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Jul172017

So You Say You Want a Revolution? Franchises Evolve as Retail Declines

Franchise Distribution Attorney Barry KurtzBar Certified Franchise & Distribution Law Specialist

by Barry Kurtz

818-907-3006

 

You’ve seen the news: retailers are struggling. Traditional anchor stores like Macy’s and Sears are closing up shop, creating a domino effect of fiscal death for shopping malls across the country. The Los Angeles Times reports over 8,000 retail stores may close before years’ end. 

Empty Food Courts Hurt Franchises

This is bad for Quick Serve Restaurants (QSRs) that have done a booming business in traditional mall food courts. But like all threatened species, there is a solution: Evolve. Though the traditional mall may be singing a swan song, other types of shopping complexes are doing good business.

Brick & Mortar Restaurant Locations

Not all malls are dead or dying, of course. And some properties will attempt a comeback through “experiential retail”, converting large anchor stores into movie theaters, restaurants, gyms, laser tag playgrounds or other facilities, which will hopefully lure back the smaller retailers as well as consumer foot traffic. But for franchisees leasing space in malls that are truly facing a decline, it may be time to revise a franchise agreement to accommodate a move to a more lucrative location. Consider alternative venues:

Outlet Malls: These still draw customers and generally have booming food courts filled with QSRs and other casual eateries. Many of them also lease space to family-friendly, full service restaurants as well.

Lifestyle Centers: Also known as boutique malls, these are mixed use commercial properties and popular draws for more upscale consumer spending. CityPlace in West Palm Beach or The Grove here in Los Angeles are prime examples. Single location restaurants and chains that are a little higher end tend to set out shingles in these locations. But QSRs may have opportunities in the surrounding areas.

Marketplaces: These settings are also on the rise in the U.S. Check out Grand Central Market in Los Angeles, or a venue like Underground Atlanta in Georgia.

Franchisees, consult with your franchisor regarding pulling up the stakes.

Franchisors, don’t allow franchisees to relocate at will; however, if a franchisee can make a convincing showing that relocation will be in the best interests of both franchisee and franchisor, the franchisor’s consent may be forthcoming. Consider the economic realities – franchisees who turn good profits make for a healthier system.

Food Delivery Services Help FranchisesOther Options for QSRs

Hanging on at the traditional mall food court to the bitter end? That’s understandable in some cases, as moves can be very expensive in terms of cash, lost customer bases and good employees who simply can’t commute to a new store further down the road.

Though foot traffic may be declining, digital sales are up. Consider a mobile delivery service or curbside pickup (consult with the mall’s management for this option) to bolster the account books.

A Morgan Stanley report says $210 billion in restaurant food is consumed outside of the restaurant from which it is ordered each year – though currently, only about five percent of that spend accounts for deliveries of online orders. But a writer for The Motley Fool projects a 15 percent growth in digital deliveries annually.

Whatever a QSR or other franchises decide to do – there are still plenty of options for business growth. You just have to embrace the change.

Barry Kurtz is the Chair of our Franchise & Distribution Practice Group.

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