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< About Franchising In New Zealand : The Market
Kleenmaid - Will It Happen Here?
Simon Lord
May 2009 - The high profile collapse of Australian franchisor Kleenmaid may offer lessons for NZ franchises and franchise buyers
When Australian fashion jewellery franchise Kleins collapsed last year with debts of over $20 million, it made little splash in New Zealand. Similarly, there's been little coverage here of the collapse of Kleenmaid, which has 15 retail and 30 service franchisees specialising in appliances. Although the Franchise Council of Australia is attempting to distance the Kleenmaid collapse from franchising, the impact upon franchising there has been considerable - read Jason Gehrke's explanation of why the Kleenmaid collapse matters so much. Will such collapses happen here? Almost certainly, because current trading conditions are exposing structural weaknesses within some franchise systems.
There are several articles on this website that refer to the need to set fees , margins and territories according to the individual needs of each franchise system, and to use advisors who will not try to impose a ‘one size fits all' solution on to a new system. Sadly, the boom times of recent years have enabled some franchises to become established (and even to grow quite large) without addressing the inherent problems in the way they were put together in the first place. The result is that as revenues drop, so the cracks are showing. If franchisors haven't already got the right mix of product, service, costings and profitability, they will find it hard to provide the leadership and support franchisees need and may be vulnerable to competition or funding issues.
Looking on the positive side, franchises built on a strong foundation continue to offer a realistic benefit for franchisor, franchisee and customer alike. For example, in our Coping with Recession story, Brem Ellingham of Fastway Couriers reports that Fastway's December 2008 sales in New Zealand were up 22 per cent on the previous year. How? The company looked back at what it learned from previous recessions, re-assessed its offer and adjusted its marketing to meet customers' needs. It's an impressive story based on a long-term commitment to getting the business right.
Past surveys of the franchise sector have suggested that the level of disputes within franchises in New Zealand is commendably low, affecting perhaps just one per cent of franchisees. Over the next year, that figure will probably increase. The media will, no doubt, seize upon the resulting cases with glee because franchises represent big brands, which always make good headlines. But there's one thing it's important to remember when reading those stories. Even if that one per cent figure doubles, or even triples, a franchisee who enjoys the benefits provided by the brand, support, systems and vision of a good franchise system will still fare considerably better than many independent small business people.
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