Tough economy drives more retail entrepreneurs to franchises
Independent retailers are the darlings of would-be Main Street revivalists everywhere. But in a post-recession economy marked by a slow and uneven recovery, not every entrepreneur has the courage to go it alone. “Probably five years ago, we did a deal with a guy who had been selling custom auto parts out of his car but [who] wanted a retail location,” said Allison Lynch, vice president of asset management at Los Angeles–based Watt Cos. “It was his first retail lease. But in the last few years, we’ve seen far fewer tenants like that — people with truly new business models.”
Indeed, entrepreneurs getting their start in retail are increasingly focused on taking what can seem to be a safer bet: buying an established franchise. “The true mom-and-pops with one or two stores or restaurants are leaving, and more of the franchise nameplates that we are all familiar with are coming in,” said Michael V. Pappagallo, COO of Kimco Realty Corp. “You see the individual businessperson growing, but with franchise concepts, rather than putting out a shingle for Joe’s Haircuts.”
Franchises in Kimco’s portfolio of nearly 900 properties include Chipotle, Dunkin’ Donuts, Massage Envy and Subway. “The franchise construct has been a way for these individuals to get into business or increase their existing footprints,” Pappagallo said. “They’re working with proven concepts and a proven playbook.”
Franchises will grow at a slower pace this year than last year, according to IHS Global Insight, but they will nonetheless outpace other business sectors. The number of franchises will increase by 1.4 percent this year, to 757,055, the firm predicts. That would be just shy of last year’s 1.5 percent gain.
Many such tenants have something in common, Pappagallo says: A subscriber to Amazon Prime could not order their products or services online with free shipping. “People are focusing on businesses that are as far from the Internet as you can possibly get,” he said. “This is any sort of food offering — whether it is full service, limited service or fast food — and any of the personal-service concepts, like nail salons, fitness clubs and massage centers. In our portfolio, that’s where there seems to be much more of a bias in terms of who is filling the small spaces.”