By Adam Coleman
SYDNEY: Strathfield Group has confirmed it will franchise up to 62 of its 87 retail stores in a move the retailer hopes will produce between $10 – $17 million in upfront fees and an annual profit of more than $10 million when fully operational.
Strathfield’s new chief executive, Gerard Frack said store values range from $95,000 to $670,000 each depending on size and location, with the company to retain and build up 25 new and underperforming stores.
After conducting a feasibility study the Strathfield board approved the franchise model yesterday which Frack said had proven successful for companies such as Harvey Norman Holdings and Optus World.
“In many cases sales improve 15 per cent to 20 per cent and costs reduce through micro management at store level,” he said.
In any event, it will take more than positive forecasts to settle the frayed nerves of Strathfield shareholders who over the past few years have been subjected to one positive refrain after another, followed by one earnings downgrade after another and a plummeting share price.
Frack blamed Strathfield’s management structure on the company’s $11 million loss last financial year, and claimed the stores will be profitable under the new model.
“Strathfield previously had an exorbitant management structure at head office which contributed to the annual loss,” he said.
“At store level most of the stores that are on offer produce good net profit before head office charges.”
According to Frack, Strathfield stands to gain between $10 and $17 million in upfront franchise fees from the 62 stores, with full franchising expected to be completed before Christmas.
“We are making available vendor financing to potential franchisees at 12 per cent interest so the exact amount of cash received will not be known until the completion of the process. Experience to date suggests it may be a 50/50 split,” he said.
Strathfield will also retain a number of flagship stores for training and “keeping in touch with the marketplace”.
Under the agreements, Strathfield head office will hold the leases of the franchised stores, which can be held for five years plus a five year option.
According to Frack, Strathfield Group already have deposits for 12 stores and are in negotiations on an additional 16 stores.
“We have a further large number of franchisees we are qualifying,” he said.