Retail: A Recipe for Success
This article appears in the Jan/Feb 2015 issue of Business Franchise Australia & New Zealand
As we enter 2015 and take time to reflect upon 2014 - the year that was - retailers are still in the midst of what is for many, the busiest time of the year.
As the New Year starts we often think about New Year’s resolutions and exciting new challenges to take on in the next 12 months. For some of you, this may include deciding whether to take the plunge and finally open your own retail business or franchise in 2015.
While the number of business format franchisors trading in Australia has fallen since 2012, the country’s franchise sector is in better shape than it was two years ago, according to the 2014 Franchising Australia Report.
The biennial survey, carried out by Griffith University’s Asia Pacific Centre for Franchising Excellence in association with the Franchising Council of Australia, shows the industry has experienced net growth in franchise units and sales turnover, particularly in retail franchises, during the past two years. Sale turnover of the entire franchising sector is estimated at a whopping $144 billion, so it’s no surprise that many Australians are interested in opening a retail franchise operation of their own in the near future.
There are a number of perks that joining a retail franchise can offer, including the obvious advantage that comes with having a pool of people who are already interested in what you’re selling. Success is often dependent on how many people recognise your brand, so it’s certainly nice to know that you won’t have to worry about gaining a following overall, just in your specific location. You’ll also have assistance with site development, management training, access to market research and operating manuals and even support with advertising and marketing.
If you’re still sitting on the fence – now is the time to go out and source some sound advice from people who have been in your shoes and found a recipe for success.
Do your research
First things first – assess your own reasons for wanting to own a business and assess the lifestyle and income implications of owning and operating a business. If you’re ready to commit 100 per cent to making a retail franchise work, you can then decide what type of retail franchise business you’re looking for. If you haven’t worked in retail before it’s probably a good idea to obtain some retail experience before moving any further!
Once you have defined the area that you want to operate in, go and talk to people who own one or more of those franchise businesses and find out the good, the bad and the ugly. I cannot stress this enough – the most valuable source of information on any franchise system is its existing franchisees. These are the people who are living the life of a franchisee every day, and they can tell you the reality of what that life will be like for you if you decide to join up yourself. Though you might come across a few characters that are less than helpful with your investigation, the majority of people are usually quite willing to take the time to talk with you. After all, they have all been in your exact position at some point.
Consider financial implications
Ensure you have adequate borrowing capacity, including working capital, to successfully establish this type of business. Buying a retail franchise may reduce your investment risk by enabling you to associate with an established company, but the franchise fee can also be substantial. You also need to look at what the set up costs are and consider whether you’ll be taking over an existing retail franchise or going into a completely new franchise business.Talk with your local bank and determine what kind of loan you’re eligible for. Always remember that the worst way to operate a business is with a limited cash flow.
You’ll also need to determine whether the head franchise operator holds the head lease, or will it be you, as the franchisee, that is responsible for the lease? If you hold responsibility, you’ll probably need to give a bank guarantee for at least three months’ rent.
Also take into account the oncost to the business. If the franchise is a ‘new business’ then it may take 12 to 18 months before the business can return a profit - can you afford to wait that long and do you have the cash reserves to last until the business starts to make a profit?
Will the business have extreme cash flows?
Some retail businesses depend on certain seasons for cash flow, for example, a seaside resort will be extremely profitable during summer but struggle to attract consistent customers over winter. Any business that is weather driven or otherwise affected by extreme cash flows will need to take the above ideas into consideration.
It’s also a no-brainer to sit down and talk with a finance advisor who understands retail. Work out a cash flow based on two or three scenarios, ensuring that you are able to operate the business successfully even if times are tough.
Roster staff effectively
If the franchise is operating seven days a week, you need to realise that you must pay penalty rates to your staff. If the business is a start up, maybe you as the owner need to work on weekends until you get your store up running at a profit. Perhaps consider whether you’re able to operate with junior staff on weekends to save costs.
Know the law
Be sure to receive legal and accounting advice from lawyers and accountants with retail franchise experience before making any final commitment. Make sure you also gain a sound understanding of things like consumer law and food health and safety – if you have no expertise then be sure to seek advice. Perhaps offer to assist in an existing franchise store during your investigation phase so that you can thoroughly understand the laws in which you are bound to.
Be prepared for early mornings and late nights
Lastly, if you think that you’re buying a lifestyle that will allow you to work whenever you want, think again. Often when people open a retail store they think that they will be able to have a lifestyle where they can just work a few hours each week. The harsh reality is completely different as many small business owners end up working 60 to 80 hours per week just to get their business up and running. Prepare to work hard in order to make your business a success, but be sure to stay positive. Follow your gut feeling (and proper research) and learn from any knockbacks along the way. At the end of the day, once you have the formula right then owning a retail franchise can be extremely rewarding.
While the retail industry is ever-changing, business owners that get the formula right not only enjoy a sense of career fulfilment but also security. Take Christmas trade for example – during the run up to Christmas Day, almost every retailer will make the most of increased foot and web traffic and, in turn, improved sales. The ARA and research partner Roy Morgan Research recently revealed that $45 billion was expected to be spent in retail stores from mid-November to Christmas Eve. After what has been a tough 2014 in business, this predicted growth of 4.3 per cent is great news for the retail industry.
Looking at 2014’s post-Christmas retail sales, the ARA forecasted another impressive figure of $16.1 billion expected to be spent in retail stores from 26 December 2014 to 15 January 2015, representing a 3.6 per cent increase year on year. Retail sales are increasing year on year which is great news for anyone looking to get in on the action.
Australia’s retail industry is one of the most exciting, innovative and challenging industries out there. If you’re ready to take a leap of faith and open your own retail franchise, 2015 might just be the year you’ve been waiting for.
Russell Zimmerman was appointed as the Executive Director of the Australian Retailers Association (ARA) in 2009. As a natural extension motivated from thirty years of retailing, Russell has continued to foster and engage those around him to raise their potential to achieve and nurture future leaders. With Russell’s stewardship, the ARA has continued to build upon its credibility in the business world.
Since 1903, the ARA has been the peak industry body representing Australia’s $265 billion retail sector, which employs over 1.2 million people. The ARA ensures retail success by informing, protecting, advocating, educating and saving money for its 5,000 independent and national retail members throughout Australia.
P: 1300 368 041