Covid-19 brought the world to its knees and became the cause of so many alterations in people’s daily lives and daily business operations. Eighteen months on and the effects of the virus are wide-ranging and varied in nature, and this is evident throughout the retail sector. Here, RLI delves into what effects the pandemic has had on expansion and franchising models for brands across the globe.
As we approach a post-Covid reality, what’s the state of the franchising industry?
As the pandemic spread around the globe like wildfire, it was the Chinese market that many looked to as a guide of the effect of coronavirus on businesses in other regions.
According to the ‘Impact of the Pandemic on International Franchising’ by Kristin Corcoran, the initial signs were hopeful that the pandemic was a storm that could be weathered for a finite period, with the retail sector being hit hard, followed by gradual, steady re-opening. She goes on to say that over time, international franchising and distribution represented a large part of the market share impacted by Covid-19, and it soon became clear that the governments of various countries needed to stabilise franchised businesses for the sake of the wider economy. As it became clear that the pandemic would rage on through the remainder of 2020, some of the solutions that were designed to carry franchise businesses for a short duration have had unintended consequences for other parts of the economy.
Corcoran’s article explains that many emerging franchisors are already poised to accelerate the use of technology to collaborate and communicate among their stakeholders, including franchisees and suppliers. If they remain flexible in adapting their business model to the changing landscape, meeting the needs of consumers as the crisis subsides; they will not only survive the pandemic but also grow in units and sales. While larger, more established franchisors will also look to adapt, their size and complexity may impede their ability to roll out the changes as quickly as smaller franchise brands.
An article by Omar Toulan and Niccolò Pisani entitled ‘Retail Growth Strategies: Surviving COVID-19’ highlights how many firms have used the franchised approach to grow their retail footprint. One of the primary advantages of this retail growth strategy is the reduced level of capital required. It also has the benefit, compared to a wholesale-based strategy, of having tighter oversight of the physical customer experience.
Store appearance and advertising is generally required to be consistent across locations, and franchise partners must purchase all merchandise from the firm.
Toulan and Pisani go on to say that a franchise strategy also presents challenges in moving from a purely physical to digital customer experience. While the firm is acquiring the skills to better influence the digital experience of its customers, its franchise partners may also be initiating their own activities in this domain, making it more difficult to collect information on customers and control the overall experience. While the franchised retail growth strategy may have held many advantages in the brick-and-mortar-dominated world, its attractiveness is challenged with the addition of online sales and digital customer experiences.
Franchising after Covid-19 might feel like a risky or daring move as many companies have been adversely affected by the pandemic, and are recovering from substantial losses. But here’s what you need to remember: The franchise industry is vast and varied. This is the view of Cara Squires of Point Franchise in her article ‘The State of Franchising in a Post-Covid World’ that suggests that for every struggling franchise operation, there are operations which have been able to adapt, thrive and grow throughout the past year. The franchising industry has been growing and evolving for years, with more and more people turning to franchising as a lower risk alternative to starting a business from scratch. This evolution took a new turn with the dawn of the pandemic, as many sectors experienced declining sales and impacted supply chains. Suddenly, new innovations were required, and while some franchisors missed the mark, other franchise operations thrived.
Has Covid-19 Changed Retail Expansion?
Retail expansion has long been known as the physical expansion of a brand’s store footprint in either its home market or abroad, and while this is most certainly still the case and is once again picking up speed following the lifting of some pandemic related restrictions around the world (as the section further below will highlight), has the outbreak perhaps sped up the increased importance of digital and e-commerce and that brands need to expand in this area. Amid slowing economic activity, Covid-19 led to a surge in e-commerce and accelerated digital transformation. As lockdowns became the new normal, businesses and consumers increasingly “went digital”, providing and purchasing more goods and services online, raising e-commerce’s share of global retail trade from 14 per cent in 2019 to about 17 per cent in 2020. These and other findings were showcased in a new report, ‘COVID-19 and E-Commerce: A Global Review, by UNCTAD and eTrade’.
According to a report by the Spinoso Real Estate Group, since the start of 2021 the amount of store openings announced by retailers is a number that is significantly higher than that of store closures, according to findings from Coresight Research. Numerous players in the industry are looking to grow – with lower rent and flexible lease terms as two major factors. Brick-and-mortar retail and expansions plans are on the rise like never before, significantly outpacing closures.
The Covid-19 pandemic may have forced the hand of many retailers to up their digital game following 18 months of turmoil and change, but long-term physical expansion still appears to be the way forward for many brands across the world.
Retailers in Expansion Mode
USPA Global Licensing has announced further expansion and the move sees U.S. Polo Assn. partner up with Alpar Do Brasil, a Brazil-based leader in apparel, footwear and sporting goods. The two entities have signed an exclusive license agreement for U.S. Polo Assn. apparel and footwear collections that will launch in Brazil for Fall/Winter ’22. Alpar do Brasil, founded in 1997, develops and distributes multinational fashion and sport products for small to major retailers and is the largest distributor of leading brands like Nike, Adidas, Champion, Havaianas and Lacoste in Brazil. U.S. Polo Assn. offers apparel for men, women and children, as well as accessories, footwear, sporting goods, travel and home goods in 180 countries worldwide through 1,100 U.S. Polo Assn. retail stores, department stores, sporting goods channels, independent retailers
Meanwhile, Swiss outdoor clothing brand Maya Maya are embarking on a new store expansion drive as well as implementing a franchise concept. Their new multi-sensory smart store is set to drop in December whilst spring of 2022 will see the launch of the first franchisee multisensory stores. The business model of their franchising concept is best represented by the slogan: ‘Franchising simplified, your returns magnified’ and they have a great set-up already in place ready to support their franchisees to help them perform to their best.
One of the latest moves by Giordano is to enter into an exclusive franchise agreement with Melcom Limited to launch Giordano in its key department stores and other prime locations throughout Ghana. The move sees Giordano continue its recent expansion in the African continent – adding to its portfolio which already includes Zambia, South Africa, Kenya and Mauritius, alongside its presence in over 30 other countries across Asia, the Middle East, Australia, Canada and Russia. The business expansion in the existing franchises is continuing while the company is adding more franchise partners in developing economies, Giordano have said. In 2020, 10 new Giordano stores were opened in Saudi Arabia, Mauritius, and Kenya. “We pride ourselves on being an international brand and in recognizing the truly dynamic nature of the region, it is essential that Giordano, as a truly customer centric brand, be made accessible across all geographies and cultures,” said Ishwar Chugani, Managing Director of Giordano Middle East.
Specialty vitamin and nutritional products retailer The Vitamin Shoppe is also set to expand via franchising for the first time in its history as it looks to pursue a new growth strategy. The retailer announced earlier this year that, for the first time in its 44-year history, it will partner with business owners to operate franchise stores across the US, the first of which will open this year and it comes amid consumers’ increased interest in wellness during the pandemic.
Another major US brand that is looking for expansion is Foot Locker, who are accelerating their expansion into Asia beyond malls and are moving forward via two separate transactions. The company has entered into a deal to acquire US-based athletic footwear and apparel retailer Eurostar Inc., or WSS, for $750M. The retailer operates 93 off-mall stores in California, Texas, Arizona and Nevada. In addition, Foot Locker will acquire Text Trading Company, which owns and licenses the Atmos brand, a digitally led, hot streetwear brand based in Japan, for $360M. The company has 49 stores, with 39 in its home country.
Ten years after opening the doors of its first global retailer in London, British luxury supercar manufacturer McLaren Automotive is set to open its 100th Retail Showroom in China later this year as global expansion continues. McLaren Automotive’s first retailer opened in the summer of 2011 and allowed customers and fans to discover the company’s first supercar, the 12C. In the decade since, McLaren has continued to grow its retail presence to over 40 territories worldwide and has marked the decade with much-admired supercars such as the benchmark-setting 720S and the seminal 675LT – the first of the modern-day McLaren Longtails – the McLaren P1TM which was the world’s first hybrid hypercar as well as the GT and ultra-exclusive Ultimate models, the McLaren Senna, Speedtail and, more recently, the Elva roadster.
Digital-first eyewear retailer Warby Parker is planning on opening hundreds of new locations to drive its next phase of growth. Just a month after the brand confidently filed for an initial public offering, Warby Parker has said that it intends to open around three dozen physical locations this year alone. This would bring the brand’s store fleet up to 160 and would just be the start of a much more significant bricks-and-mortar expansion. Their commitment to opening new stores across the country is a move that Warby Parker hope will unlock the next stage of its growth in the US.
Frasers Group, previously and more commonly known as Sports Direct is targeting a major European push as it looks to expand across the continent. The brand, which already has stores in Belgium, Austria, Portugal, Ireland and the Baltic states, intends to open flagship stores in all capital cities in Europe as part of a five-year plan to elevate its international status. The European expansion announcement comes following the brand’s £10M upgrade of its 50,000sq ft London flagship store on London’s Oxford Street. A further part of the expansion will be to increase the brands appeal to its main partners such as Nike, Adidas and Under Armour.
It is not just retailers that are in expansion mode, leisure operators are also growing their portfolio’s, with Singapore getting a sweet pandemic distraction as Museum of Ice Cream opens. A first international outlet for the company, the site features many interactive exhibits such as free-flow ice cream and a children’s ball pool filled with plastic multi-coloured ice cream sprinkles. The Museum of Ice Cream said it planned to expand to more locations soon, and indeed their next site had opened in Austin, Texas by the end of August.
Closer to home for RLI was the recent expansion of Flight Club into Leeds, in fact our Publisher Jayne Rafter and Event Coordinator Jess Milne were at the event as the new site in the Old Shooters Bar building on Park Row opened its doors. Work started on adapting the site almost three years ago, but the opening was delayed, like so much else, by the pandemic. With branches already open in London and Manchester, more sites in the UK and abroad are on the horizon for this new entertainment concept.