An Introduction to Fashion Franchising
When you want to approach an expansion strategy for your fashion brand, there are a series of challenges to face with. For instance: How are you going to adapt your products to another country with a different culture? How are you going to face the banking and transactions challenges?
To solve these problems, or even better, try to prevent such problems, the answer is franchising your business.
Fashion and clothing are among the most competitive industries globally, gathering together numerous noteworthy international enterprises. Some consider it one of the biggest industries with a global market value of 759.5$ billion. In this market, many try to develop their business by different means. The most adopted one is franchising, a legal measure known to be practical in order to retain the balance between capital contribution and keeping control over subsidiaries.
In January 2006, the Financial Times published a story about Gap, the US clothing retailer, announcing its “first-ever franchise agreement” with the purpose of expanding into Asia, starting at Singapore and Malaysia. Today, based on the company’s reports, Gap has expanded its presence through franchising in more than 40 countries all over the world. You can see how franchising can make a difference when it comes to business growth, but what are the advantages of franchising in the fashion industry? How can one be sure to profit from such agreements?
A franchising contract can help new businesses run more efficiently. A franchisor can provide the new team with information regarding the market insight, customer point of view, etc. It usually owns enough resources to ensure novelty in business. The franchisor also helps with initial capital contribution and guides the new team through possible challenges.
However, for the franchisor to benefit from a franchising contract, some points must be considered. First, it is essential to know the possible consumers in the franchising destination. In addition, the company should be vigilant when choosing a franchisee since the franchisee represents the main company. It should also be noted that the terms of the agreement guarantee implementation of the brand’s standards. As for the last step, the company must monitor the performance of franchisees and build a productive relationship with their teams.
Why Choose a Franchise?
Let’s start with a fundamental question. What guarantees the success of a new business in fashion and clothing? One obvious answer is knowledge. Having an insight into different aspects of a business can have a massive impact on the financial outcome. In the fashion industry, newcomers must consider studying the market, materials, and customer choice. Gathering information on these topics and other factors affecting business requires a considerable amount of monetary and human resources, and it also takes time. However, this kind of insight can automatically be obtained while working in the industry.
On the flip side, a franchiser that is typically an experienced and influential actor in the industry and has observed the evolution of the market for years, certainly has a better understanding of the situation of the new businessman and how to optimize the efforts in order to reach high levels of productivity. In this situation, mentoring plays a key role. Experimental evidence supports the strong impact of professional mentoring on the success rate of new business groups.
Take Indian start-ups, for instance; According to Apparel Resources, “Industry estimates suggest that 90 percent of Indian start-ups fail within five years due to lack of mentorship and structure whereas the success rate in franchising is about 85 percent”. Considering that fashion and clothing are the fastest growing line of work in India, you can see how benefiting from the vast knowledge and mentoring services of a franchisor can help a newly formed business.
Another critical point in running a successful fashion enterprise is innovation. In all professional sectors, there is a need for a certain level of novelty and originality in order to catch up with competitors. Still, innovation and creativity are the most prominent elements that can help a business group outrun its rivals in fashion and clothing. However, keeping up this novelty is not an easy task. It demands a skilled group of experts constantly working to attain the standards of the market and the expectations of customers.
Franchisors are usually big establishments consisting of different specialized groups that together form a fashion brand. Usually, there are subgroups devoted to studying the new trends and public demand that come up with new ideas for the business. They possess resources and have connections that all serve the purpose of doing something that no one has done before. A franchising contract gives the franchisor a chance to enjoy all these ideas without spending a dime.
Finally, adopting a franchise contract lets the franchisee establish a more extensive business using less money. Benefiting from the terms of a franchising contract helps the franchisee avoid a considerable amount of initial capital contribution. As a result, more money can be allocated to business expansion and its requirements.
Overall, a franchising contract defines professional cooperation between a franchisor and a franchisee. Since the franchisee is only at the starting point of getting into the market, this cooperation and help from an experienced entity, the franchisor, can give it an advantage and significantly boost its performance in the market and contribute to its ability to expand and develop in the near future.
What Should the Franchisor Consider?
Franchising might seem an appealing option for companies to expand their business reach; however, not all franchises will be a successful attempt. In order to ensure the profitability of a franchise contract, potential franchisors have to consider some key points:
Pay attention to local consumer needs: expanding the borders of a business group means facing new customers who may be different in preferences and characteristics from the ordinary conception of consumers. In an effort to attract this new crowd, a franchisor should give thought to cultural differences and all the other factors that can contribute to the public opinion towards the brand. It is crucial to consider new customers’ tastes, style, beliefs, and even the causes they care for when choosing a region for business expansion.
Choose the right people to work with: the franchisee and its team are a company’s means of communicating the brand message. All the effort that the main establishments put into gaining a better position in the market depends on the operation of subsidiaries, including franchisees. Therefore, a franchising contract can be highly rewarding or extremely painful for the franchisor. If the franchisee is reliable, the franchise brings much profit for the company, but if not… well, let’s just say nothing good comes out of it!
Make a flawless contract: in drafting the terms of a franchising contract, the franchisor has to have in mind that the franchisee acts as a representative of the main company. Pay attention to the fact that what franchisees do can significantly affect the company’s reputation. For that reason, the franchisor needs to make sure that the terms of the franchising contract guarantee implement its brand standards both in the course of negotiations and in drafting the contract.
Monitor the process: franchise contract is just the beginning point for a long-lasting professional relationship. Although it is important to ensure safeguarding company values in this contract, what comes next is also equally considerable to protect the company’s interest. Acting under a franchising contract, the franchisor must evaluate the performance of every franchisee on a regular basis to see if it complies with the terms of the contract and instructions of the company. This store operation checks should also apply to quality controlling of the products. This way, the franchisor can make sure that the franchising contract acts in favour of its brand image.
Have a positive approach to franchisees: the brand owner must have in mind that the franchisee is a part of their team and partner in the business in the big picture. For that reason, whatever the company does in an effort to empower franchisees and help them keep business going will literally contribute to the growth of the main company. Therefore, it is reasonable for the franchisor to maintain a positive relationship and support the franchisee as far as possible.
Check this out if you want to read more about franchising agreements:
Also, our lawyers in LegaMart are here to answer all your questions about the legal aspects of franchising.