Could franchising work for you?

July 28, 2014

For a brand not attracted by the possibility of third party investment, franchising offers a route to expansion which can result in rapid growth.

The starting point is for the brand to determine what exactly will be franchised and where.

Where the brand has its own UK stores it can be expected that the look and feel of these stores will be replicated throughout the franchise estate – both UK and overseas.  But, the brand should not stop there.  For example:

  • the location of franchised stores vis-à-vis other brands should be consistent with those which the brand owns;
  • visual merchandising in owned stores should be followed through with the franchised ones;
  • signage needs to be the same – variants (even allowing for overseas situations where there might otherwise be local requirements) will detract from the brand;
  • staff, shop floor clothes, and training need to be replicated.

Essentially, the intention is to develop and maintain brand integrity.

How is this to be done?  The two key components are a robust franchise agreement and a franchise manual that set out the requirements for franchisees.

The franchise agreement will need to address whether the franchisee is being granted:

  • a master franchise e.g. for France;
  • a multi store franchise for various French cities;
  • a single store franchise for, say, central Paris,

with appropriate provisions addressing:

  • whether a fee is to be paid on the grant of the franchise;
  • if the franchisee is to pay an annual fee;
  • the royalty (if any) on sales made by the franchisee;
  • the discount on the brand’s wholesale prices for the various styles in the franchisor’s collection for each season.

Further financial issues will affect the main purchases to be made each season by the franchisee and what is to happen in respect of unsold stock.  A franchisee that is able to offload such stock on to third parties who may then sell in the UK will harm the brand.

Franchising does have a cost.  The brand owner will benefit from extra wholesale sales and growth in brand recognition.  It may also mean forgoing the opportunity to establish its own retail premises in the relevant country until the franchise ends.

Day to day costs will also result from ensuring that the franchised operations are working properly.  Franchising is most definitely not a set up and forget operation.

Easy in but not so easy out?  To avoid being a lobster in a pot, it’s important to ensure that the franchise agreement also addresses the brand’s exit requirements.

But done well, franchising will rapidly grow the bottom line – not least as third parties looking at acquiring the brand or investing in a floatation will take a view as to the possibility of replacing the franchised estate with the brands own stores as Anya Hindmarch is on the brink of doing in Japan.

Everyone’s a winner.


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