Guide To Retail Franchising

Did you know that a retail franchise was the first type of franchise to officially exist? While the roots of franchising span back centuries, 1851 was the first time a commercial franchise business model hit the market—and it was a retail company that started it all. That business is known today as Singer Sewing, and 160 years later, they are still seeing success that began with their original business model. Of course, franchising has since expanded to many other industries, from restaurants to fitness centers. But among the growing list of 700,000 franchises on the market, retail franchises continue to make waves in the business world—just like they’ve done since the beginning.

If you’re reading this, you likely want to get in on that success. Well, we at Franchise Gator are here to help. Our directories make it easy to find a retail franchise for sale that fits your business goals. But with that, we also want to equip you with the knowledge to start your franchise journey. Let’s go over the basics of retail franchising, how franchising works, and what to expect as you prepare to open a franchise retail store.

What Is Retail Franchising?

retail franchise owner

Retail franchising is exactly what it sounds like: franchising through a retail company, or a business that sells goods and services under a trademarked brand. What makes “retail” unique from other franchise types is that retail stores sell products directly to consumers; for example, Red Wing vends shoes, and Sports Clips provides haircuts. Retail businesses benefit from having big markets and the ability to create specialized products for a target market. Also, rather than dealing with the challenge of marketing to other corporations, retail stores just need to sell their brand to individual people.

Retail franchising typically looks like a retail company franchising a store location to a business owner. This gives that business owner (or franchisee) the right to operate under the company’s brand and sell their products. The franchisee then pays a regular fee to the company (or franchisor) and splits profits per their franchise agreement.

Franchises in the retail industry are far-ranging, including everything from cosmetics to property management. As such, hopeful franchisees like you have a lot of options to choose from. You’re not only able to work with a pre-established, successful business model, but you can even pick something that lines up with your interests. What’s not to love about that?

Why Would a Company Engage in Franchising?

Franchising provides a win-win situation for franchisors and franchisees alike. When a company licenses out their business, they expand their business reach. They also collect an ongoing share of profits from a new location; this means the more successful franchisees are, the more the company will see in turn.

On the other side of things, franchisees benefit from working with an established brand, as well as a business model that has historical evidence of success. They also receive continuous support from a larger organization as they run the business. In short, companies become franchises (and people become franchisees) because the franchise model is a proven success formula—for both companies and business owners.

Do Franchise Owners Make Money?

They most certainly do! Franchise owners in the US make an average of six figures annually. With that, though, it’s important to know that a lot goes into determining your franchise income. Your salary will depend on your franchise’s location, the industry you choose, and several other factors. If you’re seeking a highly profitable franchise, you also need to know what signs to look for and have a solid plan of action (which we’ll cover later in this guide).

It’s also worth noting that just because a franchise is “smaller” or requires less money to get started does not mean it will not be profitable—and vice versa for big brand names. A good portion of the success and/or failure depends on you as a franchise owner, including knowing how to sort through franchise opportunities and find the best option. Don’t sign on for anything without doing your research!

What Is an Example of a Retail Franchise?

Here are just a few of the retail franchise opportunities out there:

Retail franchises span a wide range of goods and services. If you can think of it, there’s probably a retail company that sells it—and possibly a franchise that does as well. Take some time to browse directories like ours at Franchise Gator, searching in the locations you’re interested in—and be sure to check out more than the big names. After all, part of what makes the top retail franchises successful is driven, smart franchisees… and that could be you!

What Is the Difference Between a Retail Chain and a Retail Franchise?

While these terms are often used like synonyms, there are some key differences to know—especially if you want to be a franchise owner. First, let’s start with defining a “franchise” and a “chain.”

A franchise is a business where the owner buys the rights to sell trademarked goods and services from a company via a license and a franchise agreement; franchises can focus on retail, distribution, investment, or other sectors of business. On the other hand, a chain is a group of stores that are all owned and operated by the same organization, whose staff all work for that company directly. For comparison, McDonald’s is a franchise, whereas Walmart is a chain.

Additionally, here are a few other differentiators:

  • Ownership
    • Chain: The parent company owns all stores.
    • Franchise: A franchisee or other external party owns the individual stores.
  • Profits
    • Chain: All profits and losses are incurred by the parent company.
    • Franchise: Profits are split between franchisee and franchisor.
  • Risk
    • Chain: All risk is upon the company.
    • Franchise: Some risk is on the franchisee, but the company retains risk as well—for example, in their brand equity.
  • Staffing
    • Chain: Employees are hired and paid by the company.
    • Franchise: The franchisee is responsible for hiring and paying employees at their location.
  • Operations
    • Chain: The company is entirely responsible for setting and executing operations.
    • Franchise: Franchisees have some autonomy, but ultimately must follow the preset business model detailed in the franchise agreement.

The exact details of each franchise will be laid out in the franchise disclosure document (FDD), and in the franchise agreement. As you are asking questions of your potential franchisor, be sure you get the FDD as it will tell you a lot of vital information—including your chances of success. Also make sure to look at the franchise agreement, as that will give you the parameters you must operate under, strategic resources for success, and more.

What Is the Franchising Strategy?

For franchisees, a “franchise strategy” can refer to two things: the business strategy a franchise gives you, and the personal strategy you develop for yourself. As a franchisee, the first piece should be given to you by your franchisor via documents such as the franchise agreement and franchise disclosure document. The second part, however, is up to you.

Even though being a franchisee means you’ll have support and a proven business model, that does not automatically mean that you will turn a profit. You still need to have some business savvy of your own and understand what it takes to run a franchise. With that in mind, what can you do to improve your chances of success? One good starting point is following the “Four Rs of Franchising.”

What Are the Four Rs of Franchising?

“The Four Rs of Franchising” is a framework for new franchisees and those looking to add to their portfolio. Sources conflict on what each “R” is, but they all are pretty similar. For this article, we will use the Four Rs provided by Global Franchise Magazine. They are as follows, and in this order:

  1. Research | This step is perhaps the most critical. As you’re looking for franchise opportunities, you need to examine your options from all angles. You want to know where you’re planning to open a franchise, what opportunities are near you, and what’s a good fit for both your ambitions and budget. Additionally, you should build relationships with other franchisees—if possible, ones who work with brands you’re interested in—to get a better understanding of the franchisee experience. There is definitely a fine balance you must strike with research; too much time risks opportunities passing you by, but too little time may end in failure.
  1. Reach Out | Once you have an idea of what franchises you want to work with, get in touch with them to learn more about what they do. Part of that is getting the franchise disclosure document, but you also need to know what questions to ask when you meet up with them. This is also a time to, once again, make connections with other franchisees—particularly those who work with the brands you’re contacting. The goal is to get a picture of each brand’s past success, present experience, and future projections.
  1. Reflect | After you’ve met with some potential options and gathered information, take the time to analyze what you’ve learned. Business ownership of any kind is a big commitment, and franchising is no exception. Be sure to talk to trusted advisors, loved ones, and any business tools you have. As a side note, if a franchisor is trying to rush past this step, that’s a red flag!
  1. React | Now comes the moment of truth: your final decision, and the commitment that follows. At this stage, you’ll decide which option is best for you, then move onto the next steps, which includes signing the franchise agreement. Before you sign anything, though, make sure the agreement entails everything you expect based upon your talks with the franchisor. From this point forward, it’s all about making the business happen. Best of luck to you!

These four steps can provide a good outline of the process for purchasing a franchise. But what sorts of retail franchises should you look into? That depends on your investment budget, goals, and interests.

How Many Franchises Fail in 10 Years?

According to the Bureau of Labor Statistics, almost 70% of all businesses fail within the first 10 years, and that rate holds true for small businesses as well. Unfortunately, there’s no clear consensus on how many franchises succeed or fail within a decade. Part of this is because franchises are not usually accounted for separately from other businesses, but it’s also because many sources reference a 1987 study of franchises (one that was later proved inaccurate).

Since it’s tough to determine how many franchises fail, perhaps it’s better to focus on why they fail. Here are a few top reasons franchises don’t make it in the long run:

  • Inadequate training or support of franchise owners
  • Inability to adapt to business trends—by either franchisor, franchisee, or both
  • Misalignment of goals between franchisor and franchisee
  • Lack of experience or business knowledge from franchisees
  • Failure of the franchisee to follow the business model

As you can see, most of these reasons for failure are simple to avoid. That doesn’t mean they are necessarily “easy” to steer clear of, but it’s absolutely possible. With proper research, a solid understanding of franchises, and working with the right franchisor, you’re already in a better position to succeed than most. In addition to being a smart business owner, you also need to be able to spot a bad deal; not every franchise opportunity is worth taking, and not all of them will provide the tools you need to be successful.

These causes of franchise failure illustrate why it’s so important to do your due diligence when looking into a franchise. Do your research, ask questions, and don’t take any deals that feel wrong for you.

How Much Money Do I Need To Start a Franchise?

The costs of franchises can range anywhere from 10,000 to millions of dollars, depending on which brands you’re interested in. For example, Mattress By Appointment requires about $20,000 in liquid capital, whereas Batteries Plus needs $100,000 in liquid capital and ultimately about $300,000 in total investment to get running. In general, most bigger brands are going to need more money to start, but there are literally thousands of franchises out there, many of which don’t need as much investment.

On databases like Franchise Gator, you’re able to sort franchises by your investment level, so you can more easily find options that fit your budget.

5 Franchises You Can Start With Less Than $50,000

Here are just five franchises  that won’t break the bank; some startup costs are lower than $10,000!

  1. Big Frog Custom T-Shirts
  2. Healthier 4 U Vending
  3. Passive Scaling
  4. Red Wing Shoe Store
  5. Speaking Roses

Find the Best Retail Franchises on Franchise Gator

Successful franchising needs a plan, but it also needs the right tools. That’s what we provide at Franchise Gator: a comprehensive directory of franchises that you can sort by industry, location, and even your investment budget. We also have a whole host of resources for new franchise owners, including an FAQ, financing information, business tools to guide your decision making, and more.

Visit our retail franchise directory today, and take the first step towards franchising success!

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