Franchising Good for America

 

May 21, 2013

Whole industries in mass moved their manufacturing to China, raising the question as to the benefits of free trade. CEO's in every sector continue to earn huge salaries and bonuses while multinational corporations earn large profits and, instead of hiring, increase their cash positions and invest abroad. In the pursuit of a second term President Obama pledged the creation of new quality jobs. I wonder how can this happen unless there is a shift in the attitude of all those involved towards the need to significantly support small business.

 

We are told that if we do not learn from history we are doomed to repeat it. In the 1990’s I made investment presentations to Highland Capital and to the MIT Sloan School of Management. Using the examples of TrueValue and Ace Hardware in the Hardware industry I detailed a bright picture of franchising and compared them to the inefficient box stores of Home Depot and Lowes.

While the investors seemed to like my business plan, I am now sure that the business school communities ignored the modest profit picture I had projected in favor of much richer profits of business concepts such as the Staples model. Staples management team and Romneys' Bain Capital all came from the Harvard Business School which chose to expand new companies exclusively through IPO’s.

As the result, the office products industry today consists of only three large superstores that control 92% of the retail industry. While the world is aware that the company founders and stockholders have earned billions of dollars as the result of their IPO, they also put over 12,000 smaller independent store owners out of business. This all took place while Staples and the other superstores put the US office products manufacturers out of business in favor of importing their Chinese made inventory costing less than a tenth of what they paid to U.S. manufacturers on the shelves of their stores.

Unlike Walmart and other giant retailers, the cost savings never were passed to the customers, nor to their employees. Staples and the other box stores lined their stockholders' pockets with huge profits and used every means possible to destroy viable competition and is why today there are no office products franchises in the industry. This office supply industry is just one example of a tidal wave of businesses that were moved off shore...all for the benefit of "Free Trade".

The franchising business model in the U.S., for many industries, would have provided independent owner support, group purchasing power, coop advertising, and entrepreneurship by focused, energetic new business owners. They would have been more community responsive to their fellow business leaders, sponsors of local youth and non-profit organizations, and an integral part of helping their community. Instead of creating new levels of wealthy jet set billionaires, one now running for President, franchising the industry would have provided better pay to its employees and passed on more savings to customers from the low cost of cheaper products made in China.

Sears is one example of a corporation that recognizes the importance of franchising. Recently having created a tool franchise operation, Sears has established a new model which allows franchise owners to operate the Sears stores while Sears owns and maintains the costly inventory. Entrepreneurs should also evaluate the cash potential of the office superstores like Staples. Hopefully, they will recognize the inefficiency of parts of their operation and the huge markup of some of their Chinese made products. Replacing low paid and unmotivated employees with caring franchise owners selling office products at modest prices would present a profound change to the endless circle of retailing.

Leonard Faucher is currently the COO of Core Curriculum Coaching, Inc. of Houston, Texas. Formerly a public high school teacher, Faucher founded OfficeLand, a 23 store office products franchise chain acquired by Staples, Inc. He also served as CEO for the International Center for Distance Learning of Boston. Faucher has a Masters degree from The Boston Conservatory in which he served as trustee for five years. He is currently an adjunct professor at Houston Community College.