Franchising Becomes Safety Net for Some in Economy

Before the financial meltdown sent shock waves through the labor market, Chad Marshall was riding high as an executive at Panasonic Broadcast, where he’d worked his way up the ladder for the past 16 years. Then, his career that started out in the Air Force and included more than 25 years as a video engineer in the entertainment industry ended abruptly in February 2009. Laid off for the first time, he weighed his options. “I had been in management for so long that going backwards was difficult, my technical skills were not as sharp and there were very little executive positions available,” he said. “That’s when I started looking into franchises.” Marshall, who now owns a ComForcare Senior Services franchise in Glendale is part of a larger trend that is driving growth in the franchise business sector. Many, like him, have turned to franchises as a new lifeline in troubled times lured by the promise of growth and stability. “Typically there is an uptick in franchising growth during a down economy,” said Alisa Harrison, vice president, communications and marketing for the International Franchise Association. According to IFA’s 2010 Franchise Business Economic Outlook, the number of franchise establishments in the country is expected to grow by two percent or 17,801 units this year. Historically franchising has rebounded faster than many other sectors in previous economic downturns. After the recession of 2001, franchise companies added 1.2 million jobs over a five-year period, and grew at an average of 9 percent a year. During this downturn, the rate of growth has been slower, impacted by the difficulty that many business owners are facing in accessing capital, said Harrison, but the number of franchise businesses and their economic output is growing nonetheless. “The benefits of a franchise are huge. Franchising definitely legitimizes your business and gives you a lot of credibility to build on,” said Matt Hampton, who purchased a franchise at the end of 2007 after leaving his wholesale lending business at the time of the real estate market crash. Hampton now owns a CertaPro Painters franchise in Thousand Oaks. With the backing of the national brand (CertaPro is one of the largest painting companies in North America with more than 328 franchisees) Hampton’s business has been able to secure jobs to paint big stores such as Best Buy, Neiman Marcus, T-Mobile, Nike Town, and Sears, profiting from the consistent market of store remodels, revamps, and touchups, and also painting residential homes. “When the Stanley Cup finals for Hockey happened last year CertaPro had advertising nationally on television, so we had people calling us saying ‘I saw your ad on the hockey game’ which was pretty cool.” Pooled resources Without the backing of the franchise, the brand and the pooled advertising dollars it would be a lot harder for his painting business to succeed as an independent start-up, he said. Although franchises require owners to operate under the rules of the franchise playbook, which can be restrictive, in large part, it’s that support and solid foundation that franchises provide which is appealing to entrepreneurs who want to own a business and which is luring many into the sector during the down economy. “You’re buying into a system that has been proven and is associated with a brand name, you’re also getting the marketing and advertising support and training that you wouldn’t normally get when you’re starting a business from the ground up,” Harrison said. Even in the difficult economy, many franchisees like Hampton, are seeing their revenues grow. “We are growing year over year, in our second year we basically doubled what we had done in our first year. In 2010 we’re still seeing double digit growth, probably 20-25 percent over what we had produced last year, so we are continuing to see growth,” Hampton said. Franchises in certain business sectors are growing faster than others. Those in personal services, quick service restaurants and business services are forecast to see the largest percentage increases in economic output according to IFA. Franchises that cater to the aging population, such as ComForcare, are growing at an accelerated pace. Not all franchises are the same and not all franchises are growing. Those in the lodging sector are expected to experience a 0.8 percent decline in the number of establishments and a 2.4 percent decline in jobs in 2010, according to the IFA forecast. Overall, franchising is responsible for some 18 million jobs and that is estimated to increase by 0.4 percent with 36,000 jobs in 2010. Franchise output is expected to increase by 2.8 percent with a net gain of $23.6 billion in 2010. “We’re expecting franchise businesses will continue to outperform non franchise business this year,” said Harrison.