De Pot Man Weathers financial Crysis with Blossoming Buisness

In Australia we’re lucky. Our economy is relatively strong and we’re not experiencing anything like the same levels of hardship as Europe and the US. That doesn’t means we shall escape the credit crunch unscathed. Despite the Government’s best efforts to bolster the economy by encouraging reasonable spending, most retailers are bracing for a tough year.

“The most significant issue is the uncertainty brought about by the global crisis and the media attention this brings with it,” says Chris Malcolm, Managing Director of Clark Rubber. “Understandably, this is making people more cautious and nervous about spending their disposable dollars. This is also exacerbated by the fact that the cost of basic goods, food, petrol and everyday commodities has increased dramatically over the past 12 months, reducing disposable income.”

Nevertheless, the downturn of the early nineties showed that a good franchise system is well placed to survive and even thrive.

“One good thing about a franchise is that the financial responsibilities are spread throughout the system,” says Owen Wright, a lecturer at Griffith University. “By contrast, in a system like Starbucks the debt is centralised, and that’s precisely why they have been suffering so badly.”

For franchisees in furniture and homewares there may be more good news. It’s a general rule than, in tough times, people tend to improve and renovate rather than move home. There’s also what’s known as the cocooning effect – people who are feeling the pinch people spend more time at home, and they want their environment to feel as comfortable and welcoming as possible. When they do indulge in little luxuries, they prefer practical things that benefit the family as a whole.

Drew Camm says that the cocooning effect applies particularly to gardens. As founder and owner of the De Pot Man franchise, he says the credit crunch is having a positive effect on his business.

“The garden industry’s biggest competitor is travel,” he says. “When times are tough people tend not to go on trips overseas or long holidays so they have more time to spend in the garden – and they’re inspired to use pots, ceramics and statues to create a pleasant environment.”

Camm’s home services business has been affected by the falling dollar, with imports costing around 30 per cent more than when the dollar was sitting at 96 cents. The cost of fuel also presents a challenge.

“When the US dollar was high, petrol was high too,” he says. “That meant freight costs were ridiculously high so we were losing 15-20 per cent of the advantage that came with buying at that time. Even now, fuel costs have fallen but freight companies aren’t so quick to drop the price. Naturally, customers don’t want to pay more so we absorb it as long as we’re still in profit. It’s a question of finding a balance and providing what people need – quality at price they can afford. That way you can be ready to take advantage as soon as things improve.”

Getting Ready for Better Times

“In order to grow stronger in tough times you need to reduce expenses severely and be more innovative in the way you do business,” says Malcolm. “At Clark Rubber, our strategy is to broaden and add depth to our product range while maintaining our focus on business management and retail skills.

”Clark Rubber is focused on assisting our franchise owners to make it through because, just as the good times never last forever, neither do the difficult times. The prime consideration for any franchisee entering the this sector is to ensure that the sales budgets are conservative and that there is sufficient capital to run their business in the current market.”

Beacon Lighting has been around long enough for management to know that the stronger the brand, the better a business will fare in the tough times and the further ahead they will be when the economy recovers.

“Our business principles and operations have been honed over a long period – over 35 years in fact – and we see great results when we follow them,” says Franchise Support Manager Tony Fenton. “We are a vertically integrated business with our manufacturing, wholesaling, commercial and retail arms collectively making us a very strong business; our marketing program will continue unabated.

“We want all of our operators to not only survive but flourish. With a well-considered Business Plan you are more assured of success and we will be there to support and guide our operators where needed. Our Operators are a pretty positive lot. They take up challenges very well and they will see this as just another challenge. Leadership and positive attitude are the key ingredients for exceeding expectations.”

Back to Basics

“What the best retailers do is go back to the basics and get those very right,” says James Brouillard, National Franchise Manager of Howards Storage World. “One is definitely customer service. Another is value for money – not necessarily that you’re the cheapest but that you’re offering added benefits such as free delivery, free set up or assembly or really good advice from knowledgeable staff.”

He says his own biggest challenge is finding the right franchisees.

“If a potential franchisee has been counting on their house or super to support a loan and that value of that asset has gone down they may not be able to afford to come on board right now,” he says. “This is a particular problem for Howards as the significant size, quality, quantity of our merchandise means our franchises start off at $600,000 plus - double the total price of a lot of other franchise systems.”

Brouillard is also looking for people who want to be part of the business.

“People who have built up that kind of capital are often older and looking to sit back and invest rather than being enthusiastic about being out there with the customers,” he continues. “It’s a fine balance but, even before the credit crunch our entry requirements were very stringent, with online psychometric testing as well as a number of interviews and panel discussions. The happier our franchisees are the better it is for everyone, so we ask them over and over again to take a hard look at themselves and make sure they truly want to be part of everything we’ve told them, now and in the future.

“Franchisees have to understand that, if the franchise they bought into is identical five years down the track and we haven’t done anything to improve or change our business, we’re going to be taken over. They don’t just need to be happy today, they need to trust us to take it where it needs to go.”

Avoiding Risk

As job losses and redundancies start to bite, more people will be finding themselves without a job and wondering what they’re going to do next 10, 15 or even 20 years. Many will consider a franchise.

“There’s a general view that franchisees are entrepreneurs,” says Stafford. “They are to some extent, but they’re not as entrepreneurial as the person who is driven to start a business from scratch. They still tend to be quite risk averse; they look to franchising because it’s a less risky way of running your own business.

Wright says the first thing for anyone to consider is whether they would be an effective franchisee or not.

“If you’re well capitalised and is looking at a good system that’s well run with low levels of conflict and positioned to do at least OK through what will be a tough year, it’s something you should seriously consider – but only if you feel you would fit in and franchising is your thing,” he says. “This has little to do with the economic environment. Some will do well even when times are tough, some will never do well.”

Brouillard says it’s vital to look at your skills and interests and what you would truly like to do.

“Sometimes people get what they like mixed up with what they might want to do as a career,” he says. “For instance, I like to eat good food but I wouldn’t like to be in food retail. I like nice clothes but I also know soft goods isn’t for me.

“It’s also very important to see what really goes on in the business. Make sure you’re very comfortable with the mechanics of the daily operation. If you’re not a people person…if you’ve been sitting in an office in front of a computer and you’ve enjoyed that…then don’t go into retail. You cannot run a store from the back office. You need to do some admin, of course, but you also need to be out there understanding your customers, understanding your staff and having your finger on the pulse of your business. There’s a reason why the best retailers are the best retailers…why people buy from them and want to come back again and again. It doesn’t just magically happen.”