When it comes to retail entrepreneurship, there are several ways to open a business. You can launch your own sole proprietorship—whether it’s an ecommerce shop or brick-and-mortar store—and have complete independence but little support.
Or you can take advantage of one of dozens of franchise opportunities and have the power of an existing brand behind you.
Retail franchising is the method of opening a single store under the umbrella of an established name, branding, trademark, and product line. Franchise businesses are all around us and are often the brands we shop at and trust the most.
Compared to starting a sole proprietorship, opening a franchise comes with a different set of rules, expectations, and skills. In this guide, we’ll explain how retail franchises work, explore some pros and cons of operating this type of retail business, and provide some basic steps to getting started.
What is retail franchising?
Retail franchising is a model for expanding a business and distributing goods and services through a licensing relationship.
A franchisee (you, or the location owner) pays an initial fee and ongoing royalties to a franchisor (the brand or “corporate”) to use an existing company’s trademark, logo, and system of business, as well as the right to sell its products and have constant support from the franchisor.
In terms of entrepreneurship, franchising is the opportunity to work for yourself but not by yourself.
There are two main forms of franchising:
- Product and trade name franchising, where a franchisor sells or licenses the right to use a particular company name or trademark
- Business format franchising, where the franchisor provides a full range of services and support to the franchisee such as business processes, inventory ordering, and more
Often times, franchise businesses use a hybrid model incorporating both these forms.
The benefits of starting a franchise
Launching a retail business is tough and not for the faint of heart. Retail entrepreneurs must come up with the business idea, write the business plan, secure investors, source products, find a location, hire employees and spread the word through marketing, advertising, and social media.
There’s also a chance that a single misstep could cause the entire business to fail. Starting a business always involves some level of risk.
This isn’t to say that opening a franchise doesn’t come with its own risks, but one of the benefits of opening a franchise rather than a sole proprietorship is the higher chance of success. According to Franchising.com, here are some other benefits to opening a retail franchise:
Open the business faster
Launching a franchise is much faster than opening a sole proprietorship business. According to All Business, new franchises take around two and 12 months to launch, depending on the type of business.
Sole proprietorship businesses, however, can take anywhere from a couple of months to well over a year. An article in the Houston Chronicle advises that business owners should start planning no less than a year before their proposed launch date.
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With franchises, a business model is already in place and franchisors likely have their own guides for franchisees to follow. If you’re looking to open a business quickly, a franchise could be the way to go.
Receive training and team support
The franchisee and the employees they hire can rely on tried-and-true training and ongoing support.
Franchising is a team effort, so franchisors know that in order for their company and brand to maintain a solid reputation, it’s important to ensure that all of their franchise stores operate according to a certain standard. Most franchisors have field support representatives that help franchisees obtain training beyond operational, technical, and financial aspects to run the business.
This might include how to hire and manage employees as well as how to build community relationships. Don’t be shy about asking for help from your franchisor. They’re there to not only help you fix rookie mistakes, but to avoid them all together.
After all, your success is their success.
Receive assistance when scouting locations
Scouting out a retail location can be one of the trickiest parts of retail. You want an area that offers some healthy competition but isn’t over-saturated with similar businesses.
You may need to take into consideration how much pedestrian traffic a neighborhood attracts, and perhaps the biggest concern is what the rent costs are in a given area.
Often, established franchises will provide assistance in finding an optimal site. After all, they’ve already done their research and have a proven track record of what areas work best for their business.
Gain brand recognition
You launch a new retail business and know you offer a great product, but how does the public know? It takes years for entrepreneurs to build up a reputation and a solid customer base, but a franchise business already has one. Opening a franchise comes with the selling power of a known brand.
So, when potential customers see your new franchise location, they already have an awareness of the brand and products and know exactly what to expect.
Benefit from group purchasing power
Another benefit that might not be as obvious to business owners is the lower costs associated with group purchasing.
Franchises require all of their stores to sell the same or similar products, and the only way for them to guarantee that is to enable all of their franchisees to purchase from the same lot.
Group purchasing power can drastically reduce warehouse costs because your company is able to buy 100,000 units rather than 100. For example, the average coffee shop owner might purchase coffee cups for around .40 per unit, while a coffee shop that’s part of a franchise may source the same coffee cup for as low as .10 per unit thanks to group purchasing power.
Nearly all major franchises, including McDonalds, Dunkin’ Donuts, and Dickey’s Barbecue Pit, offer their franchisees group purchasing benefits.
Benefit from regional and national advertising
Small retail businesses often gain customers through word of mouth, social media, perhaps with the help of bloggers and social influencers, and if they can afford it, advertisements in local newspapers and magazines.
Getting the word out about your business can be costly, but being part of a franchise business means benefiting from regional and national advertising campaigns.
On the local level, franchisors might help develop local marketing programs through a cooperative marketing fund, where franchisees can “buy in” using their own gross income.
This might include sales and deals that are only available at stores within an area, or special events that take place at specific locations. While national advertising increases brand awareness, local marketing drives customers directly to your business.
Receive peer support
Perhaps the biggest benefit to opening a franchise is having a network of fellow franchisees that can provide advice and moral support. Because you’re all operating under the same brand, the success of one franchisee helps benefit the rest of its peers. You’ll know each other through the company network, maybe see each other at annual conference, and won’t feel as much like you’re doing it alone.
For franchisors, the list of benefits may not be as long, but franchising your business does come with some rewards. For one, franchising makes expanding your business and brand much faster than doing it alone. You’re using other people’s money, time, and effort to expand more rapidly, growing brand recognition, revenue, and the number of products you can sell. Also, startup fees and ongoing royalties help fund headquarter costs, the hiring and training of new employees, and large-scale advertising campaigns.
How to get started with retail franchising
Similar to starting any retail business, the first thing is thinking about what type of company you want to own. Is it a fast-food operation or a small dry cleaning shop? Do you want to sell clothing and shoes, or perhaps your expertise is in furniture and appliances? Realizing where your talents, interests, and skills lie is the first item to consider.
You’ll also want to carefully study what types of businesses are in demand in the area where you reside. Sure, you might want to open a frozen yogurt shop, but if it’s cold and rainy for most of the year, a soup or hot sandwich business might be smarter.
Cost is perhaps the most vital item to think about. How much do you really have to invest? Is it $5,000, $50,000, or $500,000? Depending on the size and scope of the established retail franchise, you may not be able to afford the initial franchising costs of licensing certain brands.
Other costs that are important to consider include the following:
- Legal fees for going over the business paperwork and actually buying a licensed brand
- Building out a store, including furniture, lighting, electricity, cash registers, phone and Internet costs, insurance, and equipment
- Purchasing your inventory
- Hiring employees
- Paying for rent
- Outdoor and indoor store signage
A number of websites offer databases of companies that offer franchise opportunities. This is a good place to get started if you’re just starting to brainstorm the type of business you want to open.
Many of the websites offer critical information such as the required financial investment and basic operating costs, as well as the size of the franchise, its history, and what category of retail it fits into.
Here are some websites to get you started on your search:
- Be the Boss
- Canada Franchise Opportunities
- Look for a Franchise
- Canada Franchise Association
You can also check out individual websites of large corporations that have franchises and read their franchise inquiry or FAQ pages to help you gain insight into the company. Connecting with your local group of entrepreneurs and talking to business owners that have taken the franchising route is also helpful.
Is retail franchising right for you?
Retail franchising provides entrepreneurs the experience of owning a business without some of the mistakes startups often make. By using a proven system of operations, your business is much more established right off the bat and you can rely on support and advice from the franchisor and other franchisees to help you through tough times.
For those who enjoy the independence of entrepreneurship but thrive on being a team player, retail franchising can be a truly rewarding experience.
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Retail franchising FAQ
How does retail franchising work?
What are the types of retail franchising?
- Single-Unit Franchising: This type of franchising involves granting a single franchisee the exclusive right to operate one unit of a business in a specific geographical area.
- Multi-Unit Franchising: This type of franchising grants a single franchisee the exclusive right to operate multiple units of a business in a specific geographical area.
- Area Development Franchising: This type of franchising grants a single franchisee the exclusive right to develop and operate a specified number of units of a business in a specified geographic area over a period of time.
- Master Franchising: This type of franchising grants a single franchisee the exclusive right to develop and operate a specified number of units of a business in multiple geographic areas.
- Conversion Franchising: This type of franchising grants a single franchisee the right to convert existing businesses into franchise operations.