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Retail reality
Climate depends on segment
The "R" word, as in "recession," hasn't been used by the government to describe the current economic situation, but the turmoil is enough to rile franchisees.
Don't mention that to Peter LeCody, who owns two Fast-Fix franchised jewelry repair stores in the Dallas area. "Our customer counts are steady to up, and our sales are up," says LeCody, who at one time had nine franchises but has been downsizing by selling stores to long-term employees. LeCody opened his first location in September 1987, right before the late '80s recession took hold. He also survived the fallout from the dot-com bust of the late '90s, so he's taking the current situation in stride.
"If you take good care of customers, they'll come back to you," Cody says. "That's an absolute truth in retail."
Retail sales in July (the latest figures available) were down 0.1 percent to $384.6 billion from the previous month but were up 2.6 percent from last year. However, gasoline station sales increased by 25 percent year over year, and sales from nonstore retailers rose nearly 8 percent, so it's clear that brick-and-mortar retailers are getting hit by the downturn.
Clothing retailers are having a tough time, while warehouse retailers like Costco and Sam's Club are racking up high single-digit to double-digit growth as consumers combine food and fuel purchases, says Britt Beemer, founder and chairman of America's Research Group, Charleston, South Carolina.
"Companies that are well-defined by the consumer and will save them money will continue to prosper," says Beemer, mentioning Radio Shack and hardware stores as good examples. Hardware store traffic is up, while that into Lowe's and Home Depot is off as consumers figure in the price of gas before driving to farther-off retailers.
Rent-to-own retailers continue to thrive, and Beemer says that some national chains may not be as strong as locally owned companies that can respond more quickly to market conditions.
Aaron's Sales & Lease, which has 500 franchise locations out of a 1,540 store count, has seen same-store sales rise by 14 percent, says Greg Tanner, national director of franchising for the Atlanta-based rental firm.
"We're rocking and rolling," Tanner says. The company sold 300 franchises last year and expects to sell the same number this year.
"Our customers live in a constant recession," Tanner says. "They don't worry about the stock market; they worry about their paycheck every week."
The size and diversity of the retail sector can make specific predictions
difficult, notes Darrell Johnson, president and CEO at FRANdata, an information and research company focused solely on the franchise sector. Determining factors include whether the category represents discretionary spending and the position of the franchise concept within the eight sectors the company tracks.
One bright spot Johnson sees is the pet category, a fact confirmed by Amy Nichols, founder and CEO of Dogtopia, a doggy daycare based in North Bethesda, Maryland, that has 33 franchises and two company locations.
"The economy actually has helped with real estate," says Nichols, who hopes to open 20 locations this year. "We're getting faster responses from landlords, and we're able to afford more retail locations, as opposed to the industrial locations where we normally go."
Nichols recently finalized Christmas purchasing for the stores and says the company is receiving better deals now because of its growing size.
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Franchise sales at Cartridge World have slowed, but the company is looking at different store models to fill specialized needs, says Steven L. Yeffa, president of Cartridge World Americas. Plans under consideration include smaller stores selling pre-refilled products that would be sold to existing franchisees, and kiosk locations in such places as malls. The chain, based in Emeryville, California, has 1,650 locations in 61 countries.
"The recession certainly has slowed franchise sales themselves, but for same-store sales, we're plugging along," Yeffa says. Same-store sales in July were up double-digits from the previous year.
Another relatively recession-proof business is beauty care, especially for children. Tasmia Alam, owner of the Snip-its franchise in Maple Grove, Minnesota, opened her store in November 2006 and reports a 34-percent hike in year-over-year sales and a 41-percent increase in customer counts.
Snip-its, based in Natick, Massachusetts, has 62 franchised locations, and Alam says she's been pleased with the growth. "I believe the average ticket could be higher with a better economy, but it appears that consumers are staying away from higher-ticket items," Alam says.
