By Len Faucher
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 pursuing a second term President Obama pledges 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 True Value 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. The Staples management team and Romney’s Bain Capital all emerged from the Harvard Business School mindset, 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. The 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 Wal-Mart and other giant retailers, the cost savings never were passed to the customers. Staples and the other box stores lined their stockholders pockets with huge profits and used every means possible to destroy viable competition. This is why today there are no office products franchises in the industry. The 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, provides independent owner support, group purchasing power, coop advertising, and entrepreneurship by focused, energetic new business owners. As small business leaders, they become sponsors of local youth and non-profit organizations, and an integral part of helping their communities. Instead of creating new levels of wealthy jet set billionaires, one now running for President, franchising the office products industry would have provided better pay to employees and passed on more savings to customers from the low cost of cheaper products made in China.
It may not be too late to change this landscape, however, as Sears is one example of a corporation that recognizes the importance of franchising. Recently having created a separate retail franchise, they have created a powerfully new model for franchising in which franchise owners own and operate their own Sears stores while Sears supports and maintains their inventory. Entrepreneurs should also evaluate the cash potential of Superstores like Staples. Hopefully, they will identify the box store inefficiency and recognize the huge profit margin of easy to obtain consumer products. Replacing low paid and unmotivated employees with store owners, entrepreneurs of the future will see the opportunity for a new and better alternative in the circle of retailing….a franchise operation.
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Leonard Faucher is Sr. Managing Partner for Franchise Innovators International. Contact him at 832-886-2757 or email him at [email protected]
