When Chelsea Sloan was young she lived with her family for a period of time in Ohio where her father was a shopping center redevelopment manager. Her mother shopped resale stores to help clothe her four children, all of whom were under age ten (two additional children came later). One store that caught the attention of Sloan’s parents was Once Upon a Child, a store that bought and sold gently used children’s clothing. Her parents considered buying a Once Upon a Child franchise, but thought they could improve upon the concept. So they moved the family to Utah to develop a children’s clothing franchise organiza- tion of their own. In 1992, they opened the first Kid to Kid resale store with fixtures they made themselves. Although initial sales were modest, they quickly developed a successful business model, and have grown Kid to Kid to over 100 franchise locations in the United States and Portugal.
By the time Sloan was 10 she was working in Kid to Kid stores, helping tag merchandise, cleaning toys, and doing odd jobs. As the child of entrepreneurs, she participated in numerous dinnertime conversations that centered on franchising and related topics. By 2006, Sloan was a student at Brigham Young University, and she had already helped open and run multiple Kid to Kid stores. At the University of Utah, her older brother Scott was finishing his degree in marketing and was working for Kid to Kid. The two knew they wanted to own their own company, and they decided to work to- gether. They kicked around several ideas and settled on an upscale resale store for gently used men’s and women’s clothing. They would differentiate themselves by creating a store atmosphere that felt like the mall, not like a thrift shop. They would hand select their product so that the clothing was clean, fresh, and stylish as well.
The business didn’t come together immediately. Sloan took a one-and-a-half- year break to do a mission in Alaska. While she was gone, she and her brother Scott corresponded frequently, sharing ideas about the potential business. One thing that took some time was choosing a name. It had to be a name that was catchy, was trademarkable, and had an available URL. After considering hundreds of alterna- tives, they settled on Uptown Cheapskate. They also talked about their growth strategy, long before opening their first (or pilot) location. They wanted to grow quickly without having to make huge investments in store locations. They settled on franchising.
When Sloan returned from her mission, she arrived in Salt Lake City at 10:00 a.m. and was working on Uptown Cheapskate with her brother by 2:00 p.m. the same day. They knew that to become a successful franchise organization, they had to consistently deliver as much value to their franchisees as the franchisees paid them in franchise fees and royalties. As a result, Sloan and her brother spent the next eight months fine-tuning the Uptown Cheapskate concept. They focused on the critical aspects of building both the front end and the back end of a unique retail offering. One of the first things they worked on was creating a proprietary software platform that would allow their franchisees to quickly determine what to pay for an item brought into the store. The trick in developing this type of system is to pay people fairly for items brought in while leaving room to price the items competitively for shoppers and make a profit. The platform also had to be populated with the cur- rent brands, clothing selections, and reasonable price ranges. Building this platform took months, but it was completed. A lot of thought was also put into the Uptown Cheapskate brand, store layout, and sales reporting mechanisms for franchisees.
The first Uptown Cheapskate opened in mid-2009 in Salt Lake City, Utah. The first franchise was sold later that year to an individual in greensboro, north Carolina. The company has grown steadily since, with two stores after Year 1, six stores after Year 2, 14 stores after Year 3 and upwards of 40 stores today. The average store earns a net profit of over six figures, which is excellent in the retail store industry. As a result of these numbers, many of the company’s franchisees are opening multiple locations. Sloan and her brother credit much of their success to the upfront work they did in fleshing out the Uptown Cheapskate concept and the support they offer their franchi- sees. The following is a partial list of the types of support that Uptown Cheapskate offers to their franchisees:
■ Proprietary Software Platform. Referred to above, the platform allows a franchi- see’s buyer to quickly determine what to pay for items brought into the store. Over time, the platform has become very robust. It now contains over 4,000 brands and nearly 300 subcategories. If a seller brings in a pair of gently worn size-five Abercrombie & Fitch women’s jeans, for example, the platform will instantly pro- vide a price range to offer for the garment. This feature allows a single buyer to purchase hundreds of pieces of merchandise per day, and pay an intelligent price for each piece of merchandise acquired.
■ Franchise in a Box. Uptown Cheapskate helps franchisees configure their stores.
Based on a description of the available space, the franchisee is provided a plan for exactly how to build out the store, arrange the fixtures, and display the merchan- dise. This service allows a franchisee to get up and running quickly.
■ Buyer Training. Franchisees are provided substantial support in terms of knowing what fashions and articles of clothing are hot and are likely to sell well and which aren’t. The training is provided in the form of monthly podcasts, training videos, and other forms of support.
■ Marketing Materials. Uptown maintains an in-house marketing team that develops everything from in-store signage to radio ads to billboards and mass media.
■ Back-end Systems to Track Sales and Other Metrics. Uptown owners have access to back-end reports that update store numbers in live time. For example, a franchisee can compare their sales and other metrics against the other stores. The company has found that this functionality results in healthy competition among franchisees. A suite of back-end systems has been developed, which track sales and other metrics.
Uptown Cheapskate continues to grow with the goal of having 100 franchises by the end of 2016. The firm is routinely listed in Entrepreneur magazine’s Franchise 500 along with its sister company, Kid to Kid. Sloan enjoys talking about franchising, and says that one of her most enjoyable experiences is sharing her story with college students. In november 2012, Sloan became the first female to win the Entrepreneurs’ Organization’s global Student Entrepreneur Award. The competition included 1,700 candidates from 20 countries. In 2013, Sloan was named as one of Inc. magazine’s 30 under 30.
As with Uptown Cheapskate, many retail and service organizations find franchising to be an attractive form of business ownership and growth.1 In some industries, such as automotive and retail food, franchising is a dominant business ownership. Franchising is less common in other industries, although it is used in industries as diverse as Internet service providers, furniture restoration, personnel staffing, and senior care.
There are instances in which franchising is not appropriate. For example, new technologies are typically not introduced through franchise systems, particularly if the technology is proprietary or complex. Why? Because by its nature, franchising involves sharing of knowledge between a franchisor and its franchisees; in large franchise organizations, thousands of people may be involved in doing this. The inventors of new technologies typically involve as few people as possible in the pro- cess of rolling out their new products or services because they want to keep their trade secrets secret. They typically reserve their new technologies for their own use or license them to a relatively small number of companies, with strict confidentiality agreements in place.2
Still, franchising is a common method of business expansion and is growing in popularity. In 2014, there were 770,368 individual franchise outlets operating in the United States. These operations accounted for 8.5 million jobs and a combined eco- nomic output of $839 billion. These numbers have grown steadily since 2010.3 You can even go to a website (www.franchising.com) to examine the array of franchises available for potential entrepreneurs to consider. This website groups franchising op- portunities by industry, state, investment required, and several other criteria. These categorizations highlight the breadth of franchising opportunities now available for consideration.4
Unfortunately, not all the news about franchising is positive. Some entire franchise systems fail. In addition, some individual franchisees fail, even if they are a part of an otherwise successful system. Franchising is also a relatively poorly understood form of business ownership and growth. While most students and entrepreneurs generally know what franchising is and what it entails, the many subtle aspects of franchising can be learned only through experience or careful study.
We begin this chapter, which is dedicated to franchising as an important potential path to entrepreneurship and subsequent venture growth, with a description of franchising and when to use it. We then explore setting up a franchise system from the franchisor’s perspective and buying a franchise from the franchisee’s point of view. Next, we look at the legal aspects of franchising. We close this chapter by considering a few additional topics re- lated to the successful use of franchising.
Source: Barringer Bruce R, Ireland R Duane (2015), Entrepreneurship: successfully launching new ventures, Pearson; 5th edition.