Many investors hesitate between developing a new retail concept from scratch and investing in a franchise model. What are the pros and cons of each one of them?
1-My own new retail concept:
It’s always good to develop your own concept, your own brand and products. Before stepping into that, you need to take into consideration that you have to put in place many complexed elements for a successful business. The first element to take into consideration is the IDEA. What are you thinking of launching? Putting the idea at the center of your business plan will trigger many other elements that you should develop further:
How will I develop my product?
Developing a new product require the sector specific experience and sometimes a very high investment. In your business plan, you should take note of this factor as you might have the experience or willing to hire talents in that specific sector that will shape your products and brands. You might look at specific outsourcing companies that can produce a product based on your preset requirements and customize it with your logo and packaging.
What’s my market?
Understanding the actual market size and sector universe will help you understand the market value and volume generated by all existing brands and competitors. It will help you as well understand if It’s really worth to invest in a product that’s targeted by very narrow or broad clients segment. majority of brands targeting narrow clients segments are brands selling low volume products with a very high margin. Fast moving consumer goods are products sold with less margin but touching a very broad number of clients in a high volume frequency.
The pricing strategy will be done based on what you are selling, how much your competitors are selling a similar product and what will be your margin by looking at all your related cost. Based on the previous elements, you will create a financial plan were you will draft my P&L forecast (Profit and Loss forecast) and understand how long it will take you to move from the loss period (in months or years) to a breakeven and start generating profit.
How will I reach my clients?
The retail format is key and goes hand in hand with the product. This covid-19 pandemic has changed the retailers focus from expending physical stores to focusing on the online channel. It’s worth to consider the online in your business strategy as it opens doors to broad clients from the geographic prospective. You can either be online only, physical store only or the mix. Your business plan should include how much you will expect to generate from each retail channel.
Which structure should support my business operations?
The retail business operations structure will mainly depend on how you will target your clients. If you are a physical store, the structure should be benchmarked with what’s done in today’s retail business (Retail Manager, Store manager, retail staff, retail marketing manager, Merchandisers, Inventory specialist.etc). If you decide to move to an online retail business, your structure will be completely different as you will need different staff competencies to achieve your goals (Website admin, graphic designer, Social media Manager, e-commerce specialist, SEO specialist, logistic managers.).
You should put in place a structure that’s scalable with time and try to optimize your cost at the launch phase by either outsourcing some roles or combining them.
What is my marketing plan?
You will have to draft a specific marketing plan that will support the growth of your brand and get you more visibility and awareness in your specific target market and for your specific targeted clients. Your marketing plan will either help you attract more clients to your store in case you are a physical store or maximize your website presence and visibility if you are on the online retail segment.
If you are unable to draft all the above and get them running, it’s worth to consider owning a franchise retail shop as the marketing plan from the franchiser is set already. You will need to do less marketing efforts when you own a franchise and mainly focusing on the efficiency and the effectiveness of your standards and operations.
2-Owning a retail franchise:
The big advantage of owning a retail franchise is that all the concept, products and brand notoriety has been developed and achieved by the franchiser. This will make it much easier to penetrate a specific market from day one of launch. Most of your clients will visit you because they had a similar experience with the same brand in a different city or a different country. So basically you rely on the success of your franchiser.
Type of franchising:
In the global franchising, we have two main types:
-Products and trade name franchising: in this collaboration mode, the franchiser will focus mainly on the product production and you will use their trade or product name to sell. One of the best example here is car dealers franchise. The car manufactures will focus on the product production while your role as a franchisee is to develop a dealership concept that sells this car brand.
-Business Fomat franchising: Most of the retail franchise business falls under this category. You will basically use the full concept developed by the franchiser (Store layout, products, marketing strategy, process…etc).
How does a franchise concept works?
Well, first thing first, you need to find a franchiser that is willing to make you as franchisee which is not very easy nowadays. To become a franchisee, make sure you have the right investment. Most of the franchisers will request you to fill up a franchise application form were you will draft the location (City, Country..), how much investment are you willing to put and your experience in running similar business or running any other successful business. Having the money isn’t the only franchisers criteria. They want to make sure that their brand is in safe hands as any mismanagement of the franchise can directly impact the reputation of the franchisee.
Once your application is approved, you will need to pay a specific entry fee. This fee may vary based on what’s drafted on your franchisee agreement. Some franchisers will request from you to provide the store location, they will draft the store plan and charge you for anything related to interior design, furniture and equipment needed for the store. This is additional to the profit they will be making from selling you the goods. Royalty fee is another element that franchisers may charge you on an annual basis no matter how profitable your business is. As consistency is the key success of the global franchisers. They aim to drive the same shopping and customers experience at any store you visit globally. For that, the franchisers will audit your business at any time to make sure that you are following the global visual merchandising compliance, marketing compliance, store management compliance, store operational procedures..etc.
Developing a new retail business idea or owning a franchise will both require investment and high commitment for a successful outcome.