Business Franchise Aus & NZ Jan/Feb 2017 Feature by CGB Publishing

r e tail

Luxaflex

UNRIVALLED SUPPORT FROM A WORLD LEADER

why clever beats innovation the three pâ&#x20AC;&#x2122;s of franchising

VOL 11 ISSUE 02 jan/feb 2017

MAKE 2017 ALL ABOUT YOU FRANCHISE OPPORTUNITIES NOW AVAILABLE No Hairdressing experience required Full training provided

ENQUIRE TODAY (03) 9234 2200 franchising@hairhousewarehouse.com.au www.hairhousefranchising.com.au

34 Business Franchise Australia and New Zealand

Contents On the Cover Image: Luxaflex Gallery Dealer of the Year 2016, Mark Triester Owner of A Style of Shade, Sydney.

38 Cover story: Unrivalled Support from a World Leader

Luxaflex Window Fashions

54 Expert Advice: The Three P’s of Franchising

Richard Wynn, FutureYou Executive Recruitment

60 Expert Advice: Why Clever beats Innovation

Brian Walker, Retail Doctor Group

34 Hairhouse Warehouse 36 What’s New! Feature news 40 Feature: How to Prevail in Retail 43 TSG Franchise 44 Expert Advice: Raising the bar for Franchisor Responsibility—but at

what cost?

Steve Wright, Retail Council

48 Expert Advice: Preparing your Franchise for the Pressure of January

Mark Hoppe, Atradius

50 Focus: Clark Rubber 56 Expert Advice: Leasing: What you need to know as a Franchisee

Peter Fiasco and Alex Ellis-Czerkaksi, Hairhouse Warehouse

62 Expert Advice: Watch out for Problematic Contract Terms

Dr Michael Schaper, ACCC

A regular of Business Franchise Magazine, our special supplement in franchising showcases a different industry each issue To share your specific expert industry advice or to feature your franchise in the next issue, please contact: Kathleen Lennox, Sales & Marketing Manager Phone: 03 9787 8077 Email: kathleen@cgbpublishing.com.au

Business Franchise Australia and New Zealand 35

what’snew! Australian NSW introduces retail Franchisees to Benefit from Union of leasing reform bill Retail leasing in New South Wales is about to be changed to improve Retail Powerhouses transparency for tenants under the first reforms introduced to NSW parliament to update the Leases Act in 20 years, according to a media report. Among other changes is the development of a sales reporting code, first recommended by the Productivity Commission’s inquiry into retail leasing in 2009, which allows retailers to request retail category values from landlords.

New union targets franchise workers A new union for retail and fast food workers has named five specific franchise brands it is targeting in its campaign to recruit members and Two of the biggest names in Australia’s retail industry, Retail Food Group (RFG) and the National Retail Association (NRA), have joined forces as part of a new addition to RFG’s internal support program for franchise partners, RFG Foundations. Available to franchise partners across RFG’s various Brand Systems, including Gloria Jean’s Coffees, Donut King, Brumby’s Bakery, Michel’s Patisserie, bb’s Café, Pizza Capers and Crust Gourmet Pizza Bar, RFG Foundations includes a subsidised membership with the NRA.

to restore full payment of penalty rates to workers. The Retail and Fast Food Workers Union (RAFFWU) will directly compete with the Shop, Distributive and Allied Employees’ Association (SDA) for members, with RAFFWU claiming that enterprise agreements the SDA has negotiated with supermarket and fast food chains enable the underpayment of workers by at least $300 million each year. RAFFWU has also announced that it will specifically target workers of

The membership provides RFG franchise partners and their team members with access to a range of NRA accredited training programs and opportunities, including the option to complete a Certificate III in Retail Operations Workshops. The NRA also offers services in employment tools, workplace relations and legal advice.

franchise brands including McDonald’s, Hungry Jacks, Red Rooster,

“RFG Foundations is all about equipping our network with the tools they need to attain the strong business they’ve always envisioned and there is no greater asset to our franchise partners than a membership with the country’s largest and most representative retail industry organisation,” RFG CEO Gary Alford said.

agreements with the SDA which traded some penalty rates for higher

“We are pleased to be in a position to connect our franchise partners with the NRA, who have represented the retail industry for decades and share our passion for assisting Australian business owners.” The membership also provides access to the NRA’s workplace advice line and online portal where franchise partners can access news, documents, forms, industry research, and events. In additional to valuable NRA resources, the RFG Foundations support program supplies franchise partners with internally-led training workshops and materials, as well as a discount on selected travel with Virgin Australia, with more offers and benefits set to be added in the future.

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KFC and Domino’s for membership, potentially causing disruption and confusion among workers and franchisees of those brands. Many employers as well as franchise chains have negotiated enterprise base hourly rates, however RAFFWU is seeking to overturn these enterprise agreements and restore full penalty rates.

Merged pharmacy chain announces new brand The merger of pharmacy chains Terry White and Chemmart has now received shareholder approval and will proceed under the new brand TerryWhite Chemmart across its 500 outlets, with all locations expected to be rebranded by the end of 2017, according to a media report.

Spectrum Analysis Research Findings published

Spectrum Analysis have been researching the issue of what makes up a trade area (or a territory if you choose to give one), whether for creating a territory or for local area marketing purposes. In most B2C businesses, for example cafés, gyms, Pilates studios, newsagencies, pharmacies, etc, the vast majority of clients are a mixture of people living or working in the area, compared to transients, otherwise known as people just driving through.

Snap-on Tools Announces 2016 Apprentice Snap-on Tools recently announced the winners of their annual Apprentice of the Year (AOTY) Award for 2016. Now in its eighth year, AOTY has established itself as one of the region’s most prestigious award for recognising apprentices from Australia and New Zealand. The respected group of industry representatives chosen as judges had the unenviable task of finding a stand-out candidate amongst an impressive field of entries from both countries. There could be only one though, with Martin Brown, from Townsville Australia being named the winner of the 2016 Apprentice of the Year.

For many cases the clients were mapped based on the addresses (normally home addresses) provided to the business and the research shows: 1. People trade or use your services in the form of a bricks and mortar premise mainly because they live or work nearby. 2. Those that live nearby are captured by their residential address.

Martin was selected from a wide range of industry entries as diverse as the automotive, heavy vehicle, marine, aviation and defence force fields, after exhibiting the qualities of a knowledgeable, well rounded apprentice who displayed great aptitude and technical ability in his field.

3. Those that work nearby are not seen as such as they live elsewhere; few businesses ask you where you work (as well as your home address).

To help assist Martin’s career, courtesy of Snap-on, his reward is a stunning $13,500 prize package that includes a comprehensive Snap-on Tools prize pack, plus a spectacular 54” Classic Roll Cab to store his tool collection.

4. The percentage of transients is very low for most businesses (other than petrol stations).

“A big thank you to Snap-on Tools Australia & New Zealand for the support and opportunities they are giving to apprentices. Snap-on Tools quality and service are second to none. This award will remain a highlight of my career. Thank you for the award and amazing prize,” said Martin. The Snap-on Tools Apprentice Of The Year program also features the ‘Rising Star’ and ‘Contribution to Armed Forces’ award categories. This year’s Rising Star was Manroop Singh from Ocean Shore Australia. and the Contribution to Armed Forces winner, Jacob Marshall from Fielding NZ. Both winners will share from a prize pool worth over $5,000.

5. Around 50 per cent living within the area is indicative of the trade area (based on mapping their residential address). 6. Thirty per cent of customers are regular, and there because they work, attend school or university, or in the area on such a regular basis that they use the service continuously.

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c ov er sto ry: lu xaf l e x W I N D OW FASHI O N S

UNRIVALLED SUPPORT FROM A WORLD LEADER

In an industry worth over an estimated $1 billion per annum in Australia alone, Hunter Douglas is a world market leader. Innovative and iconic, this award winning brand is renowned for quality and service. Established in 1919 and manufacturing in Australia since 1954 the Hunter Douglas Group is now established in more than 100 countries, with a worldwide reputation for innovative products that are technically superior and aesthetically unique.

AN AUSTRALIAN SUPERBRAND Hunter Douglas’ flagship brand Luxaflex Window Fashions is Australia’s only window covering Superbrand, with over 60 years of brand history and the highest level of unprompted brand awareness in the category. Consumers voted Luxaflex Window Fashions as one of the best known and trusted brands in Australia, with over 62 per cent consumer brand awareness earning

it the illustrious title of one of Australia’s Superbrands. Offering high quality and durable window coverings for inside and outside the home, the Luxaflex Window Fashions brand range includes traditional blinds like Venetians and Verticals as well as premium ‘patented products including Luxaflex® Duette® Architella® Shades and Luxaflex® Luminette® Privacy Sheers. All Luxaflex products are made to measure to the exact size of the clients window and almost all of the products are still manufactured in Australia. Supply and service varies from the packaged blinds available in hardware stores. The Luxaflex program instead offers consumers a personalised experience offering solutions to their design, heat, light and privacy requirements in the state of the art showrooms and in-home consultations. The window coverings are then manufactured to order and sent to the licensee to provide the installation service.

STATE OF THE ART A group of independent businesses operating under a licence agreement with Hunter Douglas, Luxaflex Window Fashions is not a franchise. There are two options in the Luxaflex

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Alliance program. The Luxaflex Gallery program is the premium full-line retailer, with access to the entire range of products and business programs offered by Hunter Douglas while Luxaflex Showcase is a smaller program that still provides retailers with access to a comprehensive range of product and a generally within a smaller retail environment. The licence provides you access to brands, trademarks, unrivalled training and support and a retail programme designed so that consumers can visualise how the Luxaflex products will transform their home. The Luxaflex Alliance programs are based on five key elements: 1. Effective presentation and merchandising – The Showroom; 2. Advertising and marketing; 3. Digital engagement; 4. Training; and 5. Business administration & advertising support tools.

1. The showroom

The Luxaflex Next Generation Gallery and Luxaflex Showcase display systems create a showroom environment that offers a superior consumer experience.

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“Supply and service varies from the packaged blinds available in hardware stores to the personalised design, manufacture and installation service provided by installation specialists.” The Luxaflex Gallery program is the premium retailer, with access to the entire range of Designer, Classic & Living products and business programs offered by Hunter Douglas. Luxaflex Showcase is a smaller retailer with access to the Classic & Living product range and selected business programs.

The retail fit-out features exceptional attention to detail in terms of colour schemes, accessories, functionality and stunning blinds on display. Large displays replicate the consumer’s windows, providing a real life experience of the choice of operating systems, style and colours. When consumers visit their local showroom they see things they had not considered and this often leads them to buy higher value products thereby lifting the average sale and conversion rates.

2. Advertising & marketing

Marketing support and communication tools that work on both a national and local level are provided and depending upon the Alliance program chosen include television, digital & print advertising, local area marketing, point of sale, direct mail campaigns and printed catalogues and brochures amongst others. Complete marketing support is offered by the Marketing team who provide a host of marketing resource tools via a secure web portal including both the large scale marketing campaigns run as part of the co-operative advertising programs and the local area marketing; targeted to the individual stores needs and budgets, providing templates and programs to support each store.

3. Digital engagement

Brand websites include detailed product information, photo galleries, brochures, product videos, specifications, blogs and much more! As a Luxaflex Alliance Dealer you benefit from leads received via the website’s Dealer Locator pages alongside the use of Google Adwords, SEO campaigns, Social Media marketing, eBrochures, sponsorships and much more which also drive direct store traffic & calls.

4. Training

Exclusive training programs give you the power to makes sales and the ability to outsell your competition. From classroom settings to interactive online learning, a programme designed for individual learning styles makes you the most knowledgeable window coverings professional in your local market.

A dedicated training team offer support with installation guides, videos and in-depth production information which allows licensees to train their installers on the full range of products available.

5. Administration & advertising support

Dedicated teams are in place to support each Alliance Dealer including ongoing business development and coaching support as well as access to dealer portals that provide a host of resources and tools including HD Live (which allows electronic ordering and order status updates) as well as a Price List app so you can easily price and quote your customers in the home, in the showroom and on the road. Comprehensive business support is provided. Whether it be access to the Technical Support desk, recruitment advice, financial advice Hunter Douglas will provide support. There is even an installation service for selected areas to support licensees with complex installations or during busy periods

BECOMING A LICENSEE There are no ongoing fees to be a part of this group of Independent businesses which operate under these licence agreements with Hunter Douglas, The costs are in the

initial showroom fitout cost. Completed by a contracted shop fitting company, a typical Gallery showroom fitout costs between $100,000 and $120,000. As all products sold are made to measure, there is no start up inventory required, and no provision for obsolete stock or stock loss required. Ongoing costs for the showroom include the regular upgrade costs for maintenance, introduction of new products to be displayed, sampling updates and merchandising and an allowance of $5,000 p.a. in most years is sufficient. Another annual cost incurred is the marketing levy, currently $3,518 p.a. for the top tier Luxaflex Gallery dealers and invoiced monthly as well as a contribution to the advertising program. The cost of advertising varies according to the dealers territory and population. All money collected is used for the promotion of the Luxaflex brand, driving quality leads in a wide range of consumer faced media and the usage of this is reviewed and agreed by the Gallery Dealers on an annual basis. Finally, Luxaflex Gallery & Showcase Dealers attend an annual conference, which incurs travel and accommodation costs. Usually held within Australia but occasionally overseas, the conference is an opportunity to see and learn about new products, new technology and new programmes. It is also an opportunity to network and share ideas with your colleagues from similar businesses all over Australia. Luxaflex Window Fashion license opportunities are available now in selected parts of Australia. To find out more about joining this innovative and world leading brand call Mark Futeran at: 02 9638 8000 mark.futeran@hunterdouglas.com.au www.luxaflex.com.au

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How to Prevail in

Retail

Retail is defined as the sale of goods for use and consumption by the purchaser. The retail transaction is therefore at the end of the supply chain. Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers. Your product With this in mind, as a retailer, or potential retailer, your product is the most important component in your business. Your product is vital. It should be top quality and something you believe in. However, it cannot stand on its own. If you don’t have a sound business plan, a strong marketing strategy and a firm grasp on your financial status – the quality of your product becomes second tier. To succeed in retail, you must be a shrewd business person who considers all facets of your business.

An industry on the up According to recent Retail Trade figures by the Australian Bureau of Statistics, Australian retail turnover rose 0.5 per cent in October 2016, which followed a rise in September 2016 and August 2016 of 0.6 per cent. This follows similar rises from last year, and shows that retail is still a growth industry, despite a continuing squeeze on the economy. Specific sectors experiencing growth included food retailing (0.6 per cent), household goods retailing (0.7 per cent), and cafes, restaurants and takeaway food services (0.4 per cent).

Dreaming big Do you have visions of owning your own quaint little dress shop in the local village, or a big name coffee house in the flash shopping centre in the city? Want to get your hands on some of this vast sum of money being handed over by eager consumers? These are tempting ideas, but tread carefully. Over the last few years, the global financial crisis has affected nearly every industry throughout the world. Australians are much more selective now with their money. Consumers are more conservative, more willing to seek out a ‘good deal’ and more willing to wait for the items they want.

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FEATURE : r e ta i l fr anch isi ng To succeed in retail, you must be a shrewd business person who considers all facets of the business.

Business Franchise Australia and New Zealand 41

FEATURE : r e ta i l fr anch isi ng “Along with the physical site you eventually choose, hopefully with the help of your franchisor’s site selection strategy, you now also have an online storefront to consider.”

This means retailers are competing in a highly competitive arena, as they fight to win the dollars that are being spent. On top of this, commercial rental rates have skyrocketed, with large shopping conglomerates pushing for leasing rates based not on what the market can bear, but what they can scrape out of their tenants. So, if the cost of doing business has gone up, is it still worth the risk of entering the retail market? Of course it is, as long as you do your due diligence.

Security in franchising This is where the benefits of entering the franchise industry come into play. If you know you want to own a corner bakery, why not purchase a bakery franchise? Although it is romantic to envision the sign over your bakery having your own name on it, this would also be symbolic of the situation to follow: you would be on your own. You would have to develop your own business plan, secure funding, choose a site, negotiate your lease, supervise your fitout, formulate a marketing strategy, source your products, and then actually run the business. Are you tired yet? Imagine if all of this work had been done for

you already. This is the beauty of franchising; a great majority of the work is already sorted. Retail is romantic, in a sense, but it is also risky. As opposed to the service sector, or work-from-home business options, in retail you have bigger costs and bigger risks. Franchising is a way to minimise these risks for you.

A support network Despite the drop in consumer confidence, people are still spending. Perhaps not as quickly or as easily as before – but they are still spending. Being part of a franchise system that has weathered previous economic storms, and knowing that you are an integral part of a larger network, can give you the strength and knowledge not only to survive retail lulls, but to continue to prosper.

Online spending Along with the physical site you eventually choose, hopefully with the help of your franchisor’s site selection strategy, you now also have an online storefront to consider. According to the NAB Online Retail Sales Index, online retail spending in Australia currently stands at $21.1 billion to October 2016, which accounts for around 7 per cent of traditional retail spending (excluding

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cafes, restaurants and takeaway food). This figure is up from $18.1 billion this time last year, and is surely poised to keep growing. Social media is a powerful tool, and one that can not be ignored. The benefits of utilising the social media platform include reaching a large audience to develop and instill brand awareness, increasing the effectiveness of marketing plans and creating an interactive experience for your current and potential customers.

You as the driver In the end, the choice will be yours. Whether you decide to go forth into the world of retail, and whether you choose to do this as part of a franchise, it is ultimately up to you to define your success. You must be passionate about your product, committed to offering the best service to your customers, and willing to work hard to make your business successful.

Look out for our next special feature: franchises in your price range

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Raising the bar for franchisor responsibility—but at what cost? Franchising is a dynamic part of Australia’s service and retail sectors. As Retail Council Acting CEO Steve Wright observes, the franchise brand has taken some knocks recently, but the big question is will it learn from the experience and emerge in better shape for future challenges...

impacted than the owner - franchising veteran and FCA Hall of Fame Russ Withers - and former FCA chairman and 7-Eleven CEO Warren Wilmott who took blame and quickly and quietly left the company.

a costly exercise for 7-Eleven and the sector. Tens of millions have already been expended in back-payments to (mostly former) franchisee employees and the process is not finished yet.

Under a new management, 7-Eleven is going above and beyond to set matters right and do whatever it can to buttress the business from any future fraud and law breaking within its franchise network.

Then there is the cost of designing and applying new systems such as biometric (facial recognition) shift scanning, which the company hopes will help deliver a comprehensive fix. Workplace Ombudsman Natalie James has described the changes as the “most robust” of any franchise system in the country.

What 7-Eleven comes up with to systematically address the issue may well be the light under the bushel for the franchise sector.

People have been taken aback by what they have seen on TV and read in the news about what has happened at – and to – 7-Eleven.

Ultimately it is highly likely the deep process re-engineering 7-Eleven is undertaking will set a new benchmark for how franchise brands protect themselves from the kind of threat one of their best has experienced in the past year.

Possibly none have been more heavily

Success is important because this has been

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The good news for the sector is that this may be a case where the whole can benefit from adversity suffered by one or a few. In this case what we may see emerge is a new standard in franchisor responsibility and risk management – one which will serve to give greater certainty of legal compliance and improved systems for cost management at

FEATURE : re ta i l fra nch isi ng both franchisor and franchisee level. A new model, perhaps, for others to examine and adopt, in part, or whole, in their own way as best fits the system in question. Ultimately, doing so can help deliver greater confidence of forecasting profitability and identifying any financial vulnerability at the earliest time – rather than when it is too late. This is very important for the ongoing success of the franchise model.

“To flourish, franchising like every business brand, needs its constituent parts to be operating smoothly and without fear of imminent break-down.” Steve Wright | Acting CEO | Retail Council

for the franchise brand and its future. Hopefully the 7-Eleven experience can help others avoid the pitfalls.

What the ABC-Fairfax exposé on 7-Eleven did was paint in stark relief the importance of clear visibility of franchisee compliance and financial performance.

financial health and/or employee pay compliance, then they are in constant danger of brand damage – quite likely caused through no fault of their own and executed in ways quite difficult to police and counter.

Without such visibility, how can brand owners truly be sure about the financial health of their franchisees; about their compliance with business absolutes such as employment law.

“…How the hell do I deal with this sort of thing?” may well have been muttered under the breath of more than a few brand owners as they read the newspaper stories about 7-Eleven.

To flourish, franchising like every business brand, needs its constituent parts to be operating smoothly and without fear of imminent break-down. This is important not just for the here-and-now success of franchise brands, but for their ability to find new franchise partners for future expansion.

If they cannot be sure about franchisee

But that reaction is not really good enough

It is not good for franchising to see so

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“What 7-Eleven comes up with to systematically address the issue may well be the light under the bushel for the franchise sector.”

critically attacked one of its showcase businesses: 7-Eleven is an accomplished, industry-awarded and financially successful business, for franchisor and franchisees, proven over decades and through major expansion of the brand’s retailing activities and its now 650-strong network. 7-Eleven’s owner, Russell Withers, sits comfortably in the top echelon of the Franchising Hall of Fame maintained by the Franchise Council of Australia. His embarrassment at what had happened inside the brand he had nurtured from its inception and over 30 years, was palpable. There was no questioning his commitment to setting the matter straight when Withers appeared before a Parliamentary committee (convened for a different purpose but which gleefully grabbed the opportunity to interrogate him). To his credit (and to his significant financial loss), Withers did two big things; 1) He took responsibility and stood aside as chairman so that the matter could be addressed without any suggestion of him trying to sweep it under the rug; and 2) He gave an open-cheque personal assurance that underpaid franchisee employees would be properly compensated no matter the cost, even though he must have known such a commitment would be exploited by unscrupulous opportunists, some of whom may still be within his business. That was the start of a long campaign of brand repair for 7-Eleven; one which has had its ups and downs, but which now can clearly see the light at the end of the tunnel. This situation has already cost 7-Eleven almost $60 million. When it is all done and dusted the cost might run north of $100 million. That is enough to send shivers down the spines of any franchise owners in service and fast food businesses which run long hours

(sometimes 24 hours) nigh on every day of the year. The Age did not have to think very hard to come up with a long list of companies it decided should be in the spotlight. It pointed its finger at a number of highly successful small-store, home delivery food brands, but there was another it singled out for extra attention: Caltex. As an operator of petrol stations and longhours convenience stores, it had similarities to 7-Eleven. Again, to its credit, Caltex acknowledged the problem up front. It too is setting about fixing things. But the Australian Financial Review (AFR) noted one very big difference in the reaction, though it did not make any comparison with 7-Eleven. Caltex, the AFR said, was now considering whether it would continue with the franchising model. It cited risk of corporate reputational damage as the key influencing factor, adding that the franchise brand itself was under attack. In other words, Caltex was wondering aloud whether the prospect of the franchisor being held responsible for franchisee misdeeds it regarded as outside its direct control was actually worth the reputational risk of continuing with the franchise model. Perhaps it may be better to withdraw to the relative safety of a direct employee relationship with store managers. In submission to the parliamentary inquiry, one of the sector-wide issues raised by 7-Eleven was its belief that the most recent changes to the Franchising Code of Conduct had pushed more onus of responsibility on franchisors and made it harder for franchisors to effectively discipline recalcitrant franchisees.

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Reading between the lines is a perception that franchisees are feeling stronger in their insistence that there is no cause for termination of a franchise contract so long as any breaches are rectified. And that acts committed by them can be acceptably described as being ‘forced upon them’ by the brand owners, as if this somehow frees them from any culpability. Caltex says it will not tolerate wage fraud or underpayment of staff by franchisees. It will cancel the contracts of perpetrators. It is adopting a harder line than 7-Eleven has taken in the past year. It will be interesting to look back in a year’s time and track the progress of each case. It seems likely that the individual brand damage and the sector damage will continue for some time yet. The big question is will the franchise brand emerge with a more resilient future, or one where new franchisees are harder to find and new franchisors become fewer. Steve Wright is known for his depth of experience in corporate and investor relations, industry representation and financial market activity. A former CEO and company director, he has represented small and large international companies including five years as Executive Director of the Franchise Council of Australia. The Retail Council is the voice of Australia’s top retailers driven to achieve sustainable growth of retail in Australia for the benefit of the consumer, the industry and the economy. Formed in 2006, the Retail Council represents members committed to advancing retail in Australia, fostering economic growth and supporting job creation. Retail Council members are part of an industry that is a top ten contributor to Australia’s Gross Domestic Product (GDP) contributing more than $134 billion of total economic activity through more than 127,000 retail operators nationwide and providing jobs to more than 1.25 million Australians. 61 2 8823 3515 admin@retailcouncil.com.au www.retailcouncil.com.au

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www.businessfranchiseaustralia.com.au Business Franchise Australia and New Zealand 47

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Preparing your franchise for the pressure of January Most franchises are similar to other retail outlets insofar as they can expect a spike in business in the lead up to Christmas, followed by big drop off in January, when most customers are still on holiday and are therefore not looking to engage their services or buy their goods. This creates a degree of pressure for franchises to generate significant additional income during the end-of-year period, to protect themselves against insolvency during the quiet period in the New Year. Every January, there is a large increase in the number of insolvencies of franchisees who have failed to fully capitalise on that busy Christmas period; to give them enough of a buffer during the slow period that immediately follows it. Franchisees who forget to allow for late and non-payment by customers and struggling to make sales after Christmas when consumer demand typically falls, can also find themselves in a pickle. Christmas can be a difficult time for franchises. It can be a profitable period, but there are so many other demands on the customer wallet during that time that it is not a given that it will be a bumper period. Experience tells us that when franchisees need an exceptional seasonal sales period and then hit financial difficulty, we often see failures in the first quarter. It is not unusual

“There are so many other demands on the customer wallet during that time that it is not a given that it will be a bumper period.” Mark Hoppe | ANZ Managing Director | Atradius

in this sector to be loss-making during Q1 and, with the first payment of quarterly rent due in January, it can be difficult to survive after a poor Christmas period. As franchisees approach the busiest time of the year, they should take a moment to think about what trading is going to be like in the lead up to Christmas, before rushing into increasing stock and staffing levels. This is an ideal time to review labour budgets and sales forecasts. For example, with the continuing decline in consumer confidence, will the same levels of stock be required as in previous years? Having too little stock will result in loss of sales, but too much stock will necessitate heavier discounting post-Christmas. The franchise industry is under enough pressure already. With a proportion of income generated by a franchisee to be paid to the parent company for marketing, commission and inventory, they should get ahead of the curve so they can avoid going out of business due to bad debt. Recent franchise collapses, such as Pie Face and Eagle Boys, have highlighted how quickly franchises can become insolvent,

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and Christmas is a vulnerable time for this to happen. Experts have already warned that these recent high-profile collapses may be just the start of a broader industry slowdown. The Australian Securities and Investment Commission’s September 2015 quarterly statistics revealed that insolvencies had increased by almost 10 per cent compared to the previous quarter. When consumers stop spending money, it’s a sign the economy is uncertain. Franchises may be vulnerable because it is a costintensive business. They must carry stock, maintain premises, and pay labour and marketing costs, amongst other overheads, so protecting cash flow is essential. If, as expected, consumers spend less this Christmas, franchisees may feel the effects. It’s important that franchises seek ways to reduce their exposure to risk and decrease uncollectible account expenses in order to trade confidently. Buyers who cannot pay at the agreed time, or are unable to pay at all, can damage the organisation’s cash flow. This can cripple the business and damage relationships with other trading partners. Credit insurance lets suppliers trade

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“Buyers who cannot pay at the agreed time, or are unable to pay at all, can damage the organisation’s cash flow. This can cripple the business and damage relationships with other trading partners.” confidently, even when consumer demand falls and customers might struggle to meet payments, as it reduces suppliers’ exposure to risk and can significantly decrease uncollectible account expenses, regardless of whether it’s the customer’s fault or not. It’s possible that tough times are ahead for franchises if the wider retail sector is anything to go by. These organisations should get ahead of the curve now so they can avoid going out of business due to bad debt. Securing their cash flow means franchises can innovate to stay ahead of the competition and remain viable even as the market tightens. Atradius provides trade credit insurance, surety and collections services worldwide through a strategic presence in 50 countries. With access to credit information on 200 million companies worldwide, its credit insurance, bonding and collections products help protect companies throughout the world from payment risks associated with selling products and services on trade credit. Atradius forms part of Grupo Catalana Occidente (GCO.MC), one of the leading insurers in Spain and worldwide in credit insurance. For more information contact: 02 9201 5222 info.au@atradius.com www.atradius.com.au

Business Franchise Australia and New Zealand 49

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fo c u s : CL A R K RU B B ER

buildPOOLyour & SPA future with BUILD YOUR FUTURE aWITH retail A RETAILicon ICON

With a proud retail

Our industry knowledge will help you over the past build a strong history business, becoming the 70 local pool specialist your territory andis years,inClark Rubber helping you work in a lifestyle environment. a recognised Australian Our franchisees benefit from:

Retailer. Having an award winning national franchise • Unparalleled national and local support • Proven marketing strategies networkand ofbusiness 65 stores • Group buying power Australia, and throughout Our business development and support teams • No franchise fees franchise will assist you in building your successful business. tworenewal individual We have a number of new franchise models • Turnkey development and set up models plus a mobile pool available and are looking for motivated and • Retail brand celebrating 70 years service territory franchise, business orientated people to join our network. • Multi Award winning franchise system Clark Pool & Spa Shops start from $147,500 plus there aretraining manyand great • Unsurpassed initial working capital. ongoing support opportunities and reasons to join this Australian Retail If you would like to hear more about franchise opportunities in your area, please Icon.contact Dirk Heinert for a confidential discussion on (03) 8727 9999 office or mobile 0400 922 493 or dirk.heinert@clarkrubber.com.au

50 Business Franchise Australia and New Zealand

clarkrubber.com.au

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“We’re with you every step of the way, whether you are taking over an existing store or starting up a new location or territory.” Started in 1946 by two men, Charlesworth and Clark, the initial partnership was known as Clark Matting and Rubber. The business grew quickly and, in 1951 the business was listed on the Australian Stock Exchange. In 1961 the name was changed to Clark Rubber stores. In 1982, Clark Rubber was purchased by the Adsteam Group, which continued to operate the business until 1994. At this point the Clark Rubber name and logo were sold to Vita Pacific, a wholly owned subsidiary of Pacific Dunlop, and the network of retail stores were closed. It was at this time that Chris Malcolm, a veteran of Australian retailing, stepped in. After lengthy negotiations, Chris licensed the Clark Rubber brand from Vita Pacific. Deciding that a franchise model was the best way to grow an already established and recognised brand, the first franchised Clark Rubber store opened in Nunawading in 1995. By 1998 the 50th store had opened and Clark Rubber was once again one of the best recognised brands in Australian retail. In 2000, Chris Malcolm bought the Clark Rubber brand from Pacific Dunlop. The store network continued to grow and, in 2003, Clark Rubber was recognised as the Franchise Council of Australia’s Franchisor of the Year in the ‘Entry Capital over $200,000’ category. In the same year, Chris Malcolm was inducted into the Franchise Council of Australia’s ‘Hall of Fame’. Three years later, Clark Rubber was awarded the Franchise Council of Australia’s highest honour, Franchisor of the year.

Great Products – Strong Marketing Clark Rubber franchisees enjoy the combined stock buying power that only comes from being part of a large national network. Our dedicated merchandise team works closely with suppliers to build product

ranges across our key categories of pools, foam and rubber. In addition, we source products, develop promotional offers and negotiate terms and pricing. Making sure that products meets the needs of our customers and the market, no matter which model you choose, you will benefit from the knowledge and expertise relevant to your business. Marketing and advertising are key to the ongoing success of any retail business. At Clark Rubber, each year we invest in brand development and national retail advertising campaigns, across all relevant and current channels, to ensure that we are continuing to drive customers and business to you. We also work closely with all Clark Rubber franchisees to develop and execute effective local area marketing at a local store level.

An ongoing commitment Clark Rubber franchisees benefit from a proven franchise system. Not only providing our franchisees with the knowledge and skills they need, but also ensuring that they have tangible business tools and support needed to help them run their business. We’re with you every step of the way, whether you are taking over an existing store, starting up a new location or territory. We provide support in the areas of site selection, lease negotiation, store development and in-store merchandising. Clark Rubber franchisees and their staff benefit from a comprehensive initial and ongoing training program. Covering product knowledge, customer service, retail

operational and compliance topics, training is delivered through a combination of individual, group and online programs. You will also receive the IT infrastructure required to manage every aspect of your business including stock control, POS, financial reporting and benchmarking. Our IT helpdesk is on hand to assist you with any system related issues, keeping your business operating ongoing.

National Strength, Local Support In addition to the national support team, all Clark Rubber franchisees benefit from the ongoing relationship with a dedicated Regional Sales Manager. Their role is to spend time with you, in your store, working with you to achieve your goals and provide regular feedback and support on all aspects of store performance.

Clark Rubber Franchise Models There are three individual models that make up Clark Rubber, designed to provide flexibility to potential franchisees and markets, whilst capitalising on the strong brand reputation gained over the past 70 years.

Clark Rubber Stores Including a unique product mix of pools, foam and rubber, these stores provide strong customer appeal and income potential across all seasons. Products include modular pools, pool accessories, equipment, rubber matting, extrusions and hoses as well as being Australia’s largest retail supplier of cut foam

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fo c u s : CL A R K RU B B ER

including an in store foam cutting service, supported by a great range of Sleepmaker innerspring mattresses and foam mattresses. Clark Rubber stores also include their own mobile pool van, providing you with the opportunity to build a strong local market.

Clark Rubber Pool & Spa shops Leveraging the Clark Rubber brand and reputation in pools, the Clark Rubber Pools & Spa franchise model has been developed to allow for a complete focus on pools and spas sales and service. All our Pool & Spa franchises operate a pool service van, allowing you to service your customers through both the store, and at their home.g. Being a part of the national franchise network you will also benefit from the great advantages of group buying, marketing and support.

Clark Rubber Pool Care Service Territories Understanding the needs of the pool and spa industry, included as part of the Clark Rubber franchise group is the opportunity to own your own mobile pool service territory. With the ability to market and service your own area, the flexibility to work from home, and the hours that suit you and your

â&#x20AC;&#x153;Marketing and advertising are key to the ongoing success of any retail business. At Clark Rubber, each year we invest in brand development and national retail advertising campaigns.â&#x20AC;?

customers, this low-entry business model is a great way to run your own business yet with the support of a national brand and franchise network.

product mix to meet customer demand and changing trends within the market. Our online shop is designed to drive business direct to your store.

At Clark Rubber, our commitment to customer service and providing our customers with solutions helps us to differentiate us in the market and with our customers. Coupled together with our extensive product range, you have the opportunity to build a strong business and retail destination within your local market.

The uniqueness of Clark Rubber stores, with a product range across Pools, foam and rubber, provides a strong market position supported by a well-recognised and reputable brand. Customer service is a key focus â&#x20AC;&#x201C; and is a differentiator of Clark Rubber to many of its competitors.

All of these franchise models benefit from being a part of a national franchise group. With the initial training program, ongoing support and business development across all areas of the business as outlined above, the national support team is available to assist you in achieving the best results and grow a profitable and successful Clark Rubber business. The national marketing program is developed to help drive traffic and sales for your stores and is to ensure market presence throughout the year, and for all seasons. Products are sourced to ensure the best

52 Business Franchise Australia and New Zealand

With a strong vision for growth now and in the future, including three franchise models in Clark Rubber store, Clark Pool & Spa shop and Clark Pool Care franchise territory, you can choose the opportunity that suits where you want to go. For more information and to enquire about current opportunities, contact Dirk Heinert on: 03 8727 9999 dirk.heinert@clarkrubber.com.au www.clarkrubber.com.au

BUILD YOUR FUTURE WITH A RETAIL ICON

As one of Australia’s iconic retail brands, with a proud history over the past 70 years, we now have 65 stores nationally. Our award winning franchise model commenced in 1995 and offers a vibrant product range providing you a great platform to start your own successful business in the pool and spa industry. Our business development and support teams will assist you in building your successful business. We have a number of new franchise models available and are looking for motivated and business orientated people to join our network. Clark Rubber Retail Stores start from $420,000 plus working capital.

Our industry knowledge will help you build a strong business, becoming a retail destination store for all things pools, foam and rubber. Our franchisees benefit from: • • • • • • • •

Unparalleled national and local support Proven marketing and business strategies Group buying power No franchise renewal fees Turnkey development and set up Retail brand celebrating 70 years Multi Award winning franchise system Unsurpassed initial training and ongoing support

If you would like to hear more about franchise opportunities in your area, please contact Dirk Heinert for a confidential discussion on (03) 8727 9999 office or mobile 0400 922 493 or dirk.heinert@clarkrubber.com.au

clarkrubber.com.au Business Franchise Australia and New Zealand 53

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e x per t a dv i c e

The three P’s of franchising So you’ve decided you want to be a franchisee. You’re not alone. Franchising has been a part of Australia’s business ecosystem since the early 1970s and has literally transformed the local retailing landscape. The reasons for taking on a retail franchise are as vast and varied as the franchise systems in Australia to choose from. For most however, choosing a retail franchise is about owning and operating a business within a supportive environment where you benefit from all of the experience and advice a franchise system has to offer, as well as a recognised brand name.

Beyond the brand, when you start the process of comparing one retail franchise to another, there will appear to be more similarities than differences among the franchise systems. But that’s only when you look at each franchise on paper. The reality can be very different, so in addition to conducting due diligence around the dollars and cents, when it comes to making the decision about which franchise to invest in, equally consider the 3 key P’s of franchising – People, People, People.

What is the franchise strategy and who are the key people behind it?

Without getting these three P’s right at the outset; the people behind the franchise, the key relationship you have with the brand and the support you will receive as a franchisee, you won’t be in a position to support what are arguably the most important people in franchising, your colleagues and your customers.

Getting to know the franchise leadership team will also provide a window into the culture of the organisation. With culture being at the heart of every business, franchise or not, if there’s no connection from the beginning, there is unlikely to be that connection when you’ve committed to the business no matter how hard you work to make your franchise a success.

Here are three key questions you need to consider before signing on the dotted line:

54 Business Franchise Australia and New Zealand

Understanding the future direction of the franchise you’re considering is no doubt top of mind, but have you also considered the people behind the strategy; those developing and directing the strategy? It’s important to have confidence in both the business direction as well as the skills, abilities and style of the leadership team at the helm.

The challenges associated with buying into

Richard Wynn | Co-founder and Managing Partner FutureYou Executive Recruitment

but that they also embody the company culture. In fact, the field manager’s focus and behaviour is a good indicator of the culture that exists in the business and how the franchisor regards, and wants to work with the franchisee. If there is no connection, or mutual respect between you both, then you may want to reconsider your franchise options. More than there being an immediate connection, what you also want to understand is the type of relationship you will have with this person. It’s all well and good to have a comfortable ‘coffee shop’ relationship with the franchisor where you talk about the issues you’re facing and how to resolve them, but a franchising relationship needs to be much stronger than that.

a company but not the company culture only compound when it comes time to build a successful team around you to build the business and create a positive experience for customers.

Who will be my key relationship when I’m in the business and operating my franchise? In every franchise system, there is one key relationship you as the franchisee will have with that brand that you need to be aware of. Often called a field manager or area manager, this person will have more to do with the success of your franchise than any other person across the franchise system. Broadly speaking, there are four key roles that this person fulfils - to provide support, coaching, direction and leadership. Franchisors go to great lengths to ensure the people in these critical roles are not only exceptional business coaches and leaders,

support at all and the franchisee is left to go it alone as you would in a startup or if you were to buy an existing operation that is not franchised. So when you’re making a decision about which franchise to buy into, understand exactly what that ‘support’ is going to look like across key functional areas such as operations, merchandising, marketing, IT and finance in addition to the support, coaching, direction and leadership you will have through your field manager. Whether you are a new or established franchisee, a franchise group’s systems and support mechanisms along with the key support people in your area should be able to recognise your needs and assist you to build a profitable business from the ground up. Always keep in mind that the level of support you receive through a franchise system does have strings attached - you are required to run your business within the constraints of the franchise agreement, complying with rules and processes, and if you do breach the agreement, you may risk losing your franchise altogether.

What you need to be looking for in a franchise partnership is what many term a ‘marriage’, where the franchisee will do more than help you solve problems, they will work alongside you to identify opportunities to boost sales or profitability and implement practices that will take your business to the next level. What’s important to recognise is that in every commercial marriage, there needs to be a senior partner, and in franchising, that senior partner is the franchisor.

Retail franchisees are however quick to point out that while there are support mechanisms in place, you can’t be a part-time franchisee and be successful. Sure, you may get the benefits of being part of a national brand and network, but at the end of the day, you’re still running your own business and to be successful in retail, that means you need to commit 7-days a week. Many say the benefits of owning and operating your own franchise business outweigh any sacrifices that need to be made but this is a very personal decision.

Aside from getting to know your key day to day contact, a good franchisor will ensure you meet with all the key people across the business, from senior management through to fellow franchisees. There is always going to be the good and not so good in any business and existing franchisees will be best placed to share this and enable you to make a balanced and informed decision about investing in one franchise over another.

So before making the move from employee to franchisee, take the time to investigate the 3 Ps of franchising alongside the dollars and cents. In the long term, taking the time to do this will pay dividends.

What support does the franchisor provide you and what does that support actually look like? As a franchisee, you’re not just buying into a brand, you’re buying into a proven franchise system. The challenge is, on the surface the support a franchisee receives through each franchise system looks remarkably similar. When in reality, some do not provide a lot of

Richard Wynn is co-founder and managing partner of FutureYou Executive Recruitment. FutureYou was formed in 2016 on the belief that there is a better way to connect outstanding talent and Australian based businesses. Richard has more than 23 years’ experience in the retail industry as a professional and in the recruitment of senior and executive level professionals in both the UK and Australia. 0448 416 172 richardwynn@future-you.com.au linkedin.com/in/richardcwynn http://future-you.com.au/

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“What’s important to recognise is that in every commercial marriage, there needs to be a senior partner, and in franchising, that senior partner is the franchisor.”

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e x per t a dv i c e

Leasing What you need to know as a Franchisee You’re thinking of becoming a franchisee and you need a location to run your business. That means that you most likely need a lease – but what do you need to think about when committing to a lease for a new site, what are the things that you need to be aware of, and how do you get help? Here’s a list of a commonly asked questions when entering a new lease.

Who holds the lease? Store or site leases can be set up in many ways – the franchisee can take out a lease in their own name or in some cases the franchisor holds the head lease. There’s no right or wrong way about it. If the franchisor holds the head lease you need to check what your rights are - what will your responsibilities be under the lease?

How long should the lease be? A typical retail lease comprises a term in the range of five (5) to seven (7) years. Prior to the lease commencement date you will be given a handover date. This refers to the period given to fitout the store in preparation for opening, this period is generally a month and is rent free. Thinking further into the future; leases can contain options to renew at the expiry of the initial term. These options will generally be the same amount of years as the initial term. In conjunction, there maybe multiple options meaning you can then further continue to renew well into the future. As franchisee it is paramount that you understand the concept behind these options as it will provide a secure future to your business.

What happens at the end of the current lease term? Your lease may contain options to renew. If it is your intention to continue with the site then the renewal is simple. Your rent will be decided between you and the landlord. If the terms cannot be agreed on, then a third party determining valuer will provide the binding commencement rent. In major shopping centres however, you will not be given any options to renew at the end of

56 Business Franchise Australia and New Zealand

your initial term. However, in most cases the centre will begin negotiations with you to settle a new lease. What happens if negotiations aren’t settled before your expiry? That’s a common occurrence and a holding over period will commence. In this period you will pay the final year’s rent on a month to month basis whilst negotiations are finalised.

What if you do not want to renew the lease at the end of the term? You are under no obligation to renew the lease at the expiry of the initial term unless

FEATURE : r e ta i l fr anch isi ng specifically mentioned in the lease. Rent is a substantial overhead cost that can determine the longevity and success of your business. As a franchisee, you must consider what is in the best interests of your store and you are encouraged to analyse and review your current and future arrangements before committing to a renewal or relocation.

Leasing in a shopping centre versus leasing in a strip location Shopping centre leases are very different to that of standalone strip retail. Shopping centres as mentioned before do not offer

â&#x20AC;&#x153;Rent is a substantial overhead cost that can determine the longevity and success of your business. As a franchisee, you must consider what is in the best interests of your store and you are encouraged to analyse and review your current and future arrangementsâ&#x20AC;? options whilst strip retail do generally offer multiple options. Moreover, shopping centres will charge whatâ&#x20AC;&#x2122;s known as a promotions levy which is generally a percentage, around 5 per cent of rent, in conjunction with outgoings. Outgoings are also derived differently - shopping centres will derive your outgoings based on a percentage of area that you occupy and charge you the relative

outgoings based on the whole centre. For example; if your store occupies 100 sq. m. whilst the shopping centre has a lettable area of 5,000 sq. m. you are responsible for paying 2 per cent of the total outgoings of the centre. Whilst strip retail is much more simple as outgoings are clearly charged to the single standalone chamber.

Business Franchise Australia and New Zealand 57

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“You are under no obligation to renew the lease at the expiry of the initial term unless specifically mentioned in the lease.”

What is a Bank Guarantee? When entering a lease the lessee is required to provide a bank guarantee to the lessor. This is simply a bond provided by the bank on the behalf of the lessee, to assure the lessor that the lessee is financially viable and can afford the rent.

What insurance might you require? Insurance is mandatory when investing in a franchise or operating in any centre. In the lease such insurance requirements will be clearly stated. This figure should cover all content within the store as well as any unforeseeable events which could be devastating to your business.

Permitted Use – What does this mean? In every lease agreement, there will be a permitted use clause. This clause is simply as the name suggests. This outlines the permitted uses within the site. However, this isn’t something to stress over as each company will have a standard permitted use which is inserted in every lease.

Market Reviews – What are they? There are two types of reviews contained in a lease; annual reviews and market reviews. Annual refer to the fixed increases at the end of each year of the term. For example, the annual reviews can be fixed at 4 per cent

meaning the rent will increase by 4 per cent at the end of each year of the term. Market review refers to the review that occurs at the end of the full term, which results in the rent being taken to ‘market’.

What if you don’t pay the rent? As a franchisee you are responsible for paying the rent in a timely fashion and if you fall behind this is called going into arrears. This situation is not ideal and any company would advise against it. It is in your best interests as a franchisee to pay the rent by the due date to create a sense of credibility within the respective management or landlord. A lack of punctuality will be counter-intuitive to the lease renewal and can result in landlords acting unfavourably towards your particular site. However, in some cases it is your right to refuse rent if there is a legal issue or breach of contract.

Selling your business? What do you need to keep in mind in regards to your lease? When selling your business you need to keep in mind the lease that is connected with the store. If the lease is assigned to the company then you as a franchisee can sell the business with ease as the lease is technically not assigned to you. However, if the lease is assigned in your name you are required to make a changeover of lease or formally exit the lease. The landlord in most cases will happily change over the lease as this will have no effect on the income flow.

58 Business Franchise Australia and New Zealand

Current Legislation In Australia, there is no legislation at a federal level to regulate the relationship between the lessor and lessee in relation to commercial and retail premises. Retail leasing legislation is the responsibility of individual State and Territory governments and differs in each State and Territory. The current relevant legislation for each State and Territory is as follows: • Victoria - Retail Leases Act 2003 • New South Wales - Retail Leases Act 1994 • Australian Capital Territory - Leases (Commercial and Retail) Act 2001 • Queensland - Retail Shop Leases Act 1994 • South Australia - Retail and Commercial Leases Act 1995 • Western Australia - Commercial Tenancy (Retail Shops) Agreements Act 1985 • Tasmania - Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 • Northern Territory - Business Tenancies (Fair Dealings) Act 2003 When looking to purchase a franchise business or negotiate your lease, it’s always recommended to source a reputable lawyer that understands both franchising and leasing. Have your lawyer review all documents and arrangements and clearly explain to you what your rights are. Peter Fiasco and Alex Ellis-Czerkaski, Hairhouse Warehousewww. hairhousefranchising.com.au

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