Franchise Times — August 2012
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Bricks Vs. Clicks
Beth Mattson-Teig

Retailers work to grab online sales without undercutting stores

All retailers are working to capture their share of online sales, but franchised operations have an added challenge: how to structure the online platform so it doesn’t negatively affect sales from franchisees’ stores.

T he brick-and-mortar storefront is by no means going the way of the dinosaur. Despite growing online sales, physical stores remain a vital part of retail businesses, experts say. But the in-store and online experiences are becoming increasingly intertwined.

“The customer doesn’t care who the franchisor or franchisee is. If a franchise system is going to compete in the growing online sales arena, they have to blur the lines between the two entities,” says Cindy McLoughlin, managing partner of the audit practice and head of the Restaurant and Franchise Practice Group for BDO Consulting in Long Island, New York.

The internet has changed the way people shop for goods and services. Consumers are using computers, tablets and smartphones to locate stores, research products, find coupons and place orders. Across many brands, online sales growth is outpacing same-store sales growth. In fact, global sales from e-commerce could top $1.25 trillion by 2013, according to a study by Interactive Media in Retail Group.

Retailers need to have an online presence and sales platform to compete for those online shopping dollars and franchisors are no exception. Yet franchisors do have the added challenge of figuring out how to structure the online platform in a way that will benefit individual franchisees and not negatively affect sales from the physical stores.

Corporate retail brands ranging from Walmart to Petco have integrated brick and- mortar stores and e-commerce to take advantage of sales in both venues. The franchise model is more challenging. The big issue is that franchisees are worried that online sales will cannibalize their own store sales and diminish revenue.

Endless inventory

In early 2011, Flip Flop Shops launched its e-commerce site at FlipFlopShops.com. Much like its franchise-owned and -operated stores, the online shop offers the latest styles of name brand flip flops and sandals. “To be perfectly frank, that has had its challenges. Franchisees get nervous and afraid that the online business will compete with their brick-and-mortar business,” says Darin Kraetsch, CEO of Flip Flop Shops in Kennesaw, Georgia.

Flip Flop Shops has moved cautiously in introducing the online platform. The company emphasized communication with franchisees, and took into account franchisee concerns in order to roll out its e-commerce in a way that would benefit the brand and the franchisees.

Flip Flop Shops shares in the upside of online sales revenue by contributing a portion of gross sales directly into the franchisee’s marketing fund. “We have also created a way for franchisees to access an endless inventory,” says Kraetsch. Most Flip Flop stores operate in a 500- to 900-square-foot store, which means carrying a limited inventory. However, store clerks can use the online venue at their point-of sale systems to find the exact color or size that a customer is looking for and complete the order.

The franchisee actively participates in the online ordering and can use that as an opportunity to interact more directly with the customer. In addition, Flip Flop Shops is working on improvements to its e-commerce platform, which will likely include an option for in-store pick-up.

Regardless of the product or service, franchisors are using websites and mobile apps to drive business to its brick-and-mortar stores. “From the beginning, we designed our e-commerce to complement our franchise businesses,” says Tariq Farid, founder and CEO of Edible Arrangements in Wallingford, Connecticut. Customers can place an order online and choose to pick it up or be delivered from a local store. “We want to make it convenient for customers to place an order with a franchisee from anywhere and at any time, while at the same time making the store popular,” he adds.

About 55 percent of Edible Arrangements’ sales now originate from online orders. At the same time, the locally owned and operated franchise stores continue to remain the primary focus. Each time an order is placed it is fulfilled by a local franchisee. “Our focus is always to drive more traffic to the stores through the web,” says Farid. For example, Edible Arrangements runs special promotions to bring customers into its stores with pick-up specials, such as offering a $25 item for $10 with in-store pick up.

That model is paying off in terms of new store growth. Edible Arrangements has 1,024 stores open now and plans to open 130 more in 2012. In addition, the company is continuing to take advantage of emerging technology to drive business. The company launched its new mobile website in July, which customers can access via smartphones.

Even service businesses such as H&R Block recognize that technology is a key ingredient to supporting the brick-and-mortar stores and the overall customer experience. “Our goal is to engage with the client wherever they want and when they want it, and that is through our website and our mobile apps, as well as our in-office experience,” says Jason House worth, president of U.S. tax services at the Kansas City, Missouri-based firm.

H&R Block introduced its first mobile app in 2010 that allows users to locate offices in their areas and schedule appointments. Earlier this spring, the company launched its H&R At Home Free 1040EZ mobile and H&R Block At Home Free Edition tax prep iPad apps that assist clients in filing returns electronically. The company also provides a live video chat option.

“There is always that question, is technology going to replace brick-and-mortar locations as we have seen in other retail models? The answer is no,” says Amy McAnarney, president of retail client services at H&R Block, with about 11,000 locations. It’s still emphasizing store growth, including a program that focuses on converting existing tax preparation businesses to the H&R Block brand.

“We don’t see technology replacing the brick and- mortar, but rather technology is going to enhance the client experience for our offices.”
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