Retail Franchise Industry Overview
The formal definition of retail is “the sale of goods to the public in relatively small quantities for use or consumption rather than for resale.” By that definition nearly anything can be considered a retail franchise, even though most tend to think of retail stores (and online outlets) in terms of clothing, consumer products, and the like.
Within franchising specifically, IHS Economics includes the following sectors in its retail products and services category according to its Franchise Business Outlook:
- Furniture and home furnishings stores
- Electronics and appliance stores
- Building-material and garden-equipment and supplies dealers
- Health and personal-care stores
- Clothing and general merchandise stores
- Florists and gift stores
- Consumer-goods rentals
- Photographic services
- Book and music stores
Also a part of franchise retailing, per IHS Economics, are selected food service providers such as:
- Food and beverage stores
- Convenience stores
- Food-service contractors
- Caterers
- Retail bakeries
- Beer, wine, and liquor stores
- Gas stations with convenience stores
One area of retail to keep an eye on in the near future is cannabis and CBD. “As we approach the realization of [widespread legalization and normalization of use], I anticipate the introduction of a plethora of cannabis and hemp related ancillary businesses and products we have yet to even imagine. Innovation in ways to consume has exploded,” says Lazydaze Counterculture founder Hans Enriquez.
Retail Franchise Industry Outlook
According to the 2021 Economic Outlook for Franchising, the number of retail food, products & services franchise establishments actually edged upward in 2020 by an estimated 1.2%, though overall employment did take an estimated 4.5% hit. The growth rate for the industry is expected to re-establish a growth trajectory similar to before the pandemic that will continue through 2021 and beyond.
Per the Outlook:
<blockquote>This growth is driven by a shift from spending in restaurants to spending in grocery stores. This trend began even before the pandemic as consumer nutrition concerns evolved.
Retail has also improved in the automotive sector and health and personal care stores. Home improvement, furnishing, and mass merchants also benefited from consumer behavior changes and being categorized as essential services.
Also aiding retail’s recovery was a surge in US online retail sales, [which] increased by more than 36% during the pandemic, accounting for 18.4% of total retail sales, jumping from 13.8% in 2019.</blockquote>
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.
Most people consider marketing the actions that create awareness of a brand and give potential customers reasons to try one company over another. But what is less considered is: Marketing informs everything that makes a franchise brand unique.
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 a 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,” Jim Bender, president and owner of Franchise System Builders, once wrote in a Franchise Update magazine editorial. “They may say they buy [a franchisor’s] success rate, AUV (average unit volume), gross margin contribution, or lifestyle proposition. But what 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.”
“Nothing is more exciting to a group of franchise candidates than market research with intimate knowledge of the behavior of their future customers,” Bender continued. “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.”
Initial Investment and Opening Costs for Retail Franchises
The opening costs for prospective retail franchisees can depend on many factors, including but not limited to: the business system and execution requirements, the size of the territory the franchisee desires, whether the franchisee is opening a physical location and more.
Franchisors offer estimates in their Franchise Disclosure Document (FDD) based upon their experience establishing, and in some cases operating, units. However, prospective franchisees should keep in mind these estimates are just that—an estimate. Prospective franchisees should review the figures presented with a business advisor, taking into consideration their unique circumstances, before making the decision to enter into a franchise agreement.
Benefits of Being a Retail Franchisee
The benefits of owning a franchise can be numerous vs. independent operation. Here are a few of the top benefits for those who decide to own a retail franchise instead of going at it alone.
Name Recognition: When it comes to finding a service provider, people tend to deal with someone they have a familiarity with. Franchises tend to have established brand names that, in many instances, have been around for years. If you buy a retail franchise, you will be given the right to associate your business with that franchise company's name, trademarks, and logo.
Advertising: Getting your name out there can be expensive and sometimes it can be hard to know where to spend your advertising and marketing budget. With a franchise, national advertising is typically done by the franchisor. In addition, though in general local advertising is up to you, you’ll have guidelines in place.
Training & Support: A popular feature with all franchises is the training provided. While in business, franchisees will have access to the franchisor’s operations manual, computer systems, and other items designed to help you successfully manage your retail franchise. Remember the franchisor can’t be successful without you!
You can also check out many more franchises here on Franchise Direct, such as: