Report Predicts Loss Of 10K Franchises

IndUS Business Journal:

The franchise industry is expected to experience a decline in the number of establishments, jobs and economic output this year but, despite this, franchise business leaders remain cautiously optimistic about the prospects for their own businesses, according to a recent report from the International Franchise Association’s Educational Foundation.

The Franchise Business Economic Outlook for 2009, prepared by PricewaterhouseCoopers LLP, forecasts that the number of business format franchise establishments will decline in 2009 by 1.2 percent, from nearly 865,000 to less than 855,000 — a net loss of some 10,000 establishments. Jobs in franchise businesses are expected to fall by 2.1 percent, for a loss of 207,000 jobs. Overall economic output, the gross value of goods and services produced by franchise businesses, will likely decline by 0.5 percent — a loss of $4.2 billion in 2009.

These estimated declines can be attributed, in part, to the unfolding credit crisis. The report refers to a preliminary study by FRANdata, a firm that specializes in franchise industry data. The FRANdata study predicts borrowing by franchises will fall by approximately 27 percent in 2009 compared to the previous year, limiting the expansion of existing franchises as well as new establishments. Another factor is the sharp drop in consumer spending, which according to the PricewaterhouseCoopers report, is expected to continue well into 2009 with adverse impacts on many sectors of the economy.

“The U.S. economy is in the midst of the most severe recession since at least the early 1980s, with adverse impacts on a broad range of sectors of the economy, including franchise businesses,” said Drew Lyon, partner in PricewaterhouseCoopers ‘s national economics and statistics practice. “The report’s macro view of the economy anticipates a continuation of the sharp downturn well into 2009 with a slow recovery.” Overall, nominal gross domestic product is expected to decline by 0.7 percent while employment is projected to fall by 1.9 percent in 2009, according to the report.

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