Specialty Retail Trends in Franchising
Fitness, healthy food and value-oriented concepts drive baby boomers and millennials alike to shopping centers across the country.
The numbers speak for themselves. According to the International Franchise Association, franchises will produce $890 billion of economic output in 2015, with 8.9 million jobs. They are also on track to create jobs at a faster rate than other enterprises. There are plenty of good reasons why franchises make for successful businesses. Greg Mohr, a franchising “maven” at Mohr Franchise Consulting, points out that franchises’ instant credibility through brand recognition and a set-and-proven business plan and marketing model are invaluable assets that can be relied on to spur sales.
What’s more, franchises can form the backbone of specialty retail, creating a solid and reliable base of merchants in a shopping center. “Shopping centers love franchises,” says Joe Mathews, CEO of Franchise Performance Group, a franchise consultancy based in Nashville, Tennessee, “first of all you have an owner, not a manager, close to the ground. We have skin in the game,” he says. “Franchises have deeper pockets and perform at a much higher level—and landlords love the consistent rent payments. They also appreciate that the franchisee has invested thousands of hours in making the business work, you get a better level of execution for that kind of commitment,” Mathews adds.
“As shopping centers are increasingly looking to recreate Main Street, franchises are a perfect fit,” Mathews says. “They’re street players, trained to win the war one neighborhood at a time. Franchises have the best of both worlds: national resources and local execution.”
Equally attractive for shopping centers is the ability for franchises to sign-on multiple locations at a time. “Franchising is moving in a direction that is favoring landlords. Smart landlords look at franchisees as strategic partners. They look at their properties six months to a year in advance and work with high-quality franchises as tenants that can meet their budget forecasts and requirements,” Mathews says.
So what’s trending in franchising? Across the industry, there are subtle retail shifts that affect franchises as well. While a few of these franchise shifts might not have a direct bearing on shopping centers, many do and it’s worth taking the pulse of this increasingly important segment of
Working the demographics
The Pew Research Center forecasts a projected 74.9 million baby boomers (ages 51 to 69) for 2015. The aging boomers population has brought with it a slew of associated services. In-home healthcare has consistently been rated as one of the top franchise segments to get into, with companies like Right
at Home and Synergy HomeCare leading the way. Taking that concept a bit further are franchises such as Live 2 B Healthy, targeted at fitness for seniors, says John Francis, franchise industry expert, consultant and keynote speaker. “We have seen healthcare for seniors for a while now but in keeping with larger market trends toward fitness, we are now seeing a focus on fitness for seniors with workouts just for them,” Francis says. “It’s the market that’s driving that ship.”
While franchises targeted at seniors might not readily locate in shopping centers, those aimed squarely at that other booming demographic, millennials, just might be. In fact, in 2015, millennials (ages 18 to 34) are expected to reach 75.3 million, outnumbering boomers. Francis says that franchises that focus on green living such as the use of solar power or even consignment shops are a good bet for this demographic category. Nick Neonakis agrees; the franchise consultant helps entrepreneurs forge meaningful connections with franchises, free of charge, and is author of the series, The Franchise MBA. “All kinds of franchise retail opportunities that are attractive to millennials will work in a shopping center, think about the franchise Clothes Mentor or even Once Upon a Child.” These build on resale as a clothes sales model and have enjoyed wide popularity. Neonakis stresses that while some franchises might be trending up or down depending on wider consumer preferences, staples that cater to basic human needs (oil changes, haircuts, etc.) will be evergreen. He points to franchises such as Paul Davis restoration services as an example.
While traditionally franchising has been an avenue for middle management to crack the glass ceiling, increasingly the business model is also welcoming younger millennials who are setting up investment partnerships along with their parents. “It started out as a parent-child business during recessionary times when some of the younger kids couldn’t find jobs so the parents helped them set up something different,” says Scott Lehr, Senior Vice President, U.S. & International Development, at the International Franchise Association, “and this segment continues to grow.”
Also seeing growth is the number of veterans who are becoming franchisees. The International Franchise Association, in fact, has a special initiative for veterans called VetFran and this has provided an added boost. “Who better than veterans to follow systems and rules that franchises set out,” Lehr says, adding that new immigrants are also a popular demographic that are investing heavily
Franchises themselves are doing some cross-border movement of their own. Francis observes that franchising has steadily been migrating across countries although a lack of uniform regulations across the board makes it a difficult proposition. He points out that American franchises looking to set up overseas need to be culturally sensitive to be successful. Lehr says that the Middle East and Asia are hot spots when it comes to franchise expansion. We’re also seeing franchises moving to the United States from abroad. Australia’s Bark Busters and Aussie Pet Mobile are two popular concepts gaining ground in the United States and internationally. Food concepts are particularly mobile with concepts from Korea and the Philippines (Potato Corner) making their mark in the United States.
Food, a popular mainstay of franchising has also seen new concepts swayed by consumer preferences toward healthy and fresh. Francis points out that as consumers have become increasingly health-conscious not just gym franchises but food offerings have evolved too. Vending machines offering salads and many other healthy options are showing up in franchising. Amsterdam Falafelshop and One Two Three Sushi, which is labeled as a Chipotle for sushi, are fast gaining traction.
More abstract trends such as the increased appeal of local, are also gaining a foothold in franchising. While it might seem difficult to translate an emphasis on local to a national franchise chain, Mathews says that franchises are nothing if not adaptable. He points out that national franchises are focusing on recreating regional architecture in local units to embrace the immediate neighborhood. It helps that franchise owners are also local, he adds. One of the many great things about franchising in today’s hyper-aware 24/7 media world is the democratization of the market. “Consumers crush the bad concepts pretty quickly, the market is not going to prop them up, so the ones that are left standing have something going for them,” Mathews says.
At the end of the day—trending or perennial—franchises are a cornerstone of retail. “They harness the entrepreneurial energy of the people who want to make it big and match it with tested strategies that work, through alignment of capital, ideas and talents,” Neonakis says, “it’s really a perfect match.”