What Arkansas’s Economic Outlook Means for Franchisors

If you’re a franchisor looking to develop your business in Arkansas, you’ll want to consider the state’s policy variables and growth rates when scaling your plans.

By Luca Piacentini1851 Franchise Managing Editor

10:10AM • 10/19/20

This summer, ALEC-Laffer published its annual Economic Competitiveness Rankings, which forecasts a state’s current standing within 15 state policy variables. The report features two different rankings: Economic Outlook — a forecast based on a state’s current standing in 15 state policy variables — and Economic Performance — a retrospective metric based on a state’s performance over the past 10 years. The state of Arkansas was ranked 22nd among the 50 states for outlook, and 27th for performance.

The State

A July report on metro area employment and unemployment showed continued improvement in Arkansas labor markets following the pandemic-related downturn in March and April. Payroll employment increased from June to July in six of Arkansas’s metro areas. Compared to July 2019, total payroll employment was down 60,500, a decline of 4.7%. The year-over-year job losses are concentrated in Manufacturing and Leisure & Hospitality Services, with notable declines in Education & Health Services and Government. Still, evidence continues to accumulate showing that Arkansas’s economy has not been as hard-hit by the COVID-19 pandemic as other parts of the nation.

When it comes to consumer spending, Arkansas has fared considerably well in comparison to the rest of the country. Under the current economic conditions, it appears that the propensity to consume by Arkansas households is high enough that the temporary income gains due to government stimulus programs has been significant enough to not only sustain consumer spending during the shutdowns, but to boost expenditures during the partial re-opening phase. Plus, the COVID-related shutdowns that were implemented in Arkansas were not as restrictive as in many other states, facilitating a somewhat more normal continuation of commerce.

The Data

What does this mean for Arkansas’s economy? To start with the Economic Performance report, the index shows that within the past ten years, Arkansas has been outperformed by 25 other state economies. The performance index is based broadly on a state’s performance within State Gross Domestic Product, Absolute Domestic Migration and Non-Farm Payroll Employment. This year, Arkansas ranked number 37 when it comes to State Gross Domestic Product, number 19 for Absolute Domestic Migration and number 28 for Non-Farm Payroll Employment.

The Economic Outlook tells another story about Arkansas’s economy. The ranking is based on a state’s current standing in 15 state policy variables. Each of these factors, ranging from sales tax burden to state minimum wage, are influenced directly by state lawmakers through the legislative process. When it comes to estate tax, Arkansas is ranked number one in the country, as the state does not assess any part of an inheritance. The state also topped the list when it comes to Right-to-Work thanks to the state’s “right to work” law, which states that no person may be denied employment because of his or her membership in, affiliation with, resignation from, or refusal to join or affiliate with a labor union. Arkansas also features the third-lowest property taxes in the entire country and also is ranked third in workers-compensation costs.

The report indicates that, generally speaking, states that spend and tax less experience higher growth rates than states that spend and tax more. While this is an important finding for entrepreneurs looking to start their own business, it shouldn’t discourage them from investing in the franchise of their dreams if they're in a market with a slower growth rate. For Arkansas, this means a moderate corporate income tax rate, ranked 22nd in the nation, but a wildly high sales tax rate, ranked 46 in the nation. This is likely a result of the implementation of Act 822 in 2019, which increased sales tax receipts for state and local governments, independent of any actual change in consumer spending.

Franchise Growth Plans

Should franchisors expand in Arkansas? Though most franchisors take a shotgun approach — meaning wherever the prospect is that inquires they will entertain that marketplace — the strategy of looking at these overall policies can help them scale their business at a more efficient rate. With that said, the findings within the report should not be the deciding measure for franchisors, but they should play a role in the decision.

When it comes to deciding where franchisors should develop their brand, it’s always important to look at the complete picture of what the region has to offer. Although in the past Arkansas has been behind in performance, its potential for growth is improving exponentially. With low tax rates and a steady economy, Arkansas offers a potentially lucrative opportunity for franchisors and prospective franchisees.

Seniors Helping Seniors

Current Units in State: 2
Available Units: 30
Total Jobs Created At Max Growth Capacity: 300

Senior care franchise Seniors Helping Seniors has several successful franchisees in Arkansas. “The business environment is very strong in Arkansas,” said Seniors Helping Seniors franchisee Susan Sullivan. “The start-up of our business could not have been smoother. We look forward to growing our business and helping the community.”

Wild Birds Unlimited*

Current Units in State: 3
Available Units: 5+
Total Jobs Created At Max Growth Capacity: 35

Wild Birds Unlimited, the birding franchise, is another brand that has targeted Arkansas as a prime state for franchise growth. “The state has several amazing markets, such as Fayetteville and Little Rock,” said Paul Pickett, Chief Development Officer. “We currently have three successful franchise owners in the state and are confident that there is plenty of room for growth.”

REGYMEN FITNESS

Current Units in State: 0
Available Units: 5+
Total Jobs Created At Max Growth Capacity: 75

The boutique fitness franchise concept REGYMEN Fitness** also recognized Arkansas as a state ripe with opportunity thanks to its proximity to the brand’s headquarters.

“With regional development a key focus moving forward, we plan to start growing in the areas surrounding our home state of Louisiana, first and foremost,” Nick Binnings, REGYMEN’S Director of Franchise Development said. “By pursuing regional growth before enacting a national development plan, REGYMEN hopes to grow brand awareness and recognition.”