Turnkey or Wholesale?
When Frank Friedland got into specialty retail more than 20 years ago, he bought a mainstream product—dinnerware—at wholesale, and set up a cart in his local mall, where he was the only common-area retailer. Mall management didn’t quite know what to make of Friedland, and worried that the mall’s department store anchors, which also sold dinnerware, might be upset about the competition down the corridor. But when Friedland’s sales took off and the anchors didn’t object, mall management knew it had a new source of revenue within the walls of its existing real estate.
Fast-forward two decades: Specialty retail is now a $10 billion industry, and a specialty-leasing program exists in just about every mall in the country. Unlike Friedland, today’s specialty retailers have almost endless choices of products to sell, choices that go far beyond the mainstream products that anchor stores offer. In fact, aspiring specialty retailers can now sell products specifically created for the specialty retail market, products not sold in stores, products designed to appeal to impulse-buy customers walking the mall. But that’s not all.
In addition to being able to buy a wide range of products at wholesale, today’s specialty retailers can buy into complete start-up packages, or turnkeys, offered by a variety of companies. Many of these are manufacturing or wholesaling companies with a background in specialty retail—in fact, a good number of them were started by specialty-retail pioneers like Frank Friedland, people with years, sometimes decades, of experience selling from carts and kiosks. For that reason, many turnkey packages designed for cart- and kiosk-based retailers are based on a business model that has already proven successful in the specialty retail market. And that’s why some turnkey packages include specific recommendations (sometimes even requirements) for a certain product mix or a detailed plan for visual merchandising. Sales and business-operations training, site-selection assistance and ongoing operations support are often part of turnkey packages, too, although the degree and depth of that assistance varies from company to company.
Retail entrepreneurs looking to buy into a turnkey start-up package will find they have a number of choices. Some turnkeys are designed for seasonal operations only, setting up to cash in on holiday or tourist seasons; others are designed for brisk, ongoing year-round sales.
For retailers who don’t want a turnkey package but prefer to simply buy product at wholesale, many companies with turnkeys will sell wholesale, as well. Which set-up is best for you? That depends on what your vision and goals are for your specialty retail business. Here’s a look at several companies, each offering a different approach.
Feel-good and flexible
Frank Friedland, now president of Heaven’s Therapy (Boca Raton, FL), says his company’s specialty retail programs are very flexible to meet the needs of the diverse retail entrepreneurs who want to sell the company’s health, beauty and pain-relief products. For Christmas 2005, the company expects to have 1,400 specialty retail licensees (as the program retailers are called) operating up from a little more than 700 last year. Those 1,400 locations will be a mix of retailers who purchased product at wholesale in both small and large quantities, others who bought into a turnkey concept cart, and still more who will operate an add-on cart that books Heaven’s Therapy in-home parties, the company’s new multi-level marketing division.
To support the company’s in-home parties licensees, Friedland says he developed probably one of the most sophisticated computer systems around to track party bookings, commissions and awards. He also developed a surveillance system for concept-cart licensees who want to use cameras and a Web connection (or audio recorder) to watch what’s happening at their locations when they’re elsewhere, a system that Friedland says helps profitability.
This specialty-retail veteran also found two more ways to make his business more lucrative for concept-cart operators: a money-back guarantee on all unsold merchandise of a concept cart’s initial order; and a rent-reduction program designed to lower licensees’ overhead costs. The rent-reduction program consists of a network of professionals such as chiropractors and attorneys who pay part of the retailers’ rent in exchange for referrals of the retailers’ customers who may need those professional services.
We now have a concept cart where people can make money all year ’round, Friedland says. We have the head massager [item], the hand massager, the massage oil, the pain cream. We’re bringing out the Dead Sea products and incense, and we’re going to start doing bookings of in-home parties from the cart. With a concept cart, somebody can have not just one product but… a whole concept to make it during the year, he says. We have different ways for them to do it—ways to pay for their rent, and ways for them to make money—so they can stay in [business] the whole year.
Fun and comfy
Retail entrepreneurs who want to operate only during the Christmas season might consider a turnkey program like Grandma Pants. The company is offering its licensed turnkey concept to individual entrepreneurs for the first time this Christmas.
Erik Anderson started Grandma Pants a few years ago, basing his design on the fleece pants his Grandma made for him to wear to hockey practice when he was a kid. Anderson, now company president, went commercial with Grandma Pants about two years ago, racking up sales of $30,000 at nine hockey tournaments from the start. Anderson says he thought this is good but it’s a tough business traveling from tournament to tournament, so he decided to put [the product] out into a retail setting so we could expand beyond hockey.
With the help of a childhood friend, Anderson opened three Grandma Pants kiosks in three Michigan malls last Christmas. When the kiosks rang up $120,000 in sales (half of which came from one kiosk in a somewhat upscale mall), Anderson realized he knew several key things about his new company and its product. First, he felt confident that he had a fun, eye-catching new product that could do well in the specialty retail market during the peak holiday buying season. Plus, thanks to testing three different malls, he had a better idea of who his best customers were. But most important, he knew he had a specialty-retail business model that could be standardized and duplicated across the country as a cart- or kiosk-based turnkey package.
For Christmas 2005 Anderson plans to have no company-owned retail locations. We’re now focusing on finding people who are looking for a new product, a new concept to make money for them in winter 2005. Then he’ll focus entirely on supplying those 20-30 expected turnkey licensees. We want to concentrate on giving the best opportunity we can to our cart and kiosk operators, he says. I want to do everything I can for the men and women who decide to do this, to make sure they’re as successful as possible. Their success means success for us…
The common-area location of carts and kiosks is everything, Anderson says. [Licensees] can be very profitable if they do it right. Each licensee receives a training book and personal assistance as needed, as well as all visual merchandising for product placement, appearance, etc. For site selection, he says while the company will advise on locations within the malls, it will be the licensee’s decision as to where they would like to be. But we can and will give demographic advice with the information we have based on the company’s kiosk sales experience last Christmas.
Anderson says he knows exactly what’s going to sell—the sizes, the colors, the options. All the questions that any [turnkey operator] would have—we’ll have answers for them.
Another company that’s relatively new to the kiosk retailing scene is Rocky Mountain Chocolate Factory (Durango, CO), which introduced its kiosk franchise in 2002. As of April 2005, 18 of the company’s 259 total US locations are kiosk-based franchisees. The company also has a mix of company-owned and francihised stores in 49 regional malls. Outside the US, another 30 stores dot Canada, and two are in the United Arab Emirates. All locations operate year-round. (Although the company operates seasonal locations, these are not counted in the company’s location tallies.) The company is publicly traded, listed on the NASDAQ since 1986 (symbol: RMCF).
According to Greg Pope, Sr. VP of franchise development, the company’s franchisees not only sell the company’s confections—there are more than 300 varieties and another 100 introduced for various holidays—they also sell an experience that captures your senses! he says. Whether you enter a Rocky Mountain Chocolate Factory store or one of our kiosks, we try to make it an interactive and memorable experience through our candy-making demonstrations, samples, and attractive displays. Approximately 40 percent of the products sold at Rocky Mountain Chocolate Factory locations are made on the premises. The company has its own confection-making processes that customers love to watch in action, and hundreds of proprietary recipes.
The concept works, and when a franchisee follows the business model we designed, it can be a very fun and profitable experience. says Pope. Our comprehensive training and support systems are designed to keep the franchisee on track with the program and follow the model.
Pope says it’s very important that franchisees understand the company’s Uniform Franchise Offering Circular, a document that all franchisors must provide potential franchisees. We have a strong track record, and our UFOC highlights our company’s background and strengths to help a potential franchisee make informed decisions, he says. After a potential franchisee reads the UFOC, they generally have many questions for us to help them through the process.
The company assists franchisees with site-selection, and requires trainees (and the store manager, where applicable) to complete a seven-day training program at corporate headquarters in Colorado. The training program covers a range of topics including inventory-management, cost-control, quality-control standards, and personnel management.
A field team works with franchisees to ensure that products are displayed, merchandised and sold according to company standards, and to give the support franchisees need during the start-up process. A support team provides ongoing support for operations, including plan-o-grams that show franchisees precisely how to display new products when they’re introduced. With this level of training and support, the company has found that owner-operated stores are the most successful, and therefore strongly urges franchisees to operate their locations first-hand for two years before turning it over to a manager.
Laughing all the way
A franchise that’s completely new to the US market is Laughing Out Loud (Vancouver, BC), which is now offering kiosk franchises beyond its Canadian market. Brothers Donny and Shawn Walia opened the first Laughing Out Loud T-shirt kiosk in Vancouver’s Pacific Centre Mall in February 2004, and have built the company to 13 locations serving every Canadian province.
Shawn, company president, and Donny, CEO, credit their success to two main factors: staying ahead of the trends, and standardizing their operations—and both factors benefit franchisees, they say. “If you look at every single kiosk we have, they all look the same,” says Shawn. The kiosks’ operations are so uniform that Shawn says he can train staff right over the phone. “I don’t have to think about this location is running this way, or that location is running that way. It’s all the same,” he says. “We know who is open [in what time zone] and who is closed, and how many units are sitting in each location—we have really tight control on our inventory and our staff, and that’s only because we standardize everything.”
The brothers agree that T-shirts—especially ones that are designed to make people laugh out loud with right-now pop-culture phrases or graphics—are a high impulse-purchase item, so it’s crucial these two entrepreneurs stay on top of the trends. If we see something that’s hot, if we know that something’s going to be good, we’ll sit down and design something, get it printed and have it on the kiosk right away. We don’t wait until the peak hits in a certain trend, Shawn says. Especially with T-shirts: in the kiosk industry you’ve got 30 seconds for a customer to purchase your item. Regardless of what it is—T-shirts, sunglasses, whatever—you really have to keep on top of things.
The Walias are hoping to have 40 US franchise locations with year-round operations by Christmas 2005. But they’ll sell wholesale to entrepreneurs who don’t want a franchise.
In this new age of specialty retail, it’s extremely hard to find a product that sells on a cart with good profit margins—but it’s sometimes more difficult to get a lease because the space is limited and vendors are multiplying fast, Shawn says. Often, first-time entrepreneurs have an easier time convincing a mall to give them a shot if they’re part of a larger Laughing Out Loud franchise operation. The scenario is this: franchising will happen if an individual can’t obtain the lease themselves, Shawn explains. Wholesaling will occur when someone has a location and just needs supplies. We will even franchise one of our existing locations to the right vendor. If someone does buy into a franchise, the company provides assistance with site selection, sales training, and visual merchandising guidelines.
Looking ahead, the Walias see plenty of opportunity in the US market for Laughing Out Loud franchisees. Right now we’re on the upward trend with this product, so we’re not catching it when it’s already reached its peak, Shawn says. We’re still building.
Home sweet home
Husband-and-wife team AJ and Meena Chad, creators of Spa at Home (Tallahassee, FL) and company VP and president, respectively, have had one foot in the specialty retail arena and another in wholesale since they started their proprietary line of candles more than seven years ago. Since then the company has expanded steadily, and now has three main product lines: home fragrancing (Everlasting Jelly Candles, wax candles, musical candles and oil lamps), home d√©cor (refillable lamp shades, Beaded at Home lamps, mosaic lamps, and lanterns), and bath (spa products, spa gift sets, Bath Buddies for kids, and Massage Soaps).
The company has approximately 2,000 wholesale accounts, its own company-owned retail locations used for product introduction and testing, and a 3-in-1 RMU [retail merchandising unit] program that consists of 102 owner-operator locations in the US, Canada and the UK. AJ Chad explains that the 3-in-1 program allows an operator to combine the best-selling products from three major categories on a cart and create a ‘Spa at Home’ concept of their own. Licensees can choose to operate year-round or seasonally.
Based on the personal preferences of an operator, the local demographics, and the lease… the operator has the flexibility to select the categories on which they want to focus, he says. The Chads recommend no more than two at a time. If the operator decides to do the home-fragrancing and bath categories, we help them select the best-selling products in each category based on past performance and local demographics. If a certain category slows in a mall, the operator can move to another category.
Getting into the RMU program without any license or franchise fee or agreement is simple, he says. But he points out that in order to personalize the Everlasting Jelly Candles and massage soaps (a new product) on the RMU, the owner-operator has to submit an application for approval, sign a confidentiality/license agreement, and agree to place a minimum starting order.
“We work very closely with Spa at Home licensees to help them at every step,” says Chad. “A licensee [using] the Spa at Home name enjoys the benefit of a brand name increasingly recognized nationwide. They also get additional special privileges-assistance in determining the right mall [and] the preferred location within a mall… visual merchandising assistance, marketing assistance, special pricing on selected merchandise, design assistance to meet local requirements, etc.,” he says.
For entrepreneurs who aren’t sure whether to buy into a turnkey or buy product at wholesale, Chad recommends starting with their turnkey concept. We recommend this to beginners, and even to seasoned owner-operators, he says. Our industry is very competitive, and trends change fast. The best recipe for success is to use our full program, where you get better prices and more advice. It is good protection for your investment.