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Exploiting the global franchise opportunity

Exploiting the global franchise opportunity
Thursday November 1 2012

With UK retailers struggling to achieve growth in the domestic market, many are looking to explore the franchise model internationally. But apparel industry expert Dominic Potter argues that many lack the necessary management systems

Although the brand value and business model of a UK retailer may have traction in new markets, many retailers do not have the right systems in place to impose the required control over new franchise operations, according to Dominic Potter, UK managing director of apparel industry software developer Momentis.

Potter spoke to to highlight the risks facing UK retailers looking to expand abroad and explain the role that a streamlined model can play in enabling highly scalable franchise business operations.

Capitalising on international market

“As retailers look to de-risk the business model, franchising is gaining traction,” said Potter. “Retailers are increasingly exploiting the benefits of a lower cost route to market and local knowledge to achieve international expansion.

“The model is compelling: no investment in physical assets or long-term rental; and access to strong local knowledge and commitment, while retaining complete control over the product quality, brand and messaging. Furthermore, with growing numbers of well-established franchisee organisations offering experience and a fast route to market, there is a strong demand and commitment to new retail brands on a global scale.”

And yet Potter said many retailers are struggling to achieve the franchise vision: “Some lack confidence, which results in repeated postponement; for others, ill-conceived strategies result in unexpectedly high investments in manual effort to manage multi-national franchising,” he explained. “Far too many companies are simply not achieving the scale required to realise both the vision and expected levels of revenue.”

Missed business opportunities

He continued: “It is clear that, despite globalisation, improvements in communication infrastructure and an increasingly synergistic international marketplace, retailers cannot simply scale up successful domestic retail processes and expect to achieve a seamless, profitable franchise operation.

“Entering a new market raises additional challenges to consider – from ensuring franchisees in a different hemisphere see the right season’s products, to the prohibition of some cultural symbols, as well as a ban on certain types of leather in some countries. Failure to reflect these issues can result in entire collections held in customs – or franchisees being offered goods that are wrong for the market or season.”

Rather than taking time to tailor the catalogue for each franchise, Potter advised that organisations need to streamline the process. “By setting attributes for each customer, the catalogue should automatically reflect local sensibilities; franchisees can log onto a portal and only see a relevant subset of the collection, ensuring inappropriate items are either not offered or are flagged to the franchisee,” he said. “Automatic currency conversion and customs documentation can be created, removing an overhead for both franchisor and franchisee.”

Greater visibility and control

Potter said this approach would reduce the manual effort associated with managing each franchisee and eliminate the risk of dispatching inappropriate products, customs delays or financial confusion. Additionally, such a portal enables the retailer to have greater visibility over the franchisee order process.

“Franchisees have full visibility of the location of goods in the supply chain,” he added. “The portal eases the process of providing sales figures to the retailer – either direct into the portal or via a spreadsheet that can be uploaded into the system. This insight into local trends can be used to inform ongoing international expansion and aid the franchisee in the buying process.”

Potter suggested that by creating a centralised, portal-based approach to franchisee communication, retailers can streamline the management of the franchisee network, driving down costs and providing a flexible platform for rapid expansion: “Making it easy to view the collection, place and track orders, and manage the customs documentation in a single place, plays a key role in building the trusted relationship that is vital to a profitable franchise network.

“It is this combination of compelling franchisee offer with highly effective and efficient management of the franchise network that will be key to providing retailers with the confidence to embark upon international expansion and scale up rapidly to realise significant additional revenue,” he concluded.