Why Franchisees Should Stay Away From Brands With Stubborn Policies
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Nijhawan Group is one of the leading travel conglomerates having business partnerships with airlines and hotels. The family-owned business, started by BL Nijhawan, has over the years expanded into verticals like B2A travel services and e-commerce through its investments in start-ups like Inshorts, Dineout, etc. The company ventured into lifestyle retail in 2009 and expanded operations with 34 retail outlets in Delhi-NCR and Mumbai. Sham Nijhawan, Chairman, Nijhawan Group, speaks on the retail journey of the company and how it consolidated its retail portfolio.
How did you come into retail? Tell us about your experience in retail.
In 2009, we were looking to diversify our business when a lucrative opportunity in retail stumbled upon. During a party, my son’s friend introduced us to Adidas offering minimum return commitment of 12 per cent; a proposition I couldn’t deny. We opened our first Adidas store at Ambience Mall, Gurgaon. In the first month, we barely made Rs 7-8 lakh revenue; however, we worked hard and scaled revenues to over Rs 75 lakh a month with 13 Adidas stores. Buoyed by our growth, Benetton approached us and we opened eight brand stores. Later, we became master franchisee for Levi’s Strauss for north India. In fact, few years back we had over 34 stores across Delhi and Mumbai with these three brands. However, various brand policies led us to consolidate our retail portfolio.
Can you provide details on the reasons behind the consolidation?
We decided to consolidate our portfolio due to brand policies as well as brand’s losing significance in the market. Adidas went through some policy changes two years back, where they wanted to own and operate their stores so we graciously gave up the brand. On the other hand, with the brands like Zara and H&M offering apparels at aggressive prices, Benetton lost the market share rapidly. This reflected on our Benetton stores not making money. Hence, recently we decided to give up their stores as well.
How is your Levi’s business doing?
Levi’s is a strong brand in the Indian market and is very receptive on suggestions from franchise partners. If we go to them with problems, they are very communicative and offer the required support. We currently operate 11 Levi’s stores in Delhi-NCR, of which two stores have been opened recently. Moreover, we have plans to add 3-4 more Levi’s stores in 2020 to take its store count to 15.
What are your suggestions for prospective franchisees getting into retail?
The most important part is to look at brands which are acceptable to suggestions and provide on-ground support to franchisees; stay away from brands with stubborn policies. Many of the brands guarantee to cover losses of the franchise and ensure 10-12 per cent returns. Franchisees must ensure to document all details including the time span of the guaranteed returns in the franchise agreement as most of the brands backtrack after 1-2 years. Another aspect is not to get driven by brand’s projected P&L statement. A thorough research with the existing franchisees gives a clear perspective of the brand.
While the location is crucial for retail business, new franchisees must ensure that the rent must not exceed 15-18 per cent of the revenue in the first year, while 2nd and 3rd years onward it must be under 14 per cent. Further, franchisees must verify company policies on franchise compensation on products placed on discounts. When you sign up with a new brand it is important to research the market and assess the brand’s acceptability in your location.
(This article was first published in the November 2019 issue of Entrepreneur Magazine. To subscribe, click here)