Carnage in Retail But There’s Light at the End of the Tunnel
The new normal for retail
Retail businesses across Australia and New Zealand are facing a ‘new normal’ following COVID-19 shutdowns, and the economic impacts of this. Despite the carnage this has caused the retail environment in 2020, there is light at the end of the tunnel.
In CBD markets like Perth, major retailers are saying that they are seeing business return to 70 per cent of sales and they expect this level of activity to remain for the next several years. This gives an indication of how other CBD markets may fare as they recover into a new normal.
Many retail sectors are in fact booming during this time as consumer demand shifts along with market conditions. Retail sectors such as fitness products, homewares and groceries have performed extremely well as people look towards improving their health and home lives while they are unable to spend on things such as travel and experiences
Franchise enquiries boom
Franchise businesses have increased in popularity amidst this pivotal shift in the economy, with a wave of people looking towards starting businesses that fit with a post-COVID-19 lifestyle more locally focused for work and leisure.
At the recent Franchise Open Series Forum, franchisors confirmed they are seeing dramatically increased levels of enquiry. In fact, it’s been described as the largest entrepreneurial boom since the Menzies era. SEEK Business data reports that on top of record new business enquiries in May 2020, June was significantly bigger, with visits increasing by 21 per cent and enquiries up by 45 per cent year-on-year respectively. Franchising is a significant driver of this activity.
How the shift towards remote working is impacting retail
The new environment we find ourselves in has sparked a huge shift towards working remotely, as well as starting businesses and exploring franchise opportunities. People are on the move, with regional and country towns experiencing high real estate enquiries and purchases as it becomes more widely acceptable to work from home due to the practice of this during COVID-19 shutdowns. Many people may not need to be in CBDs for work anymore and are taking advantage of the lifestyle and location opportunities as a result.
For the foreseeable future, we expect a re-emergence of the local shopping strip and away from bigger shopping centres or CBD malls as shoppers look to purchase locally. In addition to remote working, this could be due to many factors, such as people wanting to physically travel less for safety or to support their local retailers.
Data will be needed to support decisions
To understand these new ways of thinking, spending and consumer behaviours, and to support retailers’ decisions, data will be needed.
Landlords will also need data into individual retailers and their performance to deliver customers what they want and need. For example, social media rankings could be considered as part of an insight-driven data set for a shopping centre to select appropriate retail tenants. In the example of a hairdresser, it should be the one that customers want to go to rather than one with low rankings as it will drive people to the next place.
BDC Partners has a partnership with Australia’s largest property data analytics company to develop and gain insight into these demographics and psychographics to support our retail tenant and landlord customers in planning and making decisions. We are working with our clients to create an ideal retail eco-system, to put in place the right retailers in the right locations for customers so that they can survive and thrive now and years down the track.
Obtaining fuss-free finance is key for franchise success
The critical step for franchisors will be getting lender ready with the banks and ensuring that when they have strong franchise interest, they are able to get finance for the business in a smooth, no-fuss way. Three of the biggest ‘enterprise-side’ issues the franchise sector faces right now are: finding the right retail location and service areas, recruiting new knowledgeable and enterprising franchisees, and securing affordable finance for the business. Throughout COVID-19 many franchisors have been paralysed, with little extra funds for development teams or marketing money to find potential franchisees.
BDC Partners is working to solve all these issues, offering the only service of its kind in the market to complete the missing integrated link between franchisors, franchisees, landlords and lenders to build profitability and longevity. Our services are all underpinned by joint ventures with data-backed insight from location mapping software Gap Maps, Associated Projects shopfitters and Blue Rock accounting, finance, digital, insurance and legal firm.
Reducing risk for the franchise industry
With the current entrepreneurial boom happening now it is critical we are more diligent with our selection of potential franchisees and franchisors to reduce risk. There are some people that are just not suited to be one or the other, and this may impact the industry negatively if not addressed. With a multitude of Australians out there looking for opportunities, there is an increased need to evaluate and screen prior to appointing franchisees and franchisors to ensure the right fit.
To address this issue, BDC Partners has secured exclusive rights to a new psychological profiling tool called Zorakle Profiles, a franchise-specific solutions provider offering customisable assessments for franchisors to select franchisees. Zorakle Profiles uses technology and scientific scoring methods to determine compatibility and predict performance. It reduces recruitment and support costs while increasing franchisee validation, which will be a huge step forward for the industry.
Positive outcomes for the retail industry
The increased demand for franchise businesses will create many positive outcomes, however as an industry, we also need to be diligent to ensure some franchisors don’t return to practices that are detrimental to the industry. Examples of the types of practices which could have a negative impact on franchisees include: keeping fit out contributions from landlords and not passing them onto the franchisee; keeping supplier rebates and not filtering these back to franchisees or the marketing fund; and lack of operational support for the franchise network.
There is a lot of opportunity for franchises right now. For this very reason, we need to ensure the rigour and processes we have for both sides of franchising around compliance, systems and representations are monitored and managed at a level never seen before.
Jon Sully is Partner and Founder of BDC Partners. As a former co-owner of the successful retail food chain Michel’s Patisserie, managing the expansion of the group franchise network to over 350 stores, Jon has unique retail experience from all sides of the industry. Over the past 30 years, Jon has continued to build vast knowledge across all aspects of retail, franchising and commercial property.
BDC Partners is a solution-driven disruptor created to support the Australian retail and franchise industry. BDC Partners works with retailers and franchisors on services, including finding the right retail property; franchise recruitment and development; location analysis; legal representation; risk management; finance options; shopfitting; accountancy; online and digital marketing strategy and implementation; and general advisory. Visit bdcpartners.com.au.