The current implosion of the retail jeweller Kleins has again brought into sharp focus the tied destinies of franchisees with their franchisor.
Despite being around for 26 years, despite its large number of stores, and despite its wholesale and international operations, Kleins is now in its final death throes after the company’s administrators last week announced that out of 36 expressions of interest, none were prepared to buy the business.
In other words, it was too far gone to be rescued, and needed to be put out of its misery. And because the franchisor held the head leases on all of its franchised locations, it means the end of the line for its franchisees too.
For those franchisees who had staked all or part of their future prosperity on a Kleins franchise, this outcome must be devastating. In the main they will be left with next to nothing (or worse) from their franchising experience – no capital gain on the business asset they worked to build, a shop fitout that is now effectively worthless, and the prospect of hawking unsold products on the cheap at markets or on eBay to recover some of their stock outlays.
In the 2006 report When the Franchisor Fails, University of New South Wales academic Jenny Buchan looked at the critical issue of franchisee survival in the event that a franchisor collapses.
The result was not good. Continue reading.