Why Godfreys is backing franchising again

By Sarah Stowe | 26 Oct 2016 View comments

Godfreys is reaching out to franchising to improve its business results. Image: wordpress.comVacuum cleaner retailer Godfreys is turning to franchise expansion to deliver stronger financial results in the group.

The company plans to have 140 franchised stores in its 244 network within three years.

Up to 60 company-owned outlets will be sold off to give greater emphasis to the franchising model – 18 of these in 2017, the majority in the second half of the financial year.

Godfreys operates in a hugely competitive marketplace with players such as JB Hi-FI, Harvey Norman and The Good Guys and will retain its top sites as corporate stores.

The company is predicting immediate cash flow benefits from lower corporate costs following the store conversions. It is forecasting further financial gains from reduced stock levels and capex requirements, and additional franchise fees.

The business has changed tack over its franchise components over the last few years. The chain was bought and sold by private equity firms, and struggled with heavy debts and franchisee disputes over support and operational changes, reports Inside Retail Weekly.

Four years ago the original owners took on the business again in a debt for equity restructure. The business listed on the ASX in 2014 and adopted a policy to develop more company-owned sites before back-tracking and opting for a hybrid model with franchised outlets operating in regional areas.

In a statement to the Australian Stock Exchange, chairman Rod Walker said “Following an internal strategic review to address continued weak performance in the business, the Board has concluded that re-balancing the store portfolio with a bias to franchise stores is the best option to place the business on a solid footing for long term growth.

“Over the next three years the majority of our stores by number will become franchise stores with a particular focus on smaller and regional locations.

“This streamlining of our store portfolio will enable greater management focus on our more profitable larger format stores. It will also deliver medium and long term improvements to both profitability and the balance sheet,” he said.

Financial year 2016 results showed a drop in sales of 0.9 percent, even though 10 stores were added to the portfolio.

Former CEO Kathy Cocovski left the business in July and John Hardy, who was responsible for setting up the original franchise network, is interim managing director.

“Our franchise stores have a track record of outperformance, underpinned by the fundamental driver of small business ownership., particularly in regional areas where local knowledge and relationships are a major element of success.

“Refocusing the business on a franchise concept will enable Godfreys to accelerate the current business improvement program. We expect strong interest from within our existing team to become franchisees,” he said.

The current CFO Bernie Bicknell is heading up the restructure and will take on the project full time in March 2017. The team will focus on improving franchisee recruitment and induction processes, upgrading the marketing program to attract franchisees and boosting support functions, including a dedicated customer service lines for franchisees.