Franchising: saviour of the high street or HR nightmare?

Retail – and growth? When it comes to UK GDP, few economists would put ‘the state of the retail sector’ in the same sentence as ‘prospects for the growth of UK Plc’

The high street has been shaken, not just by consumer migration to online retail, rather than physical shopping, but by the lighter wallets of the population as they struggle to make ends meet. According to a December 2011 report by the Department for Business Innovation and Skills (BIS), retail spending in town centres has fallen to 42% of total UK retail spend, from 49% in 2000 - and is projected to fall further to 40% by 2014.

Manufacturing, infrastructure, customer services and of course the small and medium-sized enterprise (SME) sectors are the vessels of hope in the Government''''s plan to claw the UK away from the threat of double-dip recession. Mary 'Queen of Shops' Portas has even been wheeled out in an attempt to bolster the beleaguered - but still 'good old' - British high street.

Peter Shrimpton, managing director of recruiter, Randstad Retail, explains: "Oddbins, Habitat, La Senza and Woolworths are all quite literally not on the high street anymore. Although overall employment in the retail sector rose by 0.5% in the final quarter of last year, a total of 42 retailers went into administration in the same quarter - a rise of 27% on the third quarter.

"And, while the future of Peacocks in 2012 has recently been secured (thanks to a deal with Edinburgh Woollen Mill), its reach has been severely curtailed, with the loss of 224 stores - leading to 3,100 redundancies with immediate effect. Retail employment accounts for 10.5% of all UK jobs, rising to 40% for all under-20s in employment. Essentially, retail is a major force for tackling youth unemployment and future prospects, especially since the sector spends more per head on training than either the finance sector or manufacturing," says Shrimpton.

But one branch of the retail sector is clawing its way out of the ruins of economic uncertainty and offering jobs to those with the inclination to make it as an entrepreneur. Yes, franchising is back in vogue.

Buying a franchise has become a popular route for people hoping to be their own boss - under the umbrella of a well-known brand. While for corporates, licensing a successful business model can be a cost-effective way to grow.

Could it be that this is the answer to the problem? Businesses can grow (franchisors are often retailers - Body Shop, Benetton and Avon are some of the most well-known); entrepreneurial spirit is nurtured; and SMEs will spring up, giving the unemployed local jobs in local areas (convenience stores, including Budgens, Londis, Spar and Costcutter, operate using a franchise model).

Roy Seaman, MD of Franchise Development Services, says: "This is a wake-up call for the Government to make the most of the opportunities that franchising can do to help the UK economy nationally and internationally. There are 20 MPs who are supporters of the method of starting a business by owning a franchise, as well as encouraging owners of successful businesses to expand by franchising."

The majority of customers will view franchisees as simply 'managers' of company branches, but the model also means that they are the MD, FD and HRD rolled into one - and not only will they have the HR policy of their own business to maintain, but that of a much larger banner to conform to. Yet keeping on top of HR issues and employment law within a franchise network of individual small businesses is a challenge, to say the least. For most of the franchisees, it is a question of moving from employee to employer, overnight.

Top 20 franchises in the EU

UK statistics

• Estimates of the net worth of the UK franchise industry vary. The British Franchise Association (BFA) puts the figure at £12.4 billion, but according to the Norwich Business School at the University of East Anglia, the franchise industry could be worth as much as £20 billion a year
• The British Franchise Association (BFA) estimates there are more than 521,000 people working for about 900 franchised brands
• The overall number of franchise systems in the UK is 897
• The number of UK franchisee outlets is 36,900, 90% of which are profitable, according to the BFA