Many landlords tend to view a franchise as either a chain store tenant or an independent operator – a perception that can cause problems in franchise lease negotiations.
To understand the key issues, start by examining the concept of franchising.
Why are Franchises Successful?
What is it about this business strategy that has made it so successful?
- Marketing clout to penetrate and dominate markets
- Brand-driven consumer purchases
- Consumer loyalty to the brand
- Consistently applied operating system that addresses consumer needs
- Ongoing support that improves the effectiveness, efficiency and profitability of each unit and the overall system
- Franchisee motivation.
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In short, the reasons franchises are successful are much the same as the reasons why chain stores are successful; franchises look and perform like chain stores. But a key difference lies in reason number six above; the franchisee motivation.
The Right People to Lease Shops
These franchises are people that run their own businesses are they are prepared to do more each day to encourage sales, customers and new business.
When you talk to tenants in other locations and perhaps other shopping centres, gauge their experience, successes, and relevance for another business location.
Franchisee Owner Manager Motivation
The franchisee has a much greater motivation to succeed than does even the best store manager. A franchisee has made a significant financial investment in the assets of his or her business. He or she has made a conscious choice to be self-employed and sees being part of a franchise system as a way to achieve life goals.
That franchisee will do everything possible to ensure the business succeeds, and the franchisee-franchisor relationship differs dramatically from the chain store’s employee-employer relationship.
Franchising is a mutually beneficial business and leasing relationship based on a legal structure. Franchisors must comply with federal and state regulations of course, which in most cases make it impractical to negotiate the terms of their franchise agreements. The better a landlord understands a franchise tenant, the easier it will be to negotiate a lease.
In a retail shopping centre, when you make the right lease decisions, everyone benefits, and the customers remain interested in doing their shopping at the location. They will return to the property to purchase again. The franchisee can be part of that.
All parties involved in a retail shopping centre as an investment, including the landlord, the customers, and other tenants, profit from the positive decisions you make in selecting the best tenant for the property and shop. That tenant selection is based on the retail offerings available and the match of the tenant to the customer profiles and requirements.