A tool for enrichment: a store franchise “220”

Peeped in America

The idea is to create a network of stores power came up with one of the founders of “220 Volt” Alexey Fedorov after a trip to the USA. There he spied on the already successful idea of a network of Harbor Freight Tools and decided to move the model in Russia. The first shop “220 Volt” appeared in 2002 in St. Petersburg. In 2006, when the company opened 20 new stores, the founders thought about franchising. Now a network of 221 shop operates in 69 Russian cities and in two cities of Belarus. For the entire franchise history of the company was closed down 37 points. Of these, 24 are fully closed or changed franchisees, others “moved”, says RBC’s Director of retail network “220 Volt” Alexander Spatny: “When we see that we can raise the indices of a point, moving it to another area of the city, we offer a franchisee to change the location”.

The head office for the month comes around 200 applications for the opening of the store. At the first stage of selection is eliminated 40%, says Spatny: most of these candidates or do not have the necessary amount of money to open, or they are not ready to personally participate in the business. Some of the candidates dropping out due to oversaturation of the market: one shop “220 Volt” is designed for 70-100 thousand people. As a result, the conversion of the application to the opening of business does not exceed 2.5%: from 200 candidates to open a shop “220 Volts” can only be solved five. No special requirements except the desire to invest their time and money, franchisees do not show.

Franchisees can open a store in multiple formats. Small format — a store with an area of 40-50 sq m (sales room 20-30 sq m), which is already working within the construction or a home improvement store. Investment in the start (primarily inventory) will be about 1.5–2 million rubles. Store format “standard” is from 50 to 100 sq m (sales area of 30-60 square meters) and must be located on the ground floor of a detached building, on the first and second floors of the Mall. Attachment 3-3,5 million rubles.

Every franchisee is a contract of commercial concession for five years, which is registered in Rospatent. The cost of a franchise varies depending on the trading area. For example, store format “standard” in the first year — 290 thousand rubles., and every next year — 150 thousand rubles; for small-format store, combined with the delivery point for online orders, — 190 thousand rubles., for island rack format (for shopping malls) — 80 thousand rubles per year. For all the royalty is 2.5% of revenues, but only with the sale of goods ordered on the side (RBC surveyed franchisees generally do not pay royalties).

Franchise on wheels

For the southern regions such as Rostov region and Krasnodar territory, where many small towns, hamlets and villages, the network of “220 Volts” a format “franchise on wheels.” Franchisees should possess-equipped commercial vehicle type “Gazelle”, which is a mobile trading hall. Moving from city to city, the employer offers local residents the actual goods — garden tools, small generators, power tools. The partner can use your own car if it meets the requirements, or to buy a car through the Central office (including leasing). The commercial equipment at the start wasted to 450 thousand rubles., for outdoor advertising — 200 thousand rubles Lump-sum payment for the store on wheels is not paid.

Says franchisee

Preparations for the store opening starts with finding premises. If the franchisee does not want to spend their time and strength, he can be trusted search specialists head office. This service will cost him 15 thousand rubles. Also managers can without participation of the businessman to obtain opinions of the Ministry of emergencies and Rospotrebnadzor in the room (this service costs 25 thousand rubles.). Recruitment can also be passed on to head office by paying 15 thousand rubles.

Before opening the franchisee and management team of the store should be trained in the corporate University “220 Volts” in Moscow, St. Petersburg or Yekaterinburg. The course lasts five days, during which the teacher introduces the franchisee with the overall company’s structure, business processes and daily operation of the store. Tuition is free for franchisees, but it needs to pay for travel to University accommodation and all of your team. A few days before the opening of the head office sends to the city a partner of the mentor from the training center (travel and accommodation are at the franchisee). Mentor on the spot briefing for all store employees, which includes the necessary technical and minimum sales standards. Each new employee received a job in a store, must pass e-learning. Every six months all employees undergo a centralized certification.

According to Smetnogo, at the opening of the shop “standard” need for about a month. The commercial equipment at the start wasted to 450 thousand rubles, on outdoor advertising and the sign — to 200 thousand rbl., the initial purchase of goods will require the franchisee about 2.5 million rubles Spatny difficult to give the revenue of the store, but, according to him, the margin on goods is usually 45-48%, which allows to recoup the investment within 11 to 18 months (the franchisor mark-up adjust). However, RBC failed to find a single franchisee, which could bring back investment less than 24 months.

The first batch of goods to the franchisee buys at the Central office formed the matrix. It is created based on the planogram of the store, which also draws the center. “We consider all features of a new point: if a small area, to bring in the snow machines and large compressors makes no sense, says Spatnou. Is important and the region: for example, in Novosibirsk and Tomsk, mining areas, forests, popular machines for woodworking”. Starting consignment franchisee buys fully at their own expense, the following procurement head office provides trade credit and the deferred payment on individual conditions.

Photo: Oleg Yakovlev/RBC

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Photo: Oleg Yakovlev/RBC

Immediately after the opening of the franchisee to attach a personal Manager who becomes the link between a partner and the head office. It responds to current issues, the franchisee and his staff, and once a week receives a detailed report of the work shop. Financial indicators of all points recorded in a single ERP-system, where the Manager has access to private offices franchisees. “If the financial performance of the store to be unsatisfactory, our staff analyzes the reports and suggests possible solutions, from changes in the layout prior to correction of the matrix,” explains Spatny. If remote assistance results, the head office sends to the partner of the master-mentor who helps the franchisee on the spot. Mandatory face-to-face verification of all stores held once a year, twice a year, entrepreneurs send to head office photo reports.

The entire range of products franchisee agrees through a personal Manager. “We provide opportunity to trade third-party products is convenient for large formats, where it just does not make sense to make the whole area a power tool, said Spenny. Franchisee adds to the range of, say, automotive products, electrical supplies, cleaning equipment, pre-checking their list with us.” Delivery of goods to the door of the store provides for the head office (delivery cost is about 6% of total procurement), but the entrepreneur can pick it up with one of the five logistics terminals in Moscow, St.-Petersburg, Rostov-on-don, Ekaterinburg or Novosibirsk.

Franchisee shall coordinate all advertising campaigns with the head office (RBC but all the interviewed franchisees said that do not). The center provides franchisees a ready advertising layouts from database or may use the services of a staff designer. “Direct expenses for advertising not provided, but the office helps with the organization of marketing campaigns in the regions”, — says Spatny.

The crisis affected the work of the network as a whole, and the performance of individual dots, recognizes Spatny. The number of applications for the purchase of the franchise in 2015 compared to 2014 decreased by 8%, operating profit of stores — an average of 15%. To help franchisees to survive the crisis time, head office invites all stores to activate the service issue of online orders, which, according to Smetnogo, increases traffic points and average check.

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They say franchisees

Artem Petrov from Pskov managed to work as a hired employee in a variety of areas: from the consultant in mobile telecommunications is up to the Builder. To start their own business did not have enough funds, and Petrov took the credit in Sberbank on the same program, and Kotelnikov from Perm. Of the 2.9 million rubles spent on the launch of the store, most went to the purchase of product (2.1 million rubles). For the purchase of commercial equipment and advertising — 300 thousand rubles, lump sum payment amounted to 290 thousand rubles., and a small repair and rental of room 134 sq m (retail — 50 sq. m.) in a separate building at a cost of Petrov in 200 thousand rbl. “In the Mall traffic anymore, but he’s not our — we go there usually for women with a new dress or eat at the food court,” explains its choice of franchisee. Any difficulties with the inspection services: the owner of the building agreed in advance with our architectural Department to place signboards on the facade. On learning Petrov did not go, but before opening in Pskov came employee of the head office of “220 Volts”. He calculated the traffic near selected locations, trained salespeople the basics of working with buyers and goods, helped to place the tool on the shelves. His travel and accommodation was paid by the entrepreneur.

Most of the merchandise shop orders through the management company, 5-7% leaves for local suppliers. Most often in Pskov “220 Volts” to buy chain saws and other power tools, garden tools. When purchasing Petrov focuses on the matrix developed by the head office: 75% of the items in it is just so marketable. Gross margin on goods varies from 35 to 49%.

Business is subject to seasonality is quite large, says the entrepreneur. The revenue from April to October is 1-1,2 million rubles a month, and winter is 700-800 thousand rubles: “in the Spring they start construction, begin to get out into the garden. By summer the trend reaches its peak. So, in may of last year, the store had 2 million rubles of profit”. Despite good for small Pskov turnover, the store is operating with zero profitability. “Most of the revenue is eaten by mortgage payments for four years that our program, in the form of interest I’ll pay 1.5 million rubles”, — said Petrov. The largest item of monthly expenditure remains the purchase of goods (from 300 thousand to 600 thousand rubles depending on the season), your rent is 60 thousand rubles, the salaries of three of the vendors — 70 thousand RUB.

With a personal Manager Artem communicates daily and overall satisfied with the support of the center. In January of this year the head office advised to open a delivery point for online orders, which increased the number of checks for 49%. In marketing Pskov to the entrepreneur: how and where to advertise, he decides for himself. According to him, the best effect of the commercials on local radio and discount coupons.

Evgeniy Kucherov opened the store “220 Volts” in Domodedovo after retiring from an IT company. “Tired,” admits the entrepreneur. The franchise “220 Volt” he chose due to the fact that the company provided good support when running and open data on the future costs and revenues. “Repair and giving — an eternal satellites of the Russian people, so the tool demand is always there” — said Kucherov. The area of 73 sq km (28 sq m — the trading room) he together with a partner found in the private sector, consisting of 80 houses. “In the district we were the first store that sells tools and gardening equipment, — says the franchisee. — Before we arrived, people had to travel to Moscow for 20-25 km.”

<p>Kucherov Evgeny</p>

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Photo: Oleg Yakovlev/RBC

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Evgeniy Kucherov

With the launch of the helped employee of the head office, who has trained salespeople and Kucherov skills in sales, technical and merchandising minimum. To run left 2.8 million rubles of own funds. Franchise fee amounted to 290 thousand rubles., for the purchase of goods — 1.7 million rubles the Equipment and business expenses (repairs) required 700 thousand rubles, advertising and sign — another 100 thousand rubles for the first month of sales, there were hardly recognized Eugene, and he has invested in advertising about 200 thousand rubles.

Now the revenue of the store in Domodedovo is about 600 thousand rubles, the profit is still zero. For rent Kucherov pay 100 thousand rubles per month, the salary goes as much again. 400 thousand rubles each month the franchisee buys the product. According to him, the company offers a high margin product and provides a long period of instalments (up to three months). “We opened during the low season, so the numbers are still not very good, — says the businessman. — May plan to produce 120-150 thousand rubles of net profit”.

Victor Komyaginsky decided to open his own business after retiring from the post of head of the Moscow plant engaged in the processing of scrap. The owners sold the factory, Victor returned to his native Bryansk and began searching for a suitable franchise. The terms “220” fell Komyaginsky like.

Before the opening he went through a week-long training in St. Petersburg, and employees of the future store was introduced in the course of the case Manager “220 Volts” is located in Bryansk. In addition, the head office provided Komyaginsky the store planogram, product matrix and advertising layouts, checked the rental agreement. The area of 110 sq m (80 sq m — the trading room) was on the second floor of a detached building. At the start the entrepreneur has spent 3 million rubles of own savings, 2.3 million rubles of which went to the purchase of goods, 250 thousand. cost of the equipment, 200 thousand rbl. — the production of signs and other promotional materials. The franchise fee at that time amounted to 250 thousand rubles.

Almost 80% of product purchases through Komyaginsky “220 Volt”, the remaining 20% is from local suppliers and manufacturers. “Some brands, such as Stihl German, are only sold through local distributors, explains the entrepreneur. — To work with them is often even more convenient: delivered quickly and directly to the door of the shop”. As for the item “220” Komyaginsky goes to the warehouse in Moscow.

Summer at popular garden machinery, lawnmowers and pumps in the winter — heating technique. The product with the highest markup is placed in the so-called warm zones — at the level of the eyes of the buyer. But customers choice is important, says the entrepreneur: each position in the store should be presented in several different ways. “And money to buy such a variety, often lacking”, says Komyaginsky. According to him, the store should always be filled with goods at 6-7 million rubles.

The most significant part of operating expenses remains the procurement of the goods: the store is replenished on a monthly basis 290-800 thousand rubles depending on the season. For rent Komyaginsky pays an average of about 70 thousand rubles per month. The employees ‘ salary costs to 80 thousand rbl. a month. The average check varies in the range of 3-4 thousand rubles a day shop visit 30-40 people.

One store power tools in a small town will not bring profit, I am sure the franchisee. In 2014 and 2015, the franchisee has opened two more stores “220 Volts” in Bryansk. “Our city is stretched from one end to the other about an hour to go, so I decided to open one store in each major area, to meet the demand for the tool, — the businessman tells. I began to breathe freely only after the opening of the third point”. Zero the entrepreneur came out with the opening of the second store, and profits began to receive after the launch of the third. Now each store brings Komyaginsky about 1 million rubles of revenue and 100 thousand rbl. of net profit. He hopes to raise rates due to a new disbursement services of Internet orders, which operates stores in its first month. “Customers have long been accustomed to make purchases on the Internet, so I expect a significant increase in traffic. Although the first month of growth I was not happy” — says the entrepreneur.

At the opening of each point, the entrepreneur had to pay 290 thousand rubles lump-sum payment. In addition, each year over the three points he pays 450 thousand rubles for the use of the brand. “On these conditions to develop a network is unprofitable, which is why I now actively discussing the issue of reducing annual payments with the head office,” says Komyaginsky.