• Franchising?

TradeTools & Tool Store Franchising?

We are often asked here at TradeTools about whether or not we would consider selling franchised stores? And for reasons that often mystify many of us ‘old hands’ throughout the Australian tool & hardware industry, there still seems to be good people out there prepared to hand over quite large sums of their heard earned life savings in order to open a franchised tool store.

Now, & I can’t speak much for the rest of Australia, but here in sunny Queensland it’s worth remembering a few quite easily provable facts prior to anyone getting tempted by promises of rich rewards in their very own ‘business heaven’, or other similar typical franchisor sales pitches. Therefore, & before you pull out that cheque book of potential dream fulfilment, please think very carefully about all of the following:

 

  1. The tool industry has had quite a serious go at franchising tool stores before. The name of one particular company who tried it in earnest was Glenfords. They had a famous national presence covering most Australian states, all of which came spectacularly crashing down in 2011. Now Glenfords are just a distant memory, except for all of those good people that lost a whole lot of money, none of which they will ever recover.
  2. The retail industry, in general, is actually going through a tough time, a “retail recession” as many have called it, & the list of retailers going to the wall seems to keep growing by the day. Only just recently’ Toolies’, a 43 year old retail tool business in Newcastle NSW, announced it was closing for good. In Queensland, we have watched as old established tool stores in Lawnton & the Bayside have also recently closed during the last few months. Then there are the more obvious recent failures of Masters Hardware,  Howards Storage World [main franchisor], Dick Smiths, Payless Shoes, Pumpkin Patch, Marc’s, Topshop, David Lawrence & Herringbone to name just a few. I am now starting to lose track of all of those other retail store chains that have now shut shop for good, some of which are hardware related & unable to compete against the considerable might of the Bunnings juggernaut! And take notice of how many stores are being vacated in retail shopping centres, victims of reduced discretionary spending & modern super-heated destination store competition. The retail world is fast changing, & not always for the better.
  3. So, please really do your homework before buying into any form of franchising outfit, & properly delve into just how many franchised operations have actually failed over the years. For sure, there are certain specific business investments that do quite well following the franchising model, but the tool industry just doesn’t seem to be one of them for many of the following reasons which I will try to explain with some established facts & figures.
  4. Take TradeTools for example. We have 16 BIG stores across Queensland & the 17th just in NSW. In most cases we own our premises outright, meaning that we pay hardly any rent at all. We have no overdraft either, in fact we really owe nobody anything at all, particularly any bank or finance company. That is in stark contrast to a lot of franchisees who, in many cases, have borrowed heavily, sometimes even risking their homes as surety. That quite simply means that when the next downturn comes, the only real overhead of any consequence to us is our wages bill, something that we at TradeTools, more or less, have full control over. In short, our business model is about as unbreakable as it can ever be.
  5. And make no mistake at all, there will be a downturn, & the next one will almost definitely be a hugely memorable & quite nasty one, especially after so many years of growth & good times for all.  In actual fact, many of us here predict a downturn to hit sometime during late 2018, after the Commonwealth Games & when the housing market bubble has markedly stopped expanding. So, if you couldn’t easily sustain a 30% downturn in turnover, accompanied by a potential 80% downturn in nett profit [if you’re lucky…….it could be much worse!] don’t even think about entering the Australian tool industry, otherwise it could eventually eat you alive, like it has with so many others over the decades! Personally, I have now lost count of the amount of tool stores that have closed their doors just across Queensland during my lifetime in this industry. Whenever it has happened, it was never, ever, pleasant to watch, in fact it still leaves me with a hollow feeling just thinking about some of those many people; their faces, their broken dreams, all that they lost, all quite sad.
  6. But, we still have these franchise tool stores occasionally trying to open up just around the corner from some of our own long established TradeTools stores. They not only try & compete against us, but they are also often expected to compete against some of their own fellow franchisees, many not really being that far away either. And when they do open up near us, they affect our turnover hardly at all, maybe a few tiny percent, mostly not even that. But, when we occasionally open up near them, well, we know first-hand the quite damaging effects a TradeTools store opening up against an existing competitor tool store can really have, something well worth looking deeply into before you part with any of your cash. Our recently opened TradeTools stores up at Toowoomba, over at Brendale or down at Labrador are all excellent cases in point; all new stores that we are told have cut quite deep swathes through the turnovers of nearby competitor stores. It is not something that we actually enjoy doing, that's just not what life is about, but we only ever open TradeTools stores where we know they are really needed, never to just try & steal a bit of existing turnover from an established worthy competitor. Trying to do just that is unsound business, a decision based in poor principles in fact. And you can never put a price on principles, except to say that they are priceless! And TradeTools is a company known for its very strong old fashioned principles, it is at the very heart of everything that we do here, & always will be.
  7. And why are TradeTools stores still so successful I hear you ask? It’s all really quite simple. We have 35 shareholders, almost all of whom work full time throughout all of our stores. We also have full workshop & repair facilities across most of our stores, the sure sign of a proper industrial tool company. We manufacture air compressors & pressure cleaner’s right here on the Gold Coast, plus we import around 350 containers annually of our very own branded products. When you buy from TradeTools, you really are often buying directly from the importer, no middlemen, no expensive internal freight, no franchisor fees. And those 350 containers…….that’s not a misprint…….. many of those are 40 foot long as well! There are no expensive interstate freight charges from somewhere down south; we just ship it around our own stores in our own trucks every day from our central Ormeau warehouse. No other proper tool company can compete with that in Queensland, they can’t come even close, in fact franchised stores sometimes directly compete against each other as we said, & with a noticeably smaller &, we believe, a poorer range than you will find in any 'stocked to the gunnels' TradeTools store.

    Again, these are all simple facts that anyone can easily check for themselves.

  8. And we are a True Queensland Company, something that we know is understandably important to many of the people up here. If we make a profit, it stays here in the form of new buildings, local investment, more stores & more local employment. There are no ‘suits’ somewhere down south creaming off any of our already quite ‘modest hard earned profits’. Many of our people have been here in excess of 10 years, some over 20 years, & many of them are those time served TradeTools shareholders I spoke of earlier.

    No other tool company that we know anywhere on earth of is structured quite like that; it’s obviously a Queensland thing, & very proudly so as well!  

  9. And ‘modest hard earned profits’ is not a term that potential starry eyed tool store franchisees wish to hear ay? Well, tool retailing was never an ideal game for the faint hearted; even years ago it was known for its low margins, price gouging & fierce competition, in fact the only way that a company like TradeTools can comfortably survive & expand is, as I have already made clear, by continually reinvesting any profits it makes back into buying its buildings, increasing its stock, uncovering more efficient use of its staff & resources & generally accepting that scarily tight margins are here to stay. Of course, our manufacturing & import programs are some of the areas where we do actually sometimes see acceptable profits, but it demands huge investment,  has taken 35 plus years of refining, & it’s still always a work in progress. We would go as far as to say that, if you don’t make a fair proportion of your very own air compressors & pressure cleaners, as well as having properly set up tool repair facilities on site, then you will never be able to properly compete against any TradeTools store, no matter what any potential franchisor otherwise promises or claims.  Any proper Queensland tradesman who knows his tools can easily verify that.
  10. And never fall for the gross dollar turnover figures that you may get told by some bold boss of any franchising outfit trying to sell you ‘the dream’ , but really with an eye focused directly on your life savings! Some of the figures I have heard being bandied around are, shall we say, ‘carelessly overstated’, especially considering that they can’t really be reliably checked for accuracy. And that is because many franchises are single entities operated by small private companies with mum & dad shareholders.  All of these entities report their figures separately of course, so only the head franchisor really knows what the group turnover actually is, or may instead offer official figures that are years out of date. If any franchisor is not totally up front about their group’s most recent provable turnover, then they may actually have something to hide; otherwise wouldn’t they be proudly publishing their total group’s most recent annual figures for all to see?
  11. And never fall for all of the hype surrounding ‘better buying power’ due to the group’s size. On the surface it may actually be partially true, but sometimes it’s the franchisor that may be keeping a distinct proportion of this ‘better buying power’ in the form of some of those savings going directly or indirectly to them. Let's face it, franchisors are rarely ever benevolent societies; they are there to firstly sell franchises & to make as much as they can during that process, & secondly to keep on doing so for as long as they can after that! And very often this ‘better buying power’ represents only a tiny few percent at most anyway; but that’s quite a lot when retail nett profit margins can often hover around 6% at best in these tough retail days. And that 6% might even get considerably worse after Amazon & Ali Baba front up in Australia later this year!
    As the boss of Bunnings evidently said “they’re going to eat us for breakfast, lunch & dinner”, or something scarily close to that.

    Still smiling?

  12. And lastly, look hard into just how many franchise outfits have failed over the years. As I have already stated, we believe here that franchising out tool stores is a questionable endeavour; in fact we wonder as to whether or not it’s just a passing fad & could well be long gone again as a viable business option sometime during the next few years. And no question Amazon is coming, Bunnings just keeps gets stronger &, even though we are a fiercely proud private company, we are still one of the 5 founding members of the much larger & genuine $440 million dollar annual turnover Toolmasters tool group.

So, be very careful, very careful indeed, if you think that coming into our industry is an option without very many scary challenges & pitfalls……below the surface really nothing ‘heavenly’ about it at all!

And all this is why you will never be able to buy a TradeTools franchised tool store!

Thanks for your time.


Greg Ford
Founder & Director
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