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Shrinking stores

Franchises keep expanding by going small



In the face of slowing expansion and economic concerns, franchises have been finding introducing smaller unit sizes to improve flexibility, lower overhead and give prospects more options.

Franchise groups are finding creative ways to downsize store prototypes. The smaller locations have the dual advantage of slashing overhead in a tough market and creating a more flexible model to entice franchise expansion.

Operating leaner locations can make a big difference on a franchisee's bottom line. Reducing the store size by even a few hundred square feet can translate into tens of thousands of dollars in savings each year. But trimming the size of a retail or restaurant location requires a delicate balancing act. Franchisees want to make efficient use of their real estate without impeding key business functions or hurting customer service.

"Depending on the location, where you can really cut down on space is by reducing the inside seating," says Stew Stolz, chief operating officer at New York-based Trufoods. For example, Trufoods' Wall Street Deli brand can significantly cut seating requirements in locations where there are food courts or atrium seating. Office building locations often demand less seating because many customers grab lunch and take it back to their office or desk, Stolz adds. Wall Street Deli offers prototypes that fluctuate between 640 to 2,000 square feet.

Franchisors are more focused than ever on giving franchisees flexible space options when it comes to managing real estate needs. Satellite locations, kiosks and smaller store alternatives are just a few of the ideas franchise groups are promoting to boost franchise sales. Not only do smaller store alternatives help franchisees manage costs and boost profitability, but it is an important way to promote franchise expansion amid a difficult economy.


Gold's Gym

Gold's Gym has introduced a smaller, lower-cost version of its fitness franchise.

Introducing new concepts

Gold's Gym is unveiling a new concept in March that will range in size from 8,500 to 12,000 square feet - about one-third the size of a traditional Gold's Gym. Although the typical footprint is 25,000 square feet, some locations can be as large as 60,000 square feet. "What we've been seeing over the last four years is that our franchisees are more attracted to smaller investment opportunities," says Keith Albright, senior vice president of franchising for Irving, Texas-based Gold's Gym.

The start-up cost for traditional locations falls between $2 million and $3 million, which covers the real estate, furniture and equipment. The cost for the smaller 8,500-square-foot concept will start at about $500,000. Franchisees will be able to purchase the basic footprint with optional add-ons so that they can "customize" the gym. "We think these concept clubs will each take on their own flavor based on the franchisees' view of the market and what the market needs," Albright says. For example, a franchisee can configure the gym differently if he or she wants to focus on personal training or group exercise.

"The obvious advantage is that it gives us the opportunity to reach a much larger audience of franchisees," Albright says. Another advantage is that the real estate options are more plentiful for the smaller footprint, and it will give franchisees the opportunity to get into new markets. The smaller unit could fit in downtown areas without the space for a 50,000-square-foot facility, or smaller markets or rural areas with lower populations.

The development cycle on the smaller location also is much quicker - about 60 to 90 days compared to 18 to 24 months for the construction of a large gym. "For a lot of reasons, introducing this kind of Gold's Gym at this time makes all the sense in the world," Albright says.

Satellite stores /kiosks

Cartridge World has introduced an innovative new satellite store concept that allows franchisees to operate locations in spaces as small as 500 square feet. The traditional, full-service Cartridge World store ranges between 1,200 and 1,600 square feet.

A group of the company's master franchisees realized there was no reason they couldn't refill the cartridges in the large store and sell them in a smaller store, effectively reducing fixed costs like labor and rent. Cartridge World launched its new store concept last year. The satellite locations are offered to qualifying franchisees, and are located within 20 miles or a 30-minute drive of the primary store.

The satellite stores are a good opportunity to reach a larger customer base in urban and suburban areas - at a lower overhead cost, notes Bob Jackson, a Cartridge World master franchisee in Tennessee and Georgia. Jackson has 53 Cartridge World locations, including four satellite stores.

The satellite stores range between 500 and 1,000 square feet, and follow the same site selection criteria as the primary stores, such as high visibility and easy access. The satellite stores allow franchisees to expand at a significantly lower cost. The start-up cost on a traditional store for the build-out and equipment ranges between $150,000 and $180,000, while the owner of a traditional store can open a satellite store for about one-third of that cost - between $50,000 and $65,000 per store.

The ability to cut overhead, while still expanding the business is a huge advantage for franchisees, particularly in the current economic climate where there is more pressure to reduce operating costs. "We have gotten a very positive response from the franchisees. They are very excited about the savings," Jackson says.

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