Wednesday, October 8, 2008

Franchisers Sweeten Pot to Woo Buyers

“Franchise companies, facing what many say is the toughest economic environment they've seen, are offering two-for-one deals, reduced fees and financing help to woo new buyers. They are also paying existing franchisees to help spread the word. The economy has made many would-be franchisees wary of taking big financial risks, while others simply can't get the necessary loans. Meanwhile, competition among franchisers is growing, giving investors a lot more choices. There are now about 3,000 different franchise concepts, according to the International Franchise Association. In a survey released last week of some 150 franchise companies, respondents said their franchise sales were about 72% below their 2008 goals, with inquiries from prospective franchisees down about 48%, according to Franchise Update Media Group, San Jose, Calif. With many banks tightening their lending requirements, Gold's Gym Franchising LLC of Irving, Texas, is giving prospective franchisees more time to get financing by expanding its development cycle to three years from two. ‘If we're happy with the guy as a franchisee and the only thing between him and the Gold's Gym is that he needs more time to line up the financing, then I think it's in my interest to do that,’ says Keith Albright, senior vice president of franchising. Another part of Gold's recruitment effort is enticing independent gyms to switch to the Gold's brand. ‘The softening economy makes it more difficult to go out and build brand-new beautiful Gold's Gyms from the ground up,’ Mr. Albright says. ‘So the thought becomes, 'What if we tried to go recruit the competition and get them to change flags.' Since last year, about six conversions have been added, bringing the total number of U.S. Gold's Gym franchises to 475. In August, Chip Ikerd, the 29-year-old owner of a gym in Somerset, Ky., signed an agreement to convert his facility to a Gold's. He is spending about $75,000 for some physical improvements, sign changes and a $25,000 franchise fee and will reopen the gym next month. Mr. Ikerd is counting on the Gold's brand to boost membership. He now has about 850 members, down from a high of 1,500 in 2004. He hopes to increase that to 2,000 in the next two years, and he is expecting to gain improved customer service, brand loyalty and quality-control systems, as well as the ability to tap into the franchiser's pool of qualified health-club workers.”

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