Industry Report: Increase your chances of retail franchise success
Retail is arguably the most difficult sector to enter and become successful in. Rachel Spaul explores how franchising can increase your chances of success
Retail is a highly competitive industry driven by fashion and trends, where service, desirable products, price and consistency are critical to maintaining customer loyalty. As an independent retailer, it is very difficult to gain a foothold in the market which presents a number of challenges, but as a franchisee these problems are easier to overcome.
Kamran Saleem, Director of Unzè by Shalimar Shoes which has opened 10 franchised stores in under a year, states: 'A franchise is the safer option with a 90 per cent chance of success compared to an independent store.' He identifies the main advantages of a retail franchise as: 'A franchise grants you the rights to a well-known name and proven operating systems. As an independent retailer you have to do a great amount of market research for product pricing and sourcing. With a franchise, it is all done for you.'
LOCATING YOUR SHOP
Location and premises is the biggest challenge facing retailers and can make or break a new shop. It can be particularly difficult for independent retailers to obtain prime sites as they are expensive, the best ones aren't always advertised, and landlords can be wary of leasing premises to unproven concepts and inexperienced owners. As a franchisee you have the benefit of a proven concept, the franchisor's experience and knowledge of the market and the brand's pulling power to bring in customers. Some franchisors even retain their own property specialists.
'Finding suitable locations is our biggest challenge,' Kamran confirms. 'We overcome this by conducting market research for every possible franchiseable location. Market research is vital - you should be able to feel the pulse of the market. We help franchisees every step of the way from finding premises to completing the lease, finding contractors and builders and negotiating the best price for the shop fit.'
Ian Masson, National Schoolwear Centres' Director of Retail Operations, agrees: 'The 'right' trading location is always important to any retailer. In our case we look for the best secondary location, which has the advantage of lower overheads. Customers are directed to our stores through local schools so we do not need prime locations.
Franchisees rely on our expertise and advice to find suitable locations, and we retain property professionals to source the right site, negotiate the lease and fit the stores to corporate standards. The franchisees are, of course, involved and informed at every stage, but supported 100 per cent by us.'
Once you have sourced and secured your premises you will need to fit it out and source stock. Before investing in a retail franchise it is particularly important that you make the relevant checks for hidden costs. Is the shop fit and initial stock included in the price of the franchise? Will you be expected to use the franchisor's recommended experts and suppliers? Or will you be provided with the plans, but expected to complete it yourself?
A professionally developed and implemented franchise programme means that a retail outlet in Scotland will look the same, offer practically the same range, and be operated to the same standards as an outlet in Cornwall. National Schoolwear Centres stores carry highly distinctive blue and yellow branding, use the same display stands, counters, carpets, lighting etc.
Similarly Ripples, a top-end bathroom designer and retailer with 14 franchised showrooms in the UK, insists on very high standards throughout its network.
'We are aiming at the top end of the market in every sense,' Roger Kyme, Managing Director, explains. 'If it isn't quality then we don't get involved, from our products, to our franchisees, our showrooms and even our conference venues.'
WEATHERING ECONOMIC CHANGE
Franchisees are in a better position to combat fluctuations in the economy and consumer spending than independently owned stores because they are supported by an organisation that can potentially command greater buying power, have national recognition, and operate central marketing and research and development departments to monitor trends and to develop new products.
Roger furthers: 'Within the bathroom industry it is hugely important that you have buying power and Ripples is a major player in the marketplace with tremendous PR flow. Alone, outlets struggle with margins, shared knowledge, market presence and all that a perceived large group offers in the eyes of the consumer. Our in-house marketing and PR department has won many industry awards over the past 10 years and we attend the majority of European exhibitions and trade shows.'
National Schoolwear Centres has 58 franchised stores trading and competes with some of the biggest names in Schoolwear retail such as John Lewis.
Ian clarifies: 'We are among the biggest customers for branded schoolwear in the country and we are increasingly leveraging that buying power to maintain our retail prices and margins to compete with our principal high street competitors.'
Distinctive products, a unique offering, and competitive pricing are also crucial to surviving in retail. National Schoolwear Centres franchisees for instance have three income streams: general schoolwear, badged schoolwear and items such as sports and dancewear. This means stores are not driven by fashion and trends. Despite being a fashion brand, Unzè stores claim to also be largely unaffected by fashion. Kamran explains: 'Interestingly we seem to actually lead and set the fashions and trends on the high street. We sponsor many fashion shows and participate in exhibitions around the world.'
Cash Generator is a highly recognisable name in franchising and has also built the success of its brand around three income streams: buying, selling and cheque cashing. Cash Generator Franchise Development Director Robin Page believes this makes for an almost recession-proof business opportunity.
'Our stores buy and sell a wide range of pre-owned, new and graded goods at attractive prices. We appeal to a wide customer base from most demographic groups and enjoy a high level of repeat business.'
CeX (Complete entertainment Exchange), which only recently began driving its franchisee recruitment programme, has also tapped into the lucrative second-hand market while targeting the popular entertainment technology sector. CeX stores specialise in the buying and selling of quality second-hand technology and entertainment products, and divide its main product lines into five 'Super Categories': Videogames, DVDs, Computing, Electronics and Mobile Phones. As well as offering customers an opportunity to exchange their unwanted goods for cash, CeX stores provide 12-month warranties and attractive prices on all goods sold.
MAKING AN INVESTMENT
Taking into account the franchise licence fee, additional costs such as training, shop fit, rent and stock, you will need upwards of £100,000 (excluding working capital) available to invest in a retail franchise.
Before making any investment it is vital that you do your research and the 'Franchise Buyer's Checklist' on page 121 is a good starting point. It is also advisable that you consult with franchise professionals such as banks, lawyers and franchise consultants.
As a potential investor you need to decide how much you have available to invest and whether you would like a recognised and established brand or a new opportunity. With an established brand you will have the advantage of customer recognition and brand awareness driven by central marketing campaigns, well established supply lines, a sound knowledge of the marketplace and premises opportunities, established training and support schemes. However, it can cost less to invest in a business just entering the market, but be sure that it is viable and that the products are in demand.
O2 is probably one of the most well- known brands to enter franchising in the past 12 months and its distinctive brand, high profile advertising and track record have contributed hugely to its success. 'O2 is one of the most successful network operators in the UK,' Mark Stansfeld, Sales Director, offers.
'We have 92 per cent brand awareness among our target customer group. Across our current 342 UK stores, we have a track record of turning our brand strength into sales. We believe franchising offers an incredible opportunity for customer focused individuals to engage with the O2 brand and the dynamic mobile market.'
Unzè on the other hand, which also began franchising last year, has a long track record, loyal wholesale customers, and brand recognition in London but was relatively unknown elsewhere in the country. Its success in franchising is largely due to product appeal, competitive pricing and the quality of the brand. Kamran adds: 'We are marketing more aggressively and vigorously and are permeating into every crowded street and shopping centre.
Also we are strengthening our brand further by adding more styles, colours and accessories to our already massive range.'
There are fewer retail opportunities currently available than other franchises, so you'll need to keep your eyes open. For more experienced individuals eager to 'hit the ground running' an existing business or re-sale may be more suitable than a new-start.
These can be found in the various franchise magazines, online, and in the newspapers. Alternatively, ask the franchisor for the latest opportunities. For ambitious entrepreneurs interested in investing in a new brand in the UK it is also worth watching the international market as there are several retail brands looking to make in-roads into the UK, such as QuikDrop (eBay drop off stores), KA International (home décor), Bargain Booze (discount off-licence), and Neck & Neck (fashion).