Franchise Rise?

Michael Lohman feels optimistic about his franchising business this year, and he bases his hunch on market conditions as well as what he sees happening in Washington, D.C. As chief executive of Simi Valley portable storage franchisor Go Mini’s, Lohman perceives the Trump administration as business friendly on regulation, tax reform and labor and health policies. He is particularly excited about the nomination of fellow franchisor Andrew “Andy” Puzder, chief executive of Hardee’s and Carl’s Jr. parent company CKE Restaurants Inc. in Anaheim, as secretary of labor. Puzder is credited with rescuing CKE founder Carl Karcher from bankruptcy in 1991. He joined the company officially six years later as corporate counsel and was promoted to chief executive in 2000. At the time, CKE was struggling to keep operations afloat, and faced more than $700 million in debt. CKE reported revenues of $1.3 billion in 2013, the year it was sold to private equity firm Roark Capital Group for $1 billion. Puzder remained at the company’s helm; according to his personal website, CKE saw $1.4 billion in revenue for fiscal year 2016. “We all know what (Puzder) represents as a businessman,” Lohman said. “With him up there as a decision-maker, we feel pretty confident as an organization.” Renewed investment That confidence has translated into big moves for Go Mini’s, including significant investments in California. On Dec. 17, the company announced the opening of a franchise in Riverside, and is in talks with a prospective franchisee for a location in Irvine. Lohman himself is looking to sell off some of his territory in western Ventura County in order to expand into the San Fernando Valley. “The prospects I’ve talked to feel that now is the right time to invest,” Lohman said. “They like the self-storage model and feel comfortable investing in this era.” Franchisors in general have enjoyed modest but consistent gains in output and employment over the last five years, according to a report last month by IHS Economics for the International Franchise Association. But a rising minimum wage and regulations like the joint-employment standard have begun to weigh down on growth, noted a report published in October by the Rosenberg International Franchise Center at the University of New Hampshire. Lohman expects that empathetic ears at the federal level will turn the tables in favor of businesses like his own. “The executives the president has chosen – guys like Puzder and Rex Tillerson – are actively running a company or have been exposed to these regulations in that capacity, so they understand our view,” he said. “They know all those regulations have a direct impact on our businesses.” Kenneth Lord, dean of Nazarian Business College at California State University – Northridge, thinks that while it is too early to tell what the future has in store, there is reason to be optimistic about a more favorable business climate for franchisors under the Trump administration. “I’m not a prophet, but I think that possibility certainly exists,” Lord said. “Looking at Puzder’s background, he certainly brings expertise and a high level of success in the franchise sector to the table.” Mini’s turnaround Lohman’s faith in the franchise model stems from his experience at Go Mini’s. The company originated in Jacksonville, Fla. in 2003 under founder Bill Norris. Back then, its primary revenue stream was the sale of territories to individual dealers, who purchased the company’s steel storage containers through Norris and rented them out to customers. Lohman joined the company as its first dealer in California, setting up shop in Simi Valley. “I just loved the business – I grew it and grew it,” he said. “But then, of course, 2008 came along.” While the recession had little effect on existing Go Mini’s dealerships, it brought Norris’ business to a standstill. The banking collapse left would-be dealers without capital to open new locations. Manufacturing facilities shuttered, cutting the supply of containers. Meanwhile, Lohman noticed that competitors Portable On-Demand Storage, or PODS, and 1-800-Pack-Rat both seemed to be performing well despite the ailing economy. “They had started out under the franchise model, and they became really successful,” Lohman said. At Go Mini’s 2012 national conference in Atlanta, he went before Norris and the rest of the company to propose a new idea. He would establish an investment fund for himself and other dealers, purchase Go Mini’s from Norris and establish it as a franchisor. Though they would have to pay royalties at first, the dealers would now be the owners of the company. If Go Mini’s was as successful as PODS and Pack Rat, a buyer might come knocking – and as franchisees, they would continue to benefit from the business long after completing their exit strategy. To Lohman’s surprise, the audience loved the idea. Upon returning to California, he commissioned a corporate lawyer to hash out the details. Within six months, he and the other dealers had struck a deal with the founder to purchase 80 percent of the company, leaving Norris with a minority stake. In January 2013, Go Mini’s 45 licensing agreements officially converted to franchise agreements. In the four years since, the company has witnessed revenues jump tenfold, according to Lohman. Today, Go Mini’s holds 79 franchise agreements representing 145 locations nationwide. “It was definitely the right thing to do,” Lohman said. Regulation rollbacks Though he considers Go Mini’s successful, Lohman believes federal overreach has hindered its growth. Self-storage franchisors are less susceptible than other types of franchise businesses to labor disputes, but they do grapple with extensive taxes, motor carrier permits and city and state regulations on where storage containers can be placed. “One of the nice things about running this business is that you don’t have to have a lot of employees,” Lohman said. “But the more popular the self-storage model has become, the more laws there are that try to restrict storage units in certain areas, so we are fighting that all the time.” Financial regulations under the Dodd-Frank Banking Reform and Consumer Protection Act are another major strain on Go Mini’s business model, Lohman said. Signed into law by former President Barack Obama in 2010, the legislation aims to control or eliminate the risky banking practices that led to the Great Recession. Though the act was designed to protect consumers from falling victim to predatory lenders, its language also has made it more difficult for financial institutions to offer business loans to franchise buyers. “If we don’t have access to capital, it’s a huge stumbling block for us,” Lohman explained. “Over-regulating the banking administration has ended up hurting the good guys by preventing their businesses from being able to raise the money they need to hire more employees and grow.” The issue is not unique to the portable storage sector. Nick Andrisano, president and chief executive of Amici Pizza, believes that limited access to loans from the Small Business Administration has slowed the recovery of his restaurant’s franchise business in recent years. “In the past people would be looking for SBA loans to open Amici locations,” he said. “But they made it so tough to get SBA loans that people were losing interest.” Economic strength There are signs that a recovering economy may be enough to stimulate franchise growth, regardless of politics. Like Lohman, Andrisano also has noticed heightened interest from potential franchisees. He estimates he has received as many as 50 inquiries about new Amici locations over the last six months alone, a notable jump from the 20 to 30 he typically sees in a year. “I’ve had more inquiries than I’ve had since the Reagan administration, when we did our greatest number of openings,” he said. While he is hesitant to link the trend to Trump, Andrisano thinks greater confidence in the economy overall has emboldened would-be entrepreneurs. Lohman shares his view. “The business community hasn’t seen this level of confidence since 2000, when the economy was growing at around 4 percent,” he said. Along with the rest of the business community, franchisors will have to wait to see whether the regulation changes promised by the Trump administration come to fruition. But for now, there’s no reason not to enjoy the newfound optimism. “Just look at the market!” Andrisano said. “My business has increased tremendously. It hasn’t been pre-2008 sales, but we’re getting there.”