Each year, our group of experts analyzes the various sectors of the economy and makes predictions while looking at future trends. The franchise industry is a very important part of our economy because it accounts for so many jobs and such a large percentage of our national GDP, and the percentage of the dollar spent by consumers. The franchise sector has had a hard time in recent years, and as any sports coach would say, it is going through difficult times; “This is a year of rebuilding.” Okay, so let’s talk about this for a second, shall we?
Fortunately, interest rates are low, which means someone can get into a business at a time when bank lending is at record lows. The only unfortunate problem with that is that a lot of franchise buyers won’t be able to qualify for those loans. With consumer purchasing power slowly increasing, franchisees can make more money than last year, this is good for royalty income for franchisors, but it won’t hit 1000 yet.
ObamaCare is going into action very soon and will be a huge success for the franchise industry, especially those franchisors who have not been able to obtain exemptions. It is estimated that it will cost franchisees an additional $4,500 per year for each employee they have. This could mean that they are going to drastically cut staff, which will also affect their customer service and thus hurt their brand, even if they can increase their productivity by doing more work with fewer people out of necessity.
There was an interesting article in the Wall Street Journal on February 9, 2012 that says it all in the headline. The article was titled “Hard Times for Franchises” and appeared in the small business section. Still, for franchise companies, especially the larger ones that are doing business in China, they may find that a good portion of their sales are made abroad, and they are definitely introducing their brand to hundreds of millions of new consumers, such as China. the middle class is expanding, it’s too bad that’s not happening in the United States.
As I watch the ABA Forum’s flow of information on franchising, I see more chatter among franchise attorneys, and I expect more lawsuits due to struggling franchisees looking for a way out. These lawsuits, especially class action lawsuits, take a toll on the already damaged cash flow of large franchisors, while they can take out a smaller franchisor who inevitably has to file for bankruptcy. Those are some of the trends I’m seeing right now, and it looks like they’re going to continue throughout this year. In fact, I hope you will please consider all this and think about it.