Parents generally will spend what they can afford to on their kids, regardless of overall economic conditions.
The market for children’s services and products is huge and growing. Over 20% (an estimated 22.9%) of people in the United States are under 18 – or approximately 74 million according to the latest U.S. Census estimates. This number is projected to increase to over 80 million by 2030.
Child-related franchises cover a wide range of service areas, including:
|Clothing and other retail||Dance|
|Entertainment||Fitness and sport|
|Food||Hair salons and spas|
Below are trends and stats from a few of the major segments of the industry, followed by information on key parts of the franchise buying process.
Child Care and Child Education Are Becoming More Interconnected
“Child care is now early education.” That’s what public school administrator and parenting book author Robin McClure noted in her look at top trends in child care.
“No longer is child care for young children simply babysitting,” as she explains. “Child care centers have mostly transitioned to centers for early education, where young tots are involved with early learning.”
Robin’s views echo those of the ones Richard Peterson, vice president of Kiddie Academy told us back in 2014 in regards to the need for early childhood education. “There's great demand for quality child care right now,” he said. “It used to be that a parent was just interested in daycare, but now they're interested in quality education [as well].”
The trend of child care centers and education merging is in part due to an increased knowledge about the development of the brain during childhood. Studies show young kids are capable of learning academics and other skills earlier than previously thought, and thus weren’t taught until later in life. Research shows that by age 3, the brain is estimated to be 82% of its adult size. By age 5, a child’s brain will have grown to 90% of its adult size.
Other factors in the rise of child care/education centers include the shift towards more working mothers and other family structure changes. According to the Bureau of Labor Statistics, 70% of mothers with children under 18 now work outside the home. The rate of working mothers with children under a year old is 58.1%
The U.S. Bureau of Labor Statistics projects the fastest employment growth of all industries through at least 2020 will occur in child care. The growth is likely related to the U.S. birthrate increase. The population of children under age 5 is expected to grow from around 24 million now to approximately 30 million in 2050.
Growing steadily at a rate of 1.5% annually since the economic downturn, there is no company with a dominant market share in the $48 billion a year industry. In addition to family members who provide assistance to parents, child care franchises will also have to contend with corporations that have realized offering quality child care on site is a major draw for attracting potential employees or keeping the ones they have.
On the other hand, corporations’ interest in providing child care options could be a potential opportunity for franchisees as “more companies are partnering with child care centers to offer discounted rates or even special hours for employees,” says Robin. “Some developers are even focusing on including a child care facility as part of master planning of new areas, knowing that having a quality child care center nearby will make the area more desirable for both employers and employees alike.”
Dedicated child care franchises also have to contend with gyms, recreation centers, churches and schools that are increasingly offering events such as “Parent Night Out.”
And beyond early childhood care and education, traditional tutoring remains a strong segment of child education. According to business market researcher IBISWorld, the tutoring and test preparation segment will be a leader in the industry's performance through at least 2019.
Academic subject tutoring is the most common area for tutoring, but not all programs include only traditional subjects like reading, writing and math and science. Exposing children and teens to art, music, driving, and other supplemental learning subjects like engineering and technology is a growing desire among parents.
Children’s Fitness Franchises Also Teach
According to senior analyst Taylor Hamilton of research firm IBISWorld, “Youth memberships have become one of the fastest growth areas for the fitness club industry.”
Fitness centers for children have been growing at a rate of 2% per year – and with good reason. Budget cuts in the educational system have forced many school districts to cut back on physical education programs. In addition, local governments in many areas have cut funding for recreation areas such as parks.
The cuts are a contributing factor to this stat from the CDC: more than one third of children and adolescents are overweight or obese. Parents want a healthier future for their kids, in addition to a brighter one. Having opportunities for safe and consistent exercise for young people is vital for creating a healthier future. In turn, this contributes to a steady market demand for anyone wishing to take open a children’s fitness franchise.
It’s important to note: children’s fitness franchises aren’t simply watered down versions of their adult gym counterparts. Many franchises incorporate educational elements with the knowledge of brain development as discussed earlier. Curriculum is commonly built around a play concept that incorporates teaching motor development, dance, and music in addition to fitness elements like gymnastics.
Making exercise fun and not an obligation helps kids develop a healthy lifestyle – and recurring business for the franchisee.
Children Are a Big Piece of the Retail Puzzle
Look for children to continue having a major impact in the retail franchise industry, specifically the resell segment. Kids grow out of clothing, toys, and accessories at a fast pace. A large percentage of these items outgrown are still in decent shape, able to be reused, and can be used to defray the costs of raising children through consignment.
In consignment, the original owner sells a gently used item that can be used again by others to a retailer who resells the item at a reduced price from the original sales price. The arrangement works out for all three parties involved: the original owner gets some money back from the original purchase, the new owner gets an item at a discounted price in similar condition to a brand new one, and the reseller makes a profit from the markup between the price they bought the item from the original owner at and the resell price.
The franchise leader in resell retail is Winmark Corporation, parent company of five, diverse franchise concepts, including four that cater to those under 18: Music Go Round (music instruments), Once Upon A Child (children’s clothing and toys), Plato’s Closet (teen and young adult clothing), and Play It Again Sports (sports equipment).
As you can imagine by the number of concepts that Winmark has that cater to children, the demographic is an area of great importance to the growth of resell retailing. An increased societal focus on recycling and financial responsibility has also contributed to the rise of the industry segment.
“We’re seeing more and more new customers — from all walks of life and income levels — come into our stores every day,” says Steve Murphy, president of franchising at Winmark. “Parents still [want] to put their kids into the latest brand-name clothing, they’re still going to put them into team sports like hockey, baseball, lacrosse, and football, they’re still going to sign them up for band at school or their first guitar lesson, only now they all want to do it affordably.”
According to NARTS: The Association of Resale Professionals, about 12-15% of Americans shop at a consignment/resale shop in a given year. Used merchandise stores in the U.S. have combined annual revenue of about $17 billion (this number includes antique stores which make up about 13% of the statistic).
Choosing a Child-Related Franchise
Please note: the provisions and fees illustrated below are some of the most common and not a complete listing. All financial figures come from the Franchise Disclosure Document (FDD) of each respective franchise dated 2016. Please review the FDD of a franchise for all of the provisions and fees related to investing in that particular franchise.
What attributes are well-suited for being a child franchise franchisee?
Anyone who works with children should possess patience, enthusiasm and energy. These attributes need to fuse along with good management and organizational abilities to take care of back of the house responsibilities. Also on the business side, interpersonal skills to lead staff and deal with parents are equally important.
Keeping Year-Round Revenue
One topic prospective children’s franchise owners need to address is how the franchise system they are researching copes with busy and quieter periods, for example during school breaks and conversely when children in school.
It is the franchisee’s responsibility to make sure he or she is in compliance with the franchisor’s requirements, as well as all applicable laws and regulations of his or her area.
Some states may require franchisees to obtain specific certifications or licenses to operate an education-based franchise, and most states will require a background check for those employed to work with or around children. In addition, depending on local zoning codes, a franchisee may experience additional requirements such as the need for separate bathrooms for boys and girls, water fountains, special exit doors equipped with panic bars, fire safety improvements, and accommodations for disabled persons.
While the franchisor will be of great assistance, a prospective franchisee should consult the appropriate local authorities for requirements that may apply to the franchise before signing any agreement.
Initial Investment Costs
Initial investment costs for child-related franchises vary widely depending on the service area. Because some of these franchises involve traveling to a school, camp, house, or other site, those franchises tend to be lower in startup costs than the others. At the same time, there are other child-related franchise options that require dedicated commercial building, along with specialized equipment (e.g. a daycare or hair salon). Franchises in the latter categories will obviously cost more to start.
To illustrate, in the graph below you can view the initial investment ranges for 10 sample franchises covering a wide range of services and location types.
Estimated Initial Investment Ranges for 10 Sample Child-Related Franchises
In addition to normal business operating costs like payroll and utilities, franchises collect fees for things like advertising and proprietary software. Also typically collected is a royalty, which serves as payment for the franchisee’s continued use of the franchisor’s system. The manner in which franchises assess royalties vary. Examples of how royalties are collected are provided below for each sample franchise.
5% of Gross Revenues. Minimum monthly royalty of $625 starting 12 months after franchisees complete training and $1,250/month starting 24 months after franchisees complete training
The greater of 8% of Gross Sales or the Minimum Royalty
7% of gross revenues
5% of Gross Receipts
Initially, 10% of the monthly gross receipts from all sources as a result of operating the center, plus a base royalty fee of $500 per month (payable on the first center only). Beginning in the 24th month of operation of the center, the base royalty fee plus the greater of (i) the 10% monthly royalty or (ii) $1,400.
My Gym (Fixed Location)
7% of Gross Volume
My Gym (Mobile Business)
$125/month to $250/month; or 7% of Gross Volume
8% of Gross Sales
The greater of 9% of gross revenues or the minimum royalty
5% of Gross Sales for the first year, and 6% of Gross Sales for the balance of the term
Royalties for Selected Child-Related Franchises
(Click on the Franchise Name for More Details on the Franchise and Its Costs)
In addition to regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees, or for additional, non-mandatory training.
Prior to investing, prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs.
For more information on a number of franchises in this area, please see our children’s franchise opportunities page.