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Should I Open a Franchise During a Recession?

As you consider opening a business during a recession, you can take solace in the fact that you wouldn’t be the first person to take the leap.

Several household brands were established during economic downturns – Microsoft, Uber, Trader Joe’s and Airbnb, just to name a few.

While there may not be a glaring connection among the various brands that got started during challenging economic climates, some of the keys to many of these brands’ success include:

  • Differentiation
  • Innovation
  • Resilience
  • Passion

Here’s a closer look at each of these attributes and how you can use them to determine if a franchise opportunity is in a position to thrive during a recession.

Differentiation in the Marketplace

In every industry, there are competing brands that offer seemingly identical products or services. Think about the restaurant industry – how many burger places do consumers have to choose from? In a crowded marketplace during an economic recession, your business needs to be able to clearly differentiate itself from others in the space to thrive. For the resale retail franchises in the Winmark family of brands, the business model is differentiated from other retailers because we buy and sell quality used goods. We distinguish our resale model from other secondhand and consignment shops because we buy used items from our customers in exchange for cash on the spot.

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Innovation that Spurs Consumer Activity

Brands that continuously invest in innovation – even during a recession – tend to outperform those that lag and stick with a well-worn operating model. In the aftermath of the recession caused by the coronavirus pandemic, there was an advantage for brands that had developed an omnichannel presence, which gave customers the option to shop online and in stores. Among the Winmark resale brands, Music Go Round®, Play It Again Sports® and Style Encore® allow consumers to find and purchase products online for both in-store pickup and home shipments. As the pandemic developed, the Once Upon A Child® and Plato’s Closet® franchisees were able to set up online shopping storefronts to stay in front of their customers.

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Resilience in the Face of Uncertainty

Going hand-in-hand with innovation, resilience is another key attribute of brands that can hold up well during a recession. Franchises that are able to be flexible and adapt to difficult circumstances and maintain operational standards have an advantage over those that remain rooted in a “that’s always how we’ve done it” attitude that can hinder growth. That said, business resiliency – especially within a franchise system – doesn’t mean throwing out operational procedures wholesale when disruptions occur. Rather, it’s having a clear-cut plan of action in the event of trouble so franchisees can keep operating.

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Passion for the Business

Strong leaders often have an unshakeable belief in their business concepts. As the franchise owner, your belief in the brand and passion for the concept are two intangible factors that can have a significant influence on the longevity of your business. If you aren’t confident in the products or services you provide, it’ll be a hindrance when times get tough and you need to be able to draw on that belief to make it through.

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A Look at Recession-Influenced Consumer Behavior

Meanwhile, it’s important to understand consumer behavior during recessions and how a business is able to adapt and continue fulfilling its customers’ needs.

Cutting Back on Spending

One of the clearest behavioral changes consumers demonstrate during periods of economic uncertainty is an overall reduction in spending. Recent research from McKinsey & Co. found four in 10 U.S. consumers have reduced overall spending, particularly when it comes to nonessential products.

Changing Perceptions of Value

During the Great Recession of 2008 and 2009, consumers adjusted their purchasing behaviors similarly to how they did in 2020. Many switched to lower-priced brands in an effort to save money. After they made the switch, 34 percent of consumers said they no longer preferred products with a higher price tag. An even higher percentage said premium brands weren’t worth the money.

Brand Loyalty Erodes

Along with the changing perception of value, there’s an increased likelihood that consumers will try products from a wider variety of brands – often lower-cost options. This frequently leads to reduced loyalty to specific labels, as the higher priority becomes cost and value.

So, when you ask the question of whether to open a franchise during a recession, it’s important to frame it within the context established above. There’s a clear history of businesses that were launched during a downturn that had longevity. There are countless others that did not survive. Recessions aren’t the sole dictating factor for the viability of a business model. Each franchise concept is distinct that will react differently to economic challenges.

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The resale industry is one of very few truly recession-resistant segments. Nearly two-thirds of U.S. resale store respondents reported an increase in sales, by an average 31 percent, according to a 2009 National Association of Resale & Thrift Shops (NARTS) survey. Even in a strong economy, that level of store-wide sales growth is impressive.

With unsurpassed staying power and fast-growing demand in any business climate, resale franchises are one of the strongest investments available for savvy entrepreneurs.

Learn more about our resale franchise brands by downloading one of our franchise reports today!

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