Franchises one way to weather the retail storm

THE latest Westpac Melbourne Institute index of consumer sentiment showed a drop in confidence from the previous period and found Australians are less optimistic about their financial position over the coming year. This means the purse strings aren't likely to loosen any time soon.

By InvestSMART · 14 May 2012

By InvestSMART ·
14 May 2012

Comments

Interestingly, the picture painted by ABS figures on retail conditions this year isn't quite so bleak, so someone must be doing OK.

Franchises do well in an economic downturn. They continue to grow, opening new outlets at a time when few would consider starting a business, because they offer prospective franchisees the safety of a well-known brand and a proven formula.

At Bedshed, we find many are attracted to the idea of being their own boss with the support of an experienced team and a strong network of franchisees. The combined power of a franchisor with three decades of experience and franchisees who are highly motivated to achieve personal success are major reasons why Bedshed is defying the odds.

For those considering buying a franchise, take a close look at the store network and check the focus isn't too heavily on expansion at the risk of cannibalising existing franchisees' market share.

Many businesses look to cut costs when times get tough and one of the first things to go is often the marketing budget. We are maintaining marketing activity and increasing media spend to attract customers and reach new audiences. PR and advertising are critical to achieving growth in a depressed market.

Bricks-and-mortar retailers are not only facing customers with tighter budgets and higher living costs but also battling greater competition from their online counterparts. Some sectors are more exposed than others.

We have a major advantage in the bedding industry, because customers rely on expert on-the-ground advice and would rarely purchase a bed without lying on it first. By contrast, electrical retailers face intense pricing competition from online, and with slimmer margins they have to sell more product to earn the same profit revenue.

To stay competitive with online retailers, it is essential to focus marketing efforts on the well-known brands your business stocks. After-sales support is another advantage. Consumers only have to be burnt once trying to return something to an online vendor before the price savings become far less significant.

It's easy to write off retailers with all the doom and gloom we've been hearing lately, yet with the right approach it is possible to weather this severe retail storm.

Gavin Culmsee is chief operating officer of Bedshed.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

How are franchise businesses performing during the current retail downturn?

Franchises are often more resilient in a downturn: they continue to grow and open new outlets because they offer prospective franchisees the safety of a well-known brand and a proven business formula, making them an attractive option for investors seeking stability in tough retail conditions.

What has helped Bedshed defy the retail storm and remain a good franchise example?

Bedshed credits three decades of franchisor experience combined with highly motivated franchisees, plus a focus on in-store expertise and continued marketing investment — factors that help the chain attract customers and sustain sales even when consumer confidence is low (commentary from Gavin Culmsee, Bedshed COO).

What should everyday investors look for when evaluating a franchise investment opportunity?

Look closely at the store network to ensure expansion isn’t cannibalising existing outlets, assess the franchisor’s track record and support systems, and confirm the brand maintains marketing and after-sales support — these elements influence long‑term franchise performance and investor outcomes.

Why is maintaining marketing spend important for retailers during a depressed market?

Many businesses cut marketing when times get tough, but maintaining or increasing media spend and PR can attract customers and reach new audiences; consistent advertising is critical to growth in a depressed market and can protect market share for investors.

How can bricks‑and‑mortar retailers compete with online competitors?

Brick‑and‑mortar retailers can compete by focusing marketing on well‑known brands they stock, offering strong after‑sales support and in‑store expertise — advantages that turn price-sensitive shoppers into loyal customers who value service and convenience over lowest online price.

Why is the bedding industry less exposed to online competition than some other retail sectors?

The bedding sector benefits from customers needing to try a bed before buying and relying on expert, on‑the‑ground advice, so shoppers are less likely to purchase solely online — a structural advantage that helps protect margins and sales for physical stores.

Which retail sectors are most exposed to online price competition and why should investors be cautious?

Sectors like electrical retail face intense online pricing competition and slimmer margins, meaning they must sell much more product to earn the same profit; investors should be cautious about businesses with vulnerable margins and limited in‑store differentiation.

Can retailers weather the current 'retail storm,' and what strategies protect investor value?

Yes — retailers can weather the storm by using proven franchise models, avoiding harmful overexpansion, investing in marketing and PR, emphasizing in‑store expertise and after‑sales service, and focusing on strong brands; these strategies help sustain sales and protect investor value during weak consumer sentiment.