Partner of choice
Despite the well-documented problems in the domestic market, some UK retailers continue to grow and expand onto the global stage through franchise partnerships.
The franchise model de-risks the opportunity of expansion with a franchisee being responsible for property, labour and facilities costs and the operation of stores. Such a financial outlay puts the onus on the franchisee to successfully sell the products and services of an established brand, while benefiting from support of a corporate company.
There has been a considerable increase in the growth of multi-unit franchisees: 38% of UK franchisors operate in Europe and the US.
By using franchise partnerships companies can rely on local operators' knowledge of a market. For larger corporations, using relationships with franchise partnerships enables them to work with market leaders rather than entering as an unknown entity.
Karen Millen now has 400 stores and concessions in 63 countries and attributes its international success to the expansion of the franchise business and remains committed to developing its international portfolio.
Stella McCartney has successfully launched franchises across the Middle East over the last 10 years. It partners with luxury retail franchise partners Al Mana and Al Ostoura with a presence in Dubai, Kuwait and Bahrain. Likewise, Missguided has partnered with franchise giant Azadea Group, and opened a store in Dubai Mall.
Tried and Tested
WH Smith has used the franchise model to rollout swathes of stores in transport hubs across the UK. Being located in high footfall transport hubs with a captive market has made the transition to international locations a success. Revenue to 31st August 2018 for the international travel arm of WH Smith was up 22% on the previous year, with profit up £2m. This is compared with revenue and profit both being down 3% on a like for like basis in WH Smith high street stores for the same period.
There are also international operators taking advantage of franchise partnerships. Polish fashion retailer Reserved opened its first store in the UK in September 2017 and operates in 19 other countries across Europe and the Middle East. Most recently, it announced it would be opening the first store in Tel Aviv using a partnership with H&O Fashion. Using a franchise partnership Reserved is able to rollout a rapid expansion, growing awareness of its brand and having potential to take greater market share. H&O Fashion plans to open 30 more Reserved stores in Israel, the first three of which will be over the next 12 months.
Use of franchise partnerships doesn't come without risks. Rapid expansion of Krispy Kreme franchises in the early 2000s became a problem for the business as it began to cannibalise its own sales. For example, between 2003 and 2004, second quarter revenues increased by 15%, however, like for like store revenues only increased by 0.1% suggesting a saturated market. This highlights that location, understanding target customer profile and ensuring sufficient demand are essential for a brand to be successful.
For a franchise relationship to prosper there must be trust between the two parties. Franchisees must be champions of the brand and aligned on corporate culture and values. In return, franchisors must provide adequate training and marketing.
Corporate franchising provides the opportunity to expand successfully into international markets. Notable success can be found from operators who already have concrete presence in the UK and a loyal, captive customer base. Location is essential for success and there is a fine balance between the benefit of rapid expansion, growing brand profile and monopolising the market.