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Information on Retail Franchises

Information on Retail Franchises

Franchise Information

Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all of the provisions and fees related to investing in a specific franchise.


The qualifications needed for each franchise system vary by franchisor. Prospective franchisees considering the retail franchise industry need to assess their qualifications to see if they match up with those required in this field. Prospective franchisees also need to determine which franchise most closely resembles their business philosophy. Stay open-minded during the research process. A franchise can be the right one for you even when at first it didn’t seem to be.

In researching and evaluating potential franchises, there are several factors to consider. Below are some notes on the financial obligations that must be considered when investing in a retail franchise.

Initial Investment

Retail Franchise Industry Report-1


As illustrated above, the range of investment between franchises in the retail industry can range greatly depending on the retail system, building requirements, equipment needed, products sold, and several other factors. Below is a pie chart illustrating how the estimated initial investment breaks down for a Relax the Back franchise (amounts are averages based upon estimated figures provided in the franchisor’s FDD).

Retail Franchise Industry Report-1


As you can see there are many aspects of the investment in a franchise. Here’s some more background on some of the main parts of the initial investment:

Alternative Franchise Structure
The vast majority of franchises fall under the category of business format franchising where the franchisor licenses their brand to a franchisee for use, along with a predetermined way of conducting business, and the franchisee can expect a certain level (typically extensive) of business support from the franchisor. However, that’s not the only way a franchise relationship can be structured. For example, Ace Hardware operates as a retailer-owned cooperative. If the franchisee’s application for membership is approved, Ace will grant the franchisee membership in the cooperative based upon the franchisee’s purchase of shares of stock (similar to the payment of a franchise fee). This membership entitles the franchisee to purchase merchandise and services from Ace. The franchise structure has an impact on the franchisee’s ongoing relationship with Ace. With this structure, Ace does not charge the franchisee a typical royalty. Ace also doesn’t pre-set a franchise term for its members. Merle Norman Cosmetics is another franchise that has an alternative franchise structure with no defined initial franchise fee or royalty fee.
  • Franchise Fee: The notable cost that applies to most franchise businesses, but not to non-franchise businesses, is the franchise fee. This fee is at the heart of the franchise model, and helps the franchisor ensure that their business system will be executed as consistently as possible across all of their units. It is paid to the franchisor in exchange for the right to use the franchisor’s name, trademarks, service marks and other branding along with the franchisor’s business system. Normally the franchise fee is paid as a lump sum.
  • Real Estate or Vehicle: Though Relax the Back did include an estimate for real estate expenses, many Franchise Disclosure Documents do not specify real estate costs such as land/building purchase or leasing/rent costs because of the variability from market to market. In addition, some franchise systems are mobile opportunities where a vehicle is necessary instead or a work-from-home opportunity where a purchase of real estate wouldn’t be required.
  • Equipment and Inventory: These are variable costs dependent on items needed to perform the tasks required including merchandise, computer systems, and other machinery or technology. Some franchisors require that a franchisee purchases certain products or services either from the franchisor or from affiliates.
  • Training Related Expenses: While the initial franchise fee usually covers the actual training session(s), expenses related to attending the training program usually need to be covered by the franchisee. These costs can include airfare, hotel, food and other living expenses for the duration of the training session(s).
  • Professional Fees: Expenses paid to various service providers to ensure the franchised business is in compliance with the regulations pertaining to where the business is operating. These costs can include legal services, accounting services, amount paid for business licenses, etc.
  • Additional Funds/Working Capital: An important item to consider when opening a franchise, or any business, is the amount of money needed to cover costs until the business breaks even (begins to turn a profit). There’s no set timetable for this point. Some companies will break even in a matter of months. Some might take closer to a year, possibly a bit longer. The timetable varies from franchisee to franchisee depending on multiple factors, including the local market for the franchised product/service.
  • Advertising/Marketing: The costs associated with promoting the franchised business at the start of its operation such as signage and media buys.


Ongoing Fees

The length of the franchise agreement for the highlighted franchises ranges from 10 years to 35 years with 10 years being the most common. During the agreement, franchisees will be responsible for costs that must be paid regularly during that time period. These costs include items such as royalty fees and marketing costs, and are predominately assessed for the franchisee to continue reaping the benefits that come with being a part of the franchisor’s business system. Although fees like these are common, the amount and way they are assessed aren’t universal. The following chart illustrates this by showcasing the royalty fee for selected franchises.

Franchise Royalty


variable percentage of gross profit

Ace Hardware - Leased Premises


Ace Hardware - New Construction


Ace Hardware - Conversion


Apricot Lane Boutique

5.5% of gross revenues

Dunkin' Donuts - Freestanding Unit

5.9% of gross sales

Dunkin' Donuts - Shopping Center/Storefront Unit

5.9% of gross sales

Dunkin' Donuts - Gas & Convenience Unit

5.9% of gross sales

Dunkin' Donuts - Alternative Point of Distribution (APUD) Unit

5.9% of gross sales

Edible Arrangements

greater of 5% of weekly gross sales or $200

Fast Fix - Kiosk

6% of monthly gross sales

Fast Fix - In-line Store

6% of monthly gross sales

Merle Norman - Regional Mall Location


Merle Norman - Non Mall Location (New Design)


Merle Norman - Non Mall Location (E Design)



4.5% of gross revenues for 1st 2 stores (3.5% thereafter)

Petland - Conversion of Existing Retail Store

4.5% of gross revenues for 1st 2 stores (3.5% thereafter)

Planet Beach Contempo Spa

6% of gross revenue

Relax the Back

between 2% and 5% of adjusted gross sales


6% of total gross sales

Snap-on Tools - Standard

$102 monthly

Snap-on Tools - Gateway

$102 monthly

The Athlete's Foot

5% of net sales

The Diet Center

$950 monthly

The UPS Store

5% of STR (gross sales plus gross commissions, less allowable exclusions)


Additional ongoing fees that are assessed regularly include expenses for technology fees to cover items like server hosting, internet access, etc. Select fees are assessed on an “as needed” basis such as audit fees or costs for additional training.

All prospective franchisees should do their research, carefully review a franchisor’s FDD, and ask questions of the franchisor and current franchisees for more detailed information on all systems, procedures and costs involved before in investing in that franchise.

If you’re looking for a franchise within an established industry, a retail franchise may be what you’re looking for. With time, energy, patience and hard work, you can achieve the business goals you desire while developing relationships with employees, customers and others in your community. Browse our listings, and find the retail franchise system that best matches your vision for business ownership.

Franchise Direct’s Disclaimer


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