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Retail Franchise Industry Report 2015

Retail Franchise Industry Report 2015

Industry Overview

A PricewaterhouseCoopers LLP report showed that the U.S. retail industry directly:

  • Supports 29,984,100 million jobs (42 million jobs in total impact)
  • Provides in $822.5 billion labor income ($1.6 trillion total impact)
  • Contributes $1.2 trillion annually to the U.S. gross domestic product ($2.6 trillion total impact)


In addition,

  • 99% of retail businesses employ less than 50 people
  • 12% of business establishments in the U.S. are in retail (approximately 3,793,622)

The Vastness of the Retail Franchise Industry


It appears an improving employment landscape has consumers in the mood to spend again. IHS Economics expects sales growth to reach 5.1% in 2015 for retail products and services. In addition, the Consumer Sentiment Index, a monthly survey used to judge consumers attitudes towards spending vs saving, rose nearly 5 full points from 2013 to 2014 (79.2 to 84.1 on a 100 point scale). In 2015, it has been consistently above the 90 mark, with the exception being a late summer stretch mirroring a swoon in the stock market. Despite the dip, the index remains at a higher level now than in any prior month since May 2007 (as of September 2015).


The Government Definition of Retail

The U.S. retail industry is now defined by, and classified under, two North American Industry Classification System (NAICS) sectors: 44 and 45.


Short Description


Motor vehicle and parts dealers


Furniture and home furnishings stores


Electronics and appliances stores


Building material and garden equipment and suppliers dealers


Food and beverage stores


Health and personal care stores


Gasoline stations


Clothing and clothing accessories stores


Sporting goods, hobby, book and music stores


General merchandise stores


Miscellaneous store retailers


Non-store retailers


Since 1937, the retail industry has been defined by the Standard Industrial Classification (SIC) system, which is currently being phased out. A big change between the two systems is food services and drinking places, part of the retail industry in the SIC system, are now considered part of the service industry in the NAICS. However, some food places are still considered to be part of the retail industry.

Retail Franchise Industry Report 2015


The Retail Franchise Market

The retail products and services franchise industry occupies a $43.5 billion dollar piece of the overall industry, while employing an estimated 525,000 directly. Retail food franchises add another $42 billion and estimated 515,000 in employment. Larger franchises include GNC, Petland, Edible Arrangements, Relax the Back, Snap-on, Cartridge World, 7-Eleven and more.


Hot Franchise Segment: Resell Retailing

A retail segment that has been around for a while, but has found its footing over the past few years is resell retailing. Franchises in this area allow customers to sell goods that are in “like new” or “gently used” condition and sell them to the store. The store then resells those goods at a discounted rate to other customers.


The franchise leader in this area is Winmark Corporation, parent company of five, diverse resell concepts: Music Go Round (music instruments), Once Upon A Child (children’s clothing and toys), Plato’s Closet (teen and young adult clothing), Play It Again Sports (sports equipment) and Style Encore (women’s clothing and accessories).


Children’s clothing and accessories is an area of great importance in this industry segment. According to Steve Murphy, president of franchising at Winmark, “We’re seeing more and more new customers — from all walks of life and income levels — come into our store every day. 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.”


Resale Retail Franchise Industry Growth


Another resell retail franchise is Cartridge World, which among its services provides a “cost-saving alternative to buying new printer cartridges, offering up to a 30 percent discount over full-priced cartridges.” It does this by recycling all types of ink and toner printer cartridges and remanufacturing the cartridges for future use.


According to the company website, the average laser printer cartridge can be remanufactured 3-4 times. Reusing the cartridges cuts down on the more than 350 million printer cartridges that in landfills annually. A significant amount of ink from these cartridges has been found to leak into soil and waterways.


Home services franchises are also getting in on the act of reuse retailing. Franchises like Granite Transformations are offering repairs with recycled materials to millions U.S. homes they service in need of renovation improvements.


Retail Franchise Industry Report 2015


Finding a Good Location

Location is one of the biggest factors of retail franchise success.


A prospective franchisee should think long and hard about whether an appropriate location is available in their area to open a franchise. So how do prospective franchisees figure out what a good location is?


The first thing to do is create a customer profile. The Franchise Disclosure Document (FDD) the franchisor will provide to you when requested is very helpful in this regard as it contains a market and competition breakdown under Item 1. When prospective franchisees have a target customer profile it can guide them towards the areas these potential customers shop.


Getting the Right Customers for a Retail Franchise


Often, prospective business owners of all types look for locations where they believe the most people will be. The more people that are around, the more people that will shop in the store, right? Not necessarily. According to Pitney Bowes, a business intelligence company, “Even thinly settled areas may achieve vibrant performance if a sufficient quantity of targeted customers resides in that area.”


Because the franchisor is dependent on your success to grow and be successful too, you typically will get help with things like finding a location. The franchisor has tons of data about what will work best for their franchise brand. Many franchises require franchisees to locate their franchise within a specific, franchisor-approved area. This territory will be generally defined in the FDD under Item 12, and often more specifically defined for the franchisee’s unique circumstance as an addendum to the FDD.


“One great thing about franchising is that you don’t – and won’t – have to find a suitable location for your franchise on your own,” says franchising industry expert Joel Libava. “Most franchisors these days have either a real estate department, or at least access to real estate experts, who can help you secure a good location. Your franchisor can help you get it right.”


Once you have a customer profile and a preliminary idea of a good location, do some scouting. Here are some things to look for during your location search:


  • When is the area busy? Is it a destination location or one that commuters pass frequently?
  • What are the traffic patterns around the site? Can customers get in and out of the parking lot without too much trouble? Even if your franchise is more convenient by distance, people might be willing to drive further – and go somewhere else – for easier access.
  • Speaking of parking, is there an adequate number of spaces? How will you account for peak times? This is especially the case for businesses like coffee franchises that need more space in the mornings and in the fall and winter months than at other times.
  • What businesses are nearby? Are they complementary to your franchise? For example, if you’re opening a hair salon, being near a massage parlor might make sense because of a similar customer base. Conversely, if you’re opening a bar franchise, being in the vicinity of a child care facility won’t be a good move.
  • In the same vein, if you decide to locate in a shopping plaza is there an anchor store? An anchor store is a big retailer like a Walmart, Target, Barnes ‘N Noble, Kohl’s, or a grocery store. While these places bring in customers, for other businesses around like your franchise they can also monopolize parking and make it harder for your customers to visit you. Also, if you become too dependent on the pull these “Big Box” stores have, you could find yourself scrambling for customers if they move.
  • Is this location financially feasible? Real estate is often the most expensive part of opening a franchise, but the right spot is worth it. If leasing, don’t forget to factor into your budget that rental rates increase periodically.


The Importance of Marketing to Retail Franchises

Where a franchise is situated certainly is important. But did you know, location falls under the broader concept of how customers are identified and courted? In other words: how they are being marketed to.


Marketing is More Than Creating Awareness


Marketing is what differentiates similar companies from one another. It’s the foundation for a franchise’s service mantra, pricing (is the brand positioned as economical or luxury?), décor (what is the feel the founders want consumers to sense when they see the brand’s logo or promotional materials?), and so on.


When researching the franchise and speaking to their potential franchisor, new franchisees should look for clues that the franchisor continuously works at pinpointing its market and developing the best ways to reach them. And for franchisors, marketing knowledge is the key to enticing discerning franchisees.


Simply stated, franchise candidates buy marketing,” wrote Jim Bender, president and owner of Franchise System Builders, in one of his Franchise Update magazine 2015 editorials. “They may say they buy [a franchisor’s] success rate, AUV (average unit volume), gross margin contribution, or lifestyle proposition. But they are really saying is, ‘I buy [a franchise’s] marketing expertise that generates the AUV, reduces the ramp-up curve, and ultimately provides the lifestyle I seek.”


Retail Franchise Industry Report 2015


“Nothing is more exciting to a group of franchise candidates than market research with intimate knowledge of the behavior of their future customers…Nothing builds more leadership credits for the franchisor than raw marketing knowledge. Candidates can buy equipment and inventory and rent real property, but success is not made of equipment alone…To sell the inventory they now own, they need the market research, test marketing, marketing agencies, and the years of experience the franchise company can provide.”


Buying a Retail 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 2015. Please review the FDD of a franchise for all of the provisions and fees related to investing in that particular franchise.


Below is an overview of a few topics to consider when buying a personnel franchise, including a summary of costs.


When it comes to investing in a franchise finding the right concept is dependent on not only the type of the franchise, but also the money needed. Below we’ve compiled the initial investment and royalty payments listed in the 2015 FDDs for the start-up of 10 retail franchises (no conversions). While these figures only give a small glimpse into what the costs are for owning a franchise, they are a good starting point for thinking about your budget.


The amount necessary to open a franchise varies depending on the unique business system and execution requirements. The following charts demonstrate, by comparison, estimated initial investment ranges associated with opening one of the sample franchises presented.


 Retail Franchise Industry Initial Investment Range Estimates

(a)     Does not include real estate and equipment. 7-Eleven franchisees do not buy the land, building or equipment where the store is located. The franchisor obtains the land, building, equipment, leasehold improvements, fixtures, furnishings and decorating costs at its expense, and franchisees must lease it from the franchisor under the franchise agreement. The monthly payment is covered within the royalty fee.

(b) Doesn't include real estate costs for lease or purchase.



Initial costs associated with opening a franchise include the franchise fee, land and building costs, training expenses (such as travel and living expenses, not the actual training courses), grand opening advertising and marketing costs, and more.


Did you notice that a few franchises didn’t estimate a real estate cost? That is because real property costs are variable from place to place. The costs are also dependent upon the rates individual franchisees can obtain for loans and price negotiated with lessors and/or sellers.


Don’t forget about the ongoing fees when setting your franchise budget. Throughout the length of the agreement, there are costs for being a part of the franchisor’s business system. Common ongoing fees include royalty fees, which are assessed for the continued use of the franchisor’s trademarks and patented processes. Other regular ongoing fees include advertising (they also can be referred to as marketing or brand development costs), software and technology costs.





Variable percentage of gross profit paid monthly.

Ace Hardware

N/A; In the United States, Ace operates as a retailer-owned cooperative. This membership entitles the franchisee to purchase merchandise and services from Ace. In this arrangement, varying fees must be paid to Ace regularly, including maintaining an annual purchase level of goods after a year of operation.

Apricot Lane Boutique

5.5% of gross revenues.

Cartridge World

6% of gross revenue plus 6% of gross profit (not gross revenue) on ancillary items, which includes computer hardware (including printers) and software that are not identified by any mark of the franchisor, as it designates from time to time.


6% of gross revenues up to $540,000 and 3% of gross revenues from $540,001 to $1,000,000.

Fast Fix

6% of monthly gross sales.


4.5% of total gross revenues

Relax the Back

For new franchisees, the continuing royalty will vary between 2% and 5% during years 1 and 2, and will be 5% during year 3 and beyond.

Snap-on Tools

$110 monthly

The Athlete's Foot

5% of net sales for the preceding calendar month.


In addition to regularly assessed fees, there are other fees are charged on an “as needed” basis such as audit fees, or costs 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 retail franchises, please see our listing of retail franchise opportunities.

Retail Business Opportunities...

America's Mattress Become a part of a $14.2 billion bedding industry with America's Mattress. Read More Min. Cash Required:

Mattress By Appointment Earn potentially $75,000-$150,000 per year working 25-35 hours per week. Mattress By Appointment will show you how! Read More Min. Cash Required:

Ace Hardware Corporation Ace is your ultimate power tool for successful business ownership! Check out the 7 reasons why this is the right... Read More Min. Cash Required:

Grocery Outlet Join the largest retail grocery remarketer in the U.S., selling brand-name products at bargain prices! Read More Min. Cash Required:

PerfectDreamer SleepShop Get a turnkey PerfectDreamer SleepShop in your area! Rest easy with over 33 years of experience! Read More Min. Cash Required:

Speaking Roses Be the first in your market to print on live, fresh flowers! Read More Min. Cash Required:

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