Typically, when people make the decision to own their own brick and mortar business, they begin to envision themselves in a specific location. It’s natural to think about where your business would operate considering you’ll be the owner, you know the community, and it’s probably a venue or address you’ve always found well-suited for a business.
Franchising offers a strong opportunity for entrpreneurs to pursue those business ownership dreams right in the community where they’d like operate. In fact, in many cases, franchises offer sophisticated real estate site mapping services to provide accurate information about opitmal location placement. It will include drive-by traffic and many other details pertaning to the viability of the location.
Not all franchises can offer a new location in your neighborhood or dream location. Of course, many established franchises already have someone occupying a protected franchise territory which blocks new franchisees with the same brand from doing business inside the current franchisees designed territory. This is important to all parties concered and avoids dimenished revenue potential and failures. Frequently, established franchise brands first select a site and offer than offer this to a franchisee candidates.
However, many franchise candidates believe they already know where to place their units and they start scouting locations, contacting real estate brokers and begin to get “hard wired” into the fact that “this is the place.”
Yet, in most cases this puts the cart before the horse. Since every franchise has a different set of characteristics that have proven the model out, it’s important to first match up with the franchise model of your choice, then look for a location. A potential franchisor should be able to describe the type(s) of neighborhoods, traffic paterns, customer income levels, kids, etc. are needed to be successful. The franchisor should be able to expalin competitor issues and greatest potential where the“under-served” marketplace(s) are. Get this information when you start looking to save time and intelligence for where to go for a good location.
The franchise model that you choose to join is an invaluable guide in the site selection process. With that said, there are always a few things to keep in mind when considering locations to open your franchise:
- What size location does the franchise’s corporate leadership recommend?
- You pay rent based on how much space is being occupied. Too much room is wasteful because space cannot be used to produce revenue. Too little space and there is not enough room to tend to customers and maintain back-of-the-house operations. Early in the process of considering a retail franchise selection, visit an existing franchisee’s business. View how the location’s space is used first-hand.
- How well do you know the area?
- The key here is knowing the immediate and surrounding areas like the back of your hand, including where direct or indirect competitors who may influence your prices up or down are operating. Assuming you’ll do a great job with delivering the product and/or service, will your franchise business depend on generous margins from loyal customers or mainly from other demographics? First consideration is to think as a customer might. Convenience is KING. Is a location easy to travel to? Can you get into and out of the site without dealing with no-turn postings or difficult traffic? Is there enough parking near the store?
A few years ago in Southern California, one of my pack, ship and postal store Franchisees chose what at first look seemed to be a perfect site. The space and rent level were OK. The location was at the corner with a high-level of traffic who would see the store sign and know what was being offered. And best of all, it was one door down from the hottest coffee shop concepts.
After signing the 5-year lease it was discovered early that the popularity of the coffee shop was a plague to nearby parking, easy access with drive lane lines and coffee customers who came and left without a 2nd stop to other mall merchants.
The lady Franchisee resolved at the end of here 5-year lease not to renew and move to a larger space 100 yards to an adjacent mall. She kept her customers from the first location and spike new revenue helped by accessible parking, easier access and egress and more space to offer new products and service.
Consider from the start whether high traffic counts into the center can be a boon or curse for the personality of your franchise business.
Shopping malls can be a great location for franchisees to open a site. A shopping mall-based business will bring traffic and customers on your first day of business. Remember these hints when you start the site-selection process:
- Having an exclusive right in a retail mall or shopping center to sell your specific items is a major key.
- The right to sell things in your store needs to be defined on the lease. It’s important to know there usually are two categories of “Use” in a commercial lease. One is “exclusive use” and another is right to sell even though another store or business is selling the same or similar things. “Exclusive” is the key to avoid competition from retail neighbors in the mall such as grocery stores, pharmacy or other businesses that sell a specific product that you also sell. Start your site selection efforts by getting information on “Use” for any location you may think is good for your business. Landlord’s, R.E. brokers or questioning current tenants can get you this info. It will save time if you do this up front—don’t wait until you ask for the lease. Be ready, learn what may be competitive threat by getting product/service sales percentages in a typical store. The franchisor will know this. It’s important to know if a sales item is a minor portion of your revenue and negotiate the right to sell but not exclusively.
- Be aware of your direct neighbors and other nearby businesses.
- Often, the mix of fellow mall and shopping center occupants or nearby businesses may be traffic generators for the area surrounding the site or, they can deplete customer traffic to your business. Grocery stores usually boost traffic for their neighbors while destination enterprises such as furniture stores, home improvement, auto parts, movie theaters, etc. where people come, buy, and leave, can hinder traffic.
Keep in mind these specific things your franchisor can help you determine when finding a new site:
- Help review the lease with you before you engage an attorney.
- Legal advice is expensive yet needed when you are considering signing the lease. The franchisor is there to help review the lease and guide you concerning typical terms.
- Rent and common charges
- Negotiate a rent abatement for the first few months. This is usually a reduction and not free rent. Monthly abatements from the front of the lease can be added to the back of the lease, so make sure to negotiate shrewdly. Typically, landlords will abate the first few months, but not the Common Area Charges (CAM). This occupancy cost also called the “Triple Net” monthly charge for taxes, insurance and administrative work managing the property. You pay a portion of the total mall or center CAM based on the percentage of space you occupy. Learn what this expense is when you get the rent figure because frequently it can add 25% to 33% more to the rent.
- Franchisors should be able to tell you how much a typical franchise business should get in what is called “tenant improvement” allowance. This is money the landlord allots to the new business to customize the location for the specific model. Know the condition of the space you’re considering. If the site is new or perhaps recently vacant, the tenant improvement may need removal of walls, a new ceiling cover or flooring, relocating utility outlets, paint, etc. These improvements can be costly and impact your initial investment and cash operating reserves. So negotiate aggressively! Most important be assured by the landlord the heating and air conditioning system (HVAC) is inspected with a certification it is good condition. This item when it goes down can break the back of a new franchisee.
- Location-based services
- The franchisor should identify all necessary vendors that can service important supplies and goods due to the location and protected territories of competitors. Be sure your franchisor discloses whether there are any typical items the franchise model sells but cannot be sold at the location chosen. This frequently occurs with a nearby competitor has the exclusive right to sale an item your business depends on. It also can occur if a vendor product/service cannot be sold in a business model in your city, county, state etc. This can include districts and proximity to a school
Learn more about franchising opportunities with Postal Connections.
Are you still learning about franchising and do you remain curious if it is right for you? Lean into franchise investing a bit more with Postal Connections/iSold It’s top executive Fred Morache. For a fresh perspective and high-quality educational information on franchising, read the Franchise Fred blog. Check back regularly for new articles!