Franchisers hampered by frozen credit, skittish consumers and a lingering recession are selling and renewing far fewer franchises than this time last year.
In California, franchise registrations filed with the state Department of Corporations from January to its April 20 deadline were down 21 percent from the same time last year, from 151 to 119. Renewals were down 20 percent, from 804 to 640, the state Department of Corporations reported.
Franchise lending plunged 40 percent nationwide from last year, according to the International Franchise Association, a Washington, D.C.-based trade group.
"Credit – that's the big barrier right now," said Alisa Harrison, an association spokeswoman. "Lenders are slowing it down, the risk analysis is much higher. Franchisers are … waiting for the credit crisis to dissipate."
Add the economy to the list of culprits, said Department of Corporations spokesman Mark Leyes.
"We see some franchises that are not expanding as fast, and some franchises won't be able to expand," he said. "The economy's weak and franchises are down."
For much of the decade, franchising rode the wave of a surging economy and housing market, with the number of outlets increasing nearly 6 percent per year, the IFA said.
That was particularly true in the Sacramento area.
"A lot of (local franchise) buyers were coming out of the corporate arena – Hewlett-Packard and Intel," said Greg Roquet, regional director of Murphy Business Brokers & Franchise Network in Davis. "We were enjoying the good times better than most."
Roquet estimates area franchise placements are off 50 percent or more.
Still, Leyes sees "a slight countervailing effect." In a rugged economy, he said, some continue to seek refuge in a franchise model.
Khadeja Qayoumi of Elk Grove recently bought a Great Clips hair-care franchise in Galt. After a long career as a hairstylist, the 53-year-old Qayoumi bought a franchise as a safeguard against the job ax.
"I'm doing this because I don't want to lose my job," she said. "I looked for jobs and people didn't want my experience – if you have 20 years' experience and start at $8 an hour, that's sad. If I wanted to work, I thought, 'Why shouldn't I work for myself?' "
Franchise broker Roquet said consumer – and potential franchise-buyer – confidence will have to turn around for the franchise market to rebound.
"They're not as anxious (to buy) anymore," Roquet said. "This retail environment influences the psyche. The easiest decision to make is not to make one."
Call The Bee's Darrell Smith, (916) 321-1040.
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