Despite the picture looking decidedly rosier and retail proffered as the money spinner you’ve been dreaming of, retail is no walk in the park. As an industry it ranks pretty high on the ‘tough list’, so before you buy make sure you’ve got the right stuff to cut it.
State of the Industry
Although global economic instability continues to throw investments into doubt, the recent and surprising drop in interest rates has added an enticing reason to be in the retail sector. The release of pressure will have positive effects for both consumers and retailers for the following reasons: over-indebted consumers are better able to pay off their debts, and this means there’s more money available to spend. And for retailers, it’s cheaper than in previous years to get a loan and pay it back.
Christopher Gilmour, investment analyst at Absa Bank, suggests that while other sectors like manufacturing, construction, property and mining will continue to battle with marginal growth, retail sales growth is on the up. And when 60% of South Africa’s GDP comes from consuming, that means the retail sector is a good place to be.
Before You Go Retail
Even with all this good news and whispers of further cuts in interest rates in the future, there are important things to consider before going into retail.
1. The Consumer
For a start, presently it’s the consumer propping up the economy and preventing a fall into recession, according to economist Mike Schüssler. And these consumers are not spending willy-nilly, they’re buying fewer durable goods like furniture and electrical equipment. Gilmour also warns that food retail is not likely to benefit as much from the drop in interest rates.
Chris Day, managing director of digital signage company, Moving Tactics, also says there is a lot more responsibility on the retailer to get consumers spending. “Before the recession, digital signage and its associated content strategies were out of alignment. Consumers are now a lot more picky about where they spend their money, so it’s essential to fine-tune content strategies to provide value to customers,” Day explains.
When it comes to marketing brands within franchised stores, Day explains that blanketing cannot occur across all stores. Joe Boyle, managing director of Freshstop echoes this sentiment. “Even though you are a franchise you have to know your market. If you’re providing stock that isn’t targeting your customers’ needs, even with promotions you’ll end up with a lot of wastage and money lost on underused equipment and capex.”
2. The Time Factor
Retail is not an easy industry, nor is it for the faint hearted. And it’s certainly not for someone wanting an 8 to 5, Monday to Friday business. Brian Coppin, managing director of Fruit & Veg City is not alone when he explains that Fruit & Veg City prefers franchisees who’ll be owner-managers. This means nothing less than 12 hour days, six, sometimes seven days a week.
Managing staff, listening to their feedback and having a store that appeals to customers also requires time and effort. After all, retail is in the detail. “At Fruit & Veg stores, we do what’s called a ‘mule train’ where we walk through the store with staff following behind and point out whether the floor is clean, trolleys are clean, displays are attractive and display ticketing is correct.
Everything a customer would see,” Coppin explains. “We also need to get feedback from our artisan bakers, butchers and fishmongers,” he adds. In retail, there’s always an element of urgency. With fresh produce, monitoring freshness, cashflow and stock-taking occurs weekly, even daily.
Even in non-food retail you have to ensure that you have sufficient stock for what you’re promoting. “Nothing irritates a customer more than going to a store and discovering the product they want that’s being advertised either digitally or in print is out of stock,” says Day. “Immediacy is always the desired outcome but sometimes things get stuck.”
3. Securing the Supply Chain
To prevent things getting stuck, there are franchisors that own their own distribution centres and control their supply chain. This helps ensure buying power, standardised product quality and secure supply. Coppin sums up the importance of securing the supply chain in retail by saying, “you can’t sell well if you can’t buy well.”
As such, a potential franchisee should invest a lot of time and energy doing research on the franchisor and understanding the level of assistance the franchisor can offer in securing supply chains and distributors.
Throwing Away Money
Because of the trials and tribulations of working in retail, a potential franchisee should be absolutely clear that it’s the industry they want to work in and that they have a good understanding of the mechanics of retail. Coppin suggests that a newbie should spend at least a week with a colleague in the industry to get a sense of the speed and demands.
It would also be in the franchisee’s best interest to have at least some retail experience, an understanding of cash flow and the business model of the franchise, because understanding of the balance of stock vs cash flow prevent wastage, according to Coppin.
Unlike Freshstop franchises, where the franchisor covers wastage expenses for the first month of business, Fruit & Veg City offers no such assistance. Knowledge and experience is therefore essential to establishing stable cash flow and getting a good return on investment.
Not a Get Rich Quick Scene
In addition to having knowledge and experience, patience is an important quality to have. Developing a 20% ROI on a R10 million investment is not going to happen overnight, and return on investment rests heavily on the ability of the business owner to manage the business properly.
Coppin explains that some franchisees have a ROI of around 5% while others have 50%, and this boils down to location, quality of the store, its staff and stock, customer demand, and initial capex.
Who is the Ideal Franchisee?
There is a consensus between Coppin, Day and Boyle over who would do best in the retail industry. Top of their list is:
- Someone who knows and understands retail.
- A close second is good people skills, both internally and externally.
- Energy and staying power are a must when dealing with people and long hours on a daily basis.
- As with all franchises, understanding the brand is paramount. Make sure you are 100% on board with the franchise’s vision and policy.
- Stay aware of your customer’s needs. When you’re stocking a store according to your ideas rather than the needs of the customer, you’re setting yourself up with stock that’s hard to move and you may end up losing money through slow turnover.
Think you fit the bill and are undaunted by the industry’s demands? Visit the website of the Franchise Association of South Africa (FASA) for a list of retail franchises available in South Africa. If you’re really up for something different, consider bringing a new retail franchise to the local consumer, but pay special attention to that feasibility report.