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Small But Mighty

Franchisors reduce store and investment size to expand their brands.

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As franchises begin saturating larger markets and franchisees become wary of sizeable investments, smaller stores are becoming a more prevalent trend. "Some franchisors are charging too much in the marketplace today, and may have to reduce their fees, royalties and advertising fees," explains Jerry Wilkerson, president of Crete, Illinois-based Franchise Recruiters Ltd. "They'll have to consider all options [for expansion], because we have never seen an economy like this before."

Small stores and kiosks are among those options being considered. "Kiosks are huge on the minds of franchisors today, because it has key elements: You can get the price down because of the footprint it takes, you have lower overhead, labor problems are minimized and it's convenient," Wilkerson says.

RadioShack has already capitalized on this idea. In one year, RadioShack went from opening 35 new franchises to adding 203 to its roster. The cause for this dramatic change? RadioShack Select, a franchising program launched in 1997 to bring the RadioShack brand to smaller communities.

All Select stores carry approximately 2,000 of RadioShack's most popular items. Some Select franchises cover only 500 square feet and are co-branded with existing hardware, grocery, video or other stores.

"We were looking to expand RadioShack's reach in to the smaller communities," says Leonard Clegg, senior vice president and general manager for the Fort Worth, Texas, electronics retailer. "We saw a lot of other very successful franchises co-branding and thought we could do the same thing."

When the Select stores launched, RadioShack's goal was to open 1,000 locations in five years. Four years into the program, the company has opened 800 units. "We're very happy with the program," which is RadioShack's sole franchising campaign, says Clegg. "We have a winning recipe."

Franchisees interested in the Select program log onto the company's Web site to access a list of cities and towns RadioShack is interested in expanding to. Some towns on the list have populations as small as 1,000.

On September 1, 2001, Jeff and Debbie Mauer opened the doors to their 2,000-square-foot Select franchise. The Colville, Washington, store started with 1,800 of RadioShack's most popular items and has already increased its product line by 30 percent.

"To make a new store successful, they'll start you with those products," says Jeff, 46. "I saw things in here I thought would never sell, and it's just amazing to me that people come in and ask for those things."

To ensure the popularity of the items sold in Select stores, RadioShack updates that product list every year.

When Glamour Shots launched its kiosk program this January, the goal was not to expand into smaller markets, but to offer interested owner/operators a lower investment. "Typically our build out in malls would cost anywhere from $100,000 to $280,000, depending on the location," says Kim McElroy, Glamour Shot's director of franchise development. "We found it difficult to find people willing to invest that kind of money and also run the store themselves."

To attract hands-on franchisees, the company created a kiosk with a lower investment (around $50,000), rent and labor costs. These locations offer the same services as an in-line Glamour Shots, but has only one make-up area as opposed to four. Besides attracting more prospective franchisees with a lower price point, "we also wanted something that was easier to manage, and could be run by the franchisee and maybe two to three staff members," McElroy says.

Since launching the program, Glamour Shots has opened six kiosks and targeted 75 other locations for kiosks.

Jimmy O'Neal, the franchisee of the first Glamour Shots kiosk, now owns kiosks in Seattle and North Attleboro, Massachusetts, in addition to 15 in-line Glamour Shots franchises. O'Neal, 42, sees another key benefits to owning these kiosks: mobility. "When you open a new store, you never know how it's going to do," he says. "I'd much rather invest $35,000 in a store I can move to a new location as opposed to $150,000 in a store I can't. This is a lot less risky."

O'Neal is familiar with all these elements-they're what attracted him to his kiosks. "I like the fact that it's very inexpensive to operate. And it's just not the rent," he says. "You have less insurance, less workers' comp, no electricity bills. Everything about it seems to be cheaper."