Which Way the Wind Blows

As we have explored on this blog previously, there has been endless discussion during this economic downturn concerning the effect current economic conditions will have on the franchising model. That discussion continues unabated, as evidenced by the following entries found through the briefest of internet searches:

A franchise fix for the recession blues? – BNET

Franchise leader says industry can lift economy – Fox Business

Fewer small business jobs lost in October – CNNmoney.com

Lackluster economy creates prime tenant market. – Franchising World.

The Franchise Decision – WSJ.com

The accepted wisdom on franchise growth is that the most valuable resource, people, is in ample supply in the marketplace. The second most valuable resource, real estate, has become more affordable, opening the door to small business development. The equation goes like this: recently downsized capable business person with entrepreneurial bent cannot find a job and so creates a new business by acquiring a franchise, with the help of affordable rents.

The clouds on the horizon for this sunny view arise when one considers an enormously stingy credit environment and sharply reduced consumer spending.

There is no question that franchising presents some business opportunities that would otherwise never materialize in this economic environment. And in the long run, franchising as a model seems destined to occupy a larger and larger segment of the US economy. Buying into an established system and brand increases the odds of success exponentially in an economic environment that moves faster and faster. However, there is also no question that people are spending less money: on eating out, clothes, electronics, almost anything you can think of. Until consumer confidence returns in full, this softness in spending is going to slow nearly every segment of the economy, and franchised businesses will fare no different.