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Industry experts identify several demographics as having the most impact on the success of new opportunities in the retail industry. Baby boomers, a group in which 35 percent has a household income of $100,000 or more, is one population cohort that successful retailers track and accommodate. This demographic of 75 million people controls 70 percent of all U.S. disposable income, according to a report by U.S. News & World Report. They also account for 55 percent of consumer packaged goods sales, according to Nielsen data.
With baby boomers representing a huge portion of current and future spending power, their interests are likely to influence growth and innovation in the industries they favor. Significant spending by baby boomers includes:
The preferences of millennials also are likely to impact consumer retail development. Regarded as the largest demographic in the United States, their numbers surpassed those of baby boomers in 2015. By 2020, millennials will comprise 33 percent of the U.S. population, according to the U.S. Census. In 2017, purchases by U.S. millennials accounted for $600 billion, according to a study by Accenture. Spending by millennials includes:
Industry experts also point to the Hispanic population as a market that impacts success in the retail industry. This demographic accounted for $1.5 trillion in spending on U.S. goods and services in 2015, according to Bloomberg. Research by consumer firm Packed Goods reports that spending by Hispanics accounts for:
You can find a retail franchise that may work for you by searching Franchise Opportunities' Retail Franchises category.
Forecasts from Kiplinger in 2017 indicated that expected increases in disposable personal income would result in 3.4 percent growth in the retail industry. Despite an outlook for growing consumer confidence and increased retail spending, Kiplinger warned that the retail industry was positioned for increased competition. In many cases, competition was expected from new, smaller and digital players in the retail industry. Analysts cautioned existing retailers that industry newcomers are more likely to have the economics and technology to compete in narrow industry categories, resulting in more fragmentation and specialization.
Though the retail industry has evolved significantly to include customer interaction via multiple channels, Kiplinger advised retailers that adhering to core retail concepts can override the effects of digital advances. The first priority of retailers should be to ensure that they are "providing distinctive, high-quality and trusted products to consumers at the right price," so that the purchase, rather than the method of purchase, is what attracts and satisfies consumers.
With consideration of changing demographics and evolving business models in the retail industry, a significant portion of future retail growth will be tied to the preferences and needs of the most influential retail demographics. Some areas of potential growth include:
Common Business Models for Retail Franchises
Retail franchises succeed by tailoring their unique products and services to accommodate consumers' needs for accessibility, convenience and personalized experiences. Many retail franchises operate from traditional on-site locations such as brick-and-mortar stores, kiosks or mobile on-site units. With growing consumer preference for immediacy, retail franchises often add options for online or app-driven purchasing. Some retail franchises operate via e-commerce models, in which business is conducted entirely through virtual transactions from home offices.
Retail franchises cover a wide range of segments, with choices that allow you to build upon your experience in specialized fields or enter new industries with franchisor-sponsored training. The options for retail franchises are virtually limitless. Some of the most common types of retail franchise business models include:
Since the retail franchise industry includes a wide range of specialties, financial requirements vary widely. You can buy a retail franchise with investments under $20,000. Factors such as location, storage, inventory, specialized equipment and mobile units can affect your costs. Initial costs typically include a franchise entry fee, supplemented by ongoing costs for items such as royalties and advertising.
While costs can add up quickly, you may find financing easier to accomplish with the backing of a franchise. Since your money is supported by a proven business plan, lenders may consider your loan less risky than if you were an independent contractor. In addition, some franchisors may assist in financing your loan or helping to arrange one. Franchisors also may assist in arranging equipment leasing, which can translate into significant savings versus purchasing equipment upon start up.
No matter what type of retail franchise you choose, you'll be less likely to experience losses due to trial and error since you'll be starting out with a road map for success. You'll also save money by purchasing products and equipment with group discounts negotiated by your franchisor. In addition to the cost savings, franchisees can maintain consistency across the franchise by using the same vendors and equipment.
The most significant benefit of owning a retail franchise is the reduced risk of failure. As a franchisee, you'll be investing in a proven business plan based on profitable products and services. You'll also have less competition if your franchise territory is geographically defined, since you won't have to worry about competing with other businesses offering the same products or services in your area.
Being associated with a successful franchise brand also means that your new business will have a solid reputation before you open your doors. As a franchisee, you're offering customers a consistent product or experience with the backing of the established franchise organization. Even if potential customers aren't familiar with your franchise, your position as a franchisee conveys credibility.
The opportunity to own a retail franchise may be optimal for entrepreneurs with little business education or expertise. Without knowledge in systems involving marketing, product pricing, profit margins or customer analytics, the competitive retail industry offers little room for error. Overbuying the wrong product or underestimating popular services can jeopardize profits and disappoint customers. Instead, entrepreneurs who purchase a retail franchise can take advantage of established systems, benefits of scale and franchise marketing programs.
You'll also benefit because owning a franchise is a partnership with your franchisor. For your part, you help expand the parent franchise by increasing market coverage, extending name recognition and maintaining the integrity of the franchise brand so its reputation appeals to new franchisees and customers. In return, the franchisor provides the support you need to remain competitive and profitable.
Your corporate franchise team has the experience and expertise to help you make decisions and execute the franchise business plan. You'll have the benefit of advisors and experts who can help you:
Making gains against competitors in the retail industry means staying on top of changing consumer preferences and social trends. However, as a franchisee, you're committed to running your business according to the terms of your franchise agreement, which may not allow much room for creativity or improvisation. It will be up to you to keep current with new products and services offered by your franchisor so that you can take advantage of industry trends that work within the structure of your franchise.
However, even with the backing of a franchise, you'll have to deal with challenges common to all retailers. One of the most significant considerations for owners of retail franchises is employee retention. In 2016, hourly retail employees had a turnover rate of 66 percent, according to research by the Hay Group division of Korn Ferry, a global consulting firm. The most common reason employees gave for moving on was their pursuit of better opportunities or promotions.
According to researchers, retail businesses can decrease turnover by offering a clear career path to all employees. Training employees in industry trends, such as online order fulfillment, also can help workers feel valuable to the success of the organization. Researchers estimated that it could cost retailers about six months' salary, estimated at an average of $3,000, to replace every hourly employee that leaves, so making the effort to increase employee retention may be challenging, but is well worth it.
Like all businesses, retail franchises have many challenges that can threaten profits, reduce customer satisfaction and affect the overall health of the business. Since retail franchises cover many individual types of goods and services, some considerations are industry-specific. It's important to research the industry in which your retail franchise competes to understand the unique challenges that you may encounter and how your franchise can help you overcome issues such as:
Characteristics for Success: Who Should Consider a Retail Franchise?
The retail industry has many options for franchisees who enjoy the dynamic environment of the retail industry. As a franchisee, you'll have an optimal experience if you're prepared for the unique demands and challenges of this industry. Having the following strengths and skills can help you find enjoyment and success in your retail franchise:
Industry Snapshot*:Minimum Cash Required: $ 15,000
*Based on currently active listings at FranchiseOpportunities.com
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