Our prediction of the collapse of the salon suites franchising concept is coming to fruition. We keep hearing stories (from folks who are exploring the franchise route) about the rapid decline of franchise fees across all franchisors. Franchises appear to be getting desperate for new operators, and are dropping their initial franchise fees to all-time lows in an attempt to protect their long-term royalty revenue streams.
As we predicted, with so many salon suites franchisors operating, the competition for franchisees has become heated. More significantly, the low hanging fruit of gullible, uneducated franchisees is drying up as more and more potential operators realize that the franchise model is a long term money pit for which they get nothing in return.
The good news, if there is any, is that the cost for the initial franchise fee is becoming more closely correlated to the support and services that franchisors actually provide. We field many calls from new franchise owners asking for help because they can't get their franchisors to return their calls or emails as they try to develop their facilities. As we have mentioned previously, it appears to be a fairly common practice for franchisors to sell a great opportunity with lots of support, only to disappear once the initial franchise check has cleared.
We have already documented an example of how the franchisor should have NEVER allowed the operator to develop an enormous facility in a super-dense area (see our post of May 2014 below). Now an operator on the west coast, who purchased multiple franchises, is having trouble getting financing together, but already executed a lease and is facing some serious problems as he has no capital for development. Why would a franchisor allow an operator to execute a lease without financing in place, or at a minimum, at least counsel them to make the lease contingent upon funding? Is this not obvious? To us, this is mystifying, but we keep hearing the same stories.
Go with the professionals. Salon suites are great businesses, and there are great opportunities out there. It's just the franchise model that is...how shall we say it?...sub-optimal.