), it represents only 5 percent of total U.S. retail spending. Walmart is twice that size at about 10 percent of U.S. spending.
Less than 10 percent of all U.S. retail is online. Still, consumers continue to believe that e-commerce is going to replace traditional brick and mortar and that Amazon will be the only retailer left standing. But, the numbers show how wrong that perception is.
Brick and mortar retail is alive and well, but certain segments are faring better than others. For example, one of the fastest growing segments in retail is resale, which is growing at double-digit rates. And, resale spending, while it can be and is done online, is still primarily through brick-and-mortar locations, where the exchange of buying and selling more easily takes place between consumer and retailer.
The solution: Tackling the “retail is dead challenge” is easy: Show consumers that you are a strong omnichannel retailer that can meet your customer demands on and offline. This is key to showing that you can compete in any environment.
Retail franchise concepts need to be willing to adapt. Those that ignored consumer demand for purchasing goods online failed or are struggling. Omnichannel purchasing goes a long way toward proving that you can meet customer demand wherever it takes place. Giving customers access to your products when and where they want is the new normal in retail, so having a robust e-commerce site as well as an inviting brick and mortar store located in all the right spots is critical to being at the top of the retail industry.
2. Retail is Hard Work
Retail is unlike any other kind of franchise – say a QSR or mobile service concept, for example. The differences include, but are not limited to:
- a store usually requires a larger footprint
- the store typically requires a large number of employees
- you have to manage your largest asset – your inventory
- you must execute flawlessly at all details every day
Operating a retail store is hard work. With so many moving parts, it’s difficult to be a semi-absentee or absentee owner. The franchisee must be involved in their business and understand what is going on every day with their employees, processes and products. This level of involvement could be unattractive to some entrepreneurs looking to invest in your franchise opportunity.
The solution: Market to the right entrepreneurs and choose wisely. Make franchisee candidates aware that the rewards of running a solid retail operation are well worth the effort and provide business owners with a fantastic return on investment. At the same time, inform them – from the first call on through Discovery Day – what you are looking for in a store owner and what they must do to be successful in your franchise. Then, choose the right candidates to become franchise owners – those who understand the amount of work involved and who are willing to do it, as well as the profits, who possess a strong work ethic and who share your vision for brand growth. These franchise owners are the most likely to provide the validation you, as an emerging retail franchisor, need to grow your brand.
3. Owning a Store is a Large Investment
Becoming a retail franchisee is not a cheap investment. Although retail investments may vary, retail franchises are typically in the $250,000 to $500,000 investment range, making them a mid-tier franchise investment. Candidates typically must have $75,000 to $100,000 in liquid assets and a net worth of $400,000 or more to qualify for a retail franchise. This kind of investment could cause potential franchisees to look at lower investment franchise opportunities if they fail to take in the big picture.
The Solution: Again, franchisors should market their opportunity to the right demographic. Part of this includes having a solid Item 19 in your FDD that shows a healthy average unit volume. In addition, a retail model that has strong differentiation and solid moats around the business, such as a resale franchise with a proprietary point of sale, helps distinguish your brand from the rest of the pack. Having great franchisees with strong validation helps to close the deals, as candidates want to associate themselves with successful brands and invest in opportunities that have a strong track record of success and a solid return on investment.
Before You Begin Franchising
As you prepare to embark on growing your retail business through franchising, make sure you do these things first:
- Develop your omnichannel offering
- Streamline and document your internal processes so that you can be most efficient when it comes to space and labor
- Optimize your inventory management to keep turn rates high and inventory investment low
- Reinforce your differentiation. This is the most critical aspect. You’ll need to be able to answer these questions:
- What makes your brand stand out?
- Why are you different and better?
- Is it defendable or easily replicated in the market?
- Will it stand the test of time?
- Does that differentiation matter to all customers in all markets?
Product, price/value equation, people and service contribute to a successful retail franchise, and you need to have them all today. The best retail franchises offer great value to their customers, with the right franchise owners and employees supporting the store and providing top-line customer service – whether in-store, online or by phone.
For help meeting the challenges of franchising your retail business, turn to Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing more than 1,250 locations for five retails brands, Winmark Franchise Partners can help you help grow your brand through sound strategy and expert franchise consulting and advice. Contact us here or at (844) 234-8520.