Ebook: Retail Franchising

Franchising has long been a popular mode ofexpansion for manufacturing firms andservice sector companies, particularly thoseoperating in the fast food restaurant business. However, in recent years retailing hasbecome a major sector of franchise growth inadvanced economies. Indeed, one of themore pertinent recent trends in the retailindustry in developed countries has been theincreasing proportion of retail salesaccounted for by franchise activity, spreadacross a number of subsectors such asfashion, home furnishings and cosmetics.Since the 1980s franchising has developed asa popular mode of expansion for new nicheretailers which have been able to establish anetwork of stores quickly and at a relativelylow financial cost. The Body Shop has been,perhaps, the best known retail proponent offranchise use. However, the adoption offranchising by established retail companiessuch as Marks & Spencer and Arcadia isparticularly noteworthy. For thesecompanies, franchising has become a majorinternational expansion tool, offeringopportunities for internationalisation intocertain markets where it is more feasible forthe company to externalise its operations.Despite the growth of interest in franchisingamong retail practitioners, the academiccommunity has not kept up withdevelopments and there has been littleattention given to the subject of retailfranchising. The academic debate onfranchising has been informed, for the mostpart, by the activities of the manufacturingsector and other service sectors withoutconsidering, in any real depth, the uniquecharacteristics of the retail sector.The purpose of this special issue is todevelop a richer understanding of retailfranchising. The aim is to provide a collectionof articles on contemporary research in thefield of retail franchising which drawstogether the current strands of academicinquiry and provides an indication of futureneeds and directions. Given the lack ofattention the area has received hitherto, thecontributions in this special issue providesome much needed insights into the specificnature of retail franchising and in doing soaim to advance the academic debate andsignal directions for future research. Research contextThe past 20-30 years have witnessedsignificant levels of franchise research. Thereis now an established franchising literature,due, in most part, to the contribution ofresearchers from several different disciplinesincluding marketing, economics, law andmanagement science. Much of the literaturehas been concerned with the creation andmanagement of franchise systems and, to alesser extent, the wider public policy/societalaspects of franchising. Traditionally, researchinto franchising has been conducted from apredominantly US perspective, reflectinglevels of franchise activity and the USA’sstanding as the world’s single largestfranchise market. Today though, franchisingis a global business activity, widespreadacross advanced economies and increasing inscope in lesser-developed regions. Recentresearch studies have recognised the globaldimension of franchising and haveconsidered franchising growth in thecontext of many markets worldwide, helpingto move the debate away from a purely USagenda. Academic research into franchising hasbeen undertaken on a general, rather thanindustry specific, level. Empirical researchstudies have been based, for the most part,on the findings from large-scale postalsurveys and thus have concentrated onproducing a set of results that may begeneralisable across sectors. However, it maybe argued that a greater focus on the sector ofactivity would help to produce more accurateand relevant findings, and thus lead to thefurther refinement and development ofexisting conceptualisations of franchising. Asector such as retailing possesses a set ofoperating characteristics which makes it quitedistinct from other sectors within whichfranchising is employed. Over the pastdecade or so several contributions in theretail literature have focused on the issue ofretail franchising (Baron and Schmidt,1991; Sanghavi, 1991; Whitehead, 1991;Manaresi and Uncles, 1995; Sparks, 1995;Quinn, 1998; Doherty and Quinn, 1999;Quinn and Doherty, 2000). While suchstudies have helped to raise awareness of theparticular nature of retail franchising, acoherent body of knowledge remains to bedeveloped. Current research. The articles published here address variousaspects of retail franchising and highlight theneed for a more complete understanding ofthe activity. The first three articles discuss thechoice of organisational form and explain,first, the circumstances in which retailcompanies decide to employ franchising and,second, the balance between franchise and,company-owned outlets within the retailorganisation. In the existing franchisingliterature resource constraints and agencytheories have been offered as explanations forthe adoption of franchising. The resourceconstraint argument for franchising assumesthat company ownership is the preferredmethod of operation, while the agencyargument suggests that where outlets aredifficult to monitor incentive advantages willbe gained from franchising the outlets. Thefirst article in this special issue, by Watson,Kirby and Egan, seeks to developunderstanding of franchise adoption by retailcompanies. This paper examines the principalexisting theoretical frameworks with theintention of determining their ability toexplain the incidence of franchising in theretail sector. The limitations of theexplanatory power of existing franchisetheories are noted. With reference to the UKmarket, the authors seek to explain theincidence of franchising in retailing throughfactors such as business risk, scale economies,and human capital requirements. The paperassesses the future development of the sectorand considers the development ofe-commerce and its likely impact on thefuture of retail franchising.Following the organisational form theme,Cliquet and Croizean’s article builds onBradach’s (1998) earlier study on pluralforms. Cliquet and Croizean examine theissue of plural forms and the evolution oforganisational forms within the context of theFrench cosmetics retail market. Their articleexamines whether or not plural forms canbenefit companies operating in a marketwhere large multinational companies areacquisitive. In examining Bradach’s (1998)model in the context of the French cosmeticsretail market, Cliquet and Croizean’s paperprovides a valuable consideration of theapplicability of existing theory within theretail sector and an alternative marketenvironment. Boyle’s article considers not only thefranchise versus company owned choice butalso the choice between the various types offranchise arrangement. Boyle highlights theimportant role of branding in this decisionmaking process, particularly in respect ofcompanies operating in the retail sector. Thepaper takes a case study approach and focuseson Shell Retail’s efforts to introduce businessformat franchising in its rebranding processfor the UK market. In discussing the factorsthat hindered the company’s progress, thepaper illustrates the practical difficulties thatmay be encountered by a retail companyattempting to introduce a new franchisedevelopment programme. The final article, by Quinn and Alexander,takes a different perspective to the otherpapers in that it considers the adoption ofretail franchising in the context of the firm’sinternational operations. While franchisinghas facilitated the rapid internationalexpansion of niche retailers, its increasingpopularity among established retailcompanies without a domestic franchisepresence, such as Marks & Spencer, makes itsadoption in the retail sector quite distinctfrom other franchise sectors. The authorsnote the different perspectives that haveemerged within the retail and franchiseliteratures to explain international retailfranchising. They attempt to reconcile thecontradictions that exist in the literatures, byproviding a conceptual framework to explainthe development of international franchisingwithin the particular context of the retailinternationalisation process. Conclusion The articles in this special issue attempt tobuild on the existing franchise literature byconsidering the particular context of the retailsector, and the authors pay careful attentionto sector characteristics in their attempts toprovide insights into franchising in the retailcontext. The articles highlight the need forresearchers to recognise the idiosyncrasies ofthe commercial sector under considerationwhen studying franchising. While it may beargued that an appreciation of the particularcharacteristics of retailing can help to developfranchising knowledge, it is equally true thatthe insights from the study of franchising andits associated literatures can developunderstanding of retailing in general. Indeed,given the significant role that franchising playsin retailing, it may be argued that studyingfranchising is in a sense studying retailingitself. Knowledge on retail franchising isunderdeveloped and therefore there is a wideranging research agenda available toresearchers in this area. As the articles in thisspecial issue show, the reasons for franchiseadoption, or the choice of franchising as anorganisational form, and the internationaldimension of retail franchise activity arefruitful areas for research. Future researchstudies should also consider the operational,strategic and managerial issues associatedwith retail franchising. In particular, the trendfor large, established retail companies usingfranchising is an interesting development. Itwould be beneficial to examine further howand why such firms have become involved infranchising and the implications for existingmanagement structure and culture. Suchresearch would build upon Forward andFulop’s (1996) exploratory study into thestrategic and operational issues facing large,established firms’ entry into franchising.In terms of methodological approach,researchers should be encouraged to beinnovative in their outlook. Franchisingresearch studies have typically undertaken apostal survey approach and employedquantitative techniques... Anne Marie Doherty andBarry Quinn Previously published in: International Journal of Retail & Distribution Management, Volume 30, Number 5, 2002