BRANCHISING - THE MOST INNOVATIVE TRANSITION FOR THE RETAIL INDUSTRY
Retail sectorAuthor :
Martin Greenspon 
Martin Greenspon founded M-Four in 1981. His lifetime career has included the manufacturing sector as well as being a Director of one of Canada's leading investment firms. He can be reached at martin@mfourintl.com
Over the last two decades many retail chains have expanded both regionally and nationally at a rate that far exceeded their financial and managerial capabilities.
This situation was primarily engineered by many of the Canadian developers who planned and built new “Shopping Malls” and “Power Centers” nationwide.
Now, at a time of economic turbulence and business uncertainty, the costs of operating corporately owned retail units substantially decreases the bottom line (profitability).
As a result of these most unusual circumstances retailers across the nation are seriously concerned about their ongoing performance.
To cope with the dramatic changing times that retailers must now address, a methodically designed and most unique program has been developed, one that offers chain store operators a complete revitalization of their existing operations. It is referred to as "Branchising”
This creative approach for decentralizing existing retail chains is geared to the "complete conversion” of a single retail unit from a company owned and operated unit with a salaried manager to a Franchisee owned and operated unit.
The retail company now becomes the Franchisor where each retail unit is sold to an independent operator who then becomes the Franchisee of the Franchisor (the retail chain company).
The advantages of "Branchising” to the retail chain company are astonishing:
1. As each company unit is sold to a qualified Franchisee, the company recovers their costs for the build-out, inventory, equipment, and goodwill in the form of a "franchise-fee”
2. The Company transfers lease responsibility (covenant and all rental charges) to the newly appointed Franchisee of each company unit.
3. An owner-operator (Franchisee) is a much more responsible and self-motivated individual than a salaried manager. The Franchisee has a vested interest in their unit.
4. With company owned units being sold to independent owners (franchisees), the company is able to utilize the funds received from the sale of each unit, into a portfolio of safe diversified investments.
5. As the Franchisor, the company would receive royalty payments from the Franchisee, each month amounting to anywhere from 5% to 8% of gross sales.
6. The company becomes responsible for the overall merchandising of all franchise units, and in so doing the company can establish a "buying office” entity to handle the selection and all purchasing of goods being sold throughout the franchise system. The suppliers from whom the company is purchasing merchandise would pay the "buying office” entity a sales commission amounting to approximately 5% to 10%.
7. Many of the company’s existing staff can be eliminated since the company would no longer be involved in the physical handling of inventories to the retail units or the day-to-day supervision of store managers and staff.
In essence, "Branchising” offers the retail chain store company the unusual opportunity to convert the existing company owned units into franchise units, while maintaining complete control of the retail unit system.
The "franchise agreement” entered into between the Franchisee (unit operator) and the Franchisor (company) assures complete protection of the company’s retail concept while at the same time the company receives a substantially higher rate of return on capital employed.
To further compliment the "Branchising” structure, the company would be able to attract more qualified individuals, who are being released from companies that are downsizing, merging or bankrupt. As a result these individuals are receiving sizable severance packages and are unable to reinstate their careers because of mass layoffs that are taking place throughout Canada.
In certain cases the company’s existing unit managers could be considered by the company to become unit owners (Franchisees).
Financing of all future company Franchisees could be available to those who qualify.
This situation was primarily engineered by many of the Canadian developers who planned and built new “Shopping Malls” and “Power Centers” nationwide.
Now, at a time of economic turbulence and business uncertainty, the costs of operating corporately owned retail units substantially decreases the bottom line (profitability).
As a result of these most unusual circumstances retailers across the nation are seriously concerned about their ongoing performance.
To cope with the dramatic changing times that retailers must now address, a methodically designed and most unique program has been developed, one that offers chain store operators a complete revitalization of their existing operations. It is referred to as "Branchising”
This creative approach for decentralizing existing retail chains is geared to the "complete conversion” of a single retail unit from a company owned and operated unit with a salaried manager to a Franchisee owned and operated unit.
The retail company now becomes the Franchisor where each retail unit is sold to an independent operator who then becomes the Franchisee of the Franchisor (the retail chain company).
The advantages of "Branchising” to the retail chain company are astonishing:
1. As each company unit is sold to a qualified Franchisee, the company recovers their costs for the build-out, inventory, equipment, and goodwill in the form of a "franchise-fee”
2. The Company transfers lease responsibility (covenant and all rental charges) to the newly appointed Franchisee of each company unit.
3. An owner-operator (Franchisee) is a much more responsible and self-motivated individual than a salaried manager. The Franchisee has a vested interest in their unit.
4. With company owned units being sold to independent owners (franchisees), the company is able to utilize the funds received from the sale of each unit, into a portfolio of safe diversified investments.
5. As the Franchisor, the company would receive royalty payments from the Franchisee, each month amounting to anywhere from 5% to 8% of gross sales.
6. The company becomes responsible for the overall merchandising of all franchise units, and in so doing the company can establish a "buying office” entity to handle the selection and all purchasing of goods being sold throughout the franchise system. The suppliers from whom the company is purchasing merchandise would pay the "buying office” entity a sales commission amounting to approximately 5% to 10%.
7. Many of the company’s existing staff can be eliminated since the company would no longer be involved in the physical handling of inventories to the retail units or the day-to-day supervision of store managers and staff.
In essence, "Branchising” offers the retail chain store company the unusual opportunity to convert the existing company owned units into franchise units, while maintaining complete control of the retail unit system.
The "franchise agreement” entered into between the Franchisee (unit operator) and the Franchisor (company) assures complete protection of the company’s retail concept while at the same time the company receives a substantially higher rate of return on capital employed.
To further compliment the "Branchising” structure, the company would be able to attract more qualified individuals, who are being released from companies that are downsizing, merging or bankrupt. As a result these individuals are receiving sizable severance packages and are unable to reinstate their careers because of mass layoffs that are taking place throughout Canada.
In certain cases the company’s existing unit managers could be considered by the company to become unit owners (Franchisees).
Financing of all future company Franchisees could be available to those who qualify.