COVID-19 and High Unemployment Set Up 2021 For Franchise Sales Feeding Frenzy

Unemployment claims for the week of December 7 came in at 885,000, higher than the 800,000 predicted by economists, and a growing mountain of evidence suggests that high unemployment, increased skilled-labor availability, easy access to capital and historically low mortgage rates could combine to make 2021 the year of franchise sales. 

In total, the U.S. still has 10.7 million unemployed workers due to the COVID-19 crisis. This week’s higher-than-expected jobless numbers show that the U.S. isn’t out of the woods yet on a pandemic-related economic downturn, even as vaccines for the virus start to make the rounds. 

But while much of the U.S.’s economic prospects look bleak, one market sector has emerged a champion: franchising. 

Franchise businesses have weathered the economic shock of the COVID-19 crisis demonstrably better than their independent counterparts. In the last great market crash, franchising outperformed other sectors by leaps and bounds.

Counterintuitive as it may be, the glut of unemployed professionals across the country could set up a franchise sales feeding frenzy. Here’s what the franchising industry should expect going into 2021. 

Brace For Turbulence — And Franchise Sales

ExxonMobil, Chevron, Charles Schwab, Raytheon, Wells Fargo, Goldman Sachs, Salesforce, Maersk, WarnerMedia, Regal Theaters — these are just a few of the companies contributing to an avalanche of white collar layoffs. 

While job losses have mostly impacted lower income, less skilled labor, the unemployment rate for those with college experience has more than doubled from 3% in February to 6.3% in November. 

Thursday’s poor unemployment numbers show that recovery has slowed, and career uncertainty, even for educated, white-collar professionals, remains high. 

“When unemployment increases, turbulence for those employed also increases,” said Nick Powills, publisher of 1851 Franchise. “When turbulence increases, people start looking for what’s next. This is where franchise brands shine — in that people who have saved a little money all the way up to those who have saved a ton, land in a mindset where they can become their own boss within the structure of an already built business as their own what’s next.”

As early into the crisis as April, researchers identified the pandemic as a “catalyst for entrepreneurship.”

2021: The Year of The Franchise?

In 2008, the year after the housing market crash, franchise brands dominated. In 2021, the year after the pandemic crash, a perfect storm of economic conditions may set the market for an unprecedented boom in franchise sales.

“2021 has a very good chance to be the best year for franchise sales ever,” Mark Siebert, CEO of iFranchise Group said. “It’s somewhat callus to say, but in franchising, nothing beats a good recession.”

In 2008, the housing market tanked 40% while the stock market took a 30% dive. This left millions of Americans asset-poor. In 2021, the opposite is true. 

“Unlike the 2008 recession, you’ve got a much better availability of credit, historically low interest rates and asset values that have actually increased,” said Siebert. “In 2008 you saw massive drops in stock and housing prices. Today, housing prices have increased 4.3% year-to-date, and the stock market is setting new records every day.”

This means many of the 10 million Americans experiencing unemployment right now have assets they can tap into to invest in a franchise. Americans can leverage their homes, their 401(k)s, and their savings to buy into a proven business model at historically low rates. 

Uncertainty around the virus, the primary limiting factor in franchise sales cited by dozens of franchising professionals interviewed by 1851, remains perhaps the only thing keeping the floodgates shut on the surging tide of interest in franchising.

For large operators in the franchise space already, the time to move is now. With 110,000 restaurants closed across the country, there’s no shortage of prime retail space available. 

“You’ve got a large number of people who are multi-unit franchise owners for retail operations looking at a perfect time to buy. These operators are looking at the franchise space and thinking ‘I can get prime locations at below market rates;” said Seibert. “From a franchise sales standpoint, companies with a concept that works are seeing maybe the best environment they could ask for.”

“Blood In The Water”

While franchise sales have every reason to boom in 2021, not all franchises are created equal. 

“There’s a lot of blood in the water. It’s a great year for franchise sales, but not a great year for franchising completely,” said Siebert. “There are a lot of failed franchisors whose concepts did not adapt fast enough.”

While a rising tide may lift all boats, an unsound hull is sure to sink. Movie theaters may not come back as strong as they did before, but brands in the restaurant industry have proven more than capable of pivoting to a new post-pandemic reality. 

As always, brands that succeed in telling a story and connecting with customers will outlive those who don’t. 

“The brands that have clearly defined their why them/why now and have deployed it effectively are there to scoop up these next franchisees, said Powills. “A turbulent economy is good for franchising.”