Are Franchises Finished?

Ok this is not going to win me too many friends but it has become clear to me that the value of being a part of a large franchise has waned considerably with the onset of the Internet.

The Past
Before the Internet, a franchise such as LJ Hooker (used here many times as an example) stood for so many things, they represented quality and power and promoted their ‘impeccable reputation’.

Home buyers used traditional media to search for listings and franchises had real buying power through their franchise, which in turn reduced costs to operations and vendors.

Home buyers would jump in the car and drive down to the local agency and browse window cards, contact an agent if they were interested and perhaps request an open home. Agents had constant contact with potential buyers because they needed the information and as we all know newspaper ads and window cards carry little information!

Also the media were so much more friendly and any negative publicity was a rare occurrence.

Also franchises had the power to advertise on TV (some still do) which gave vendors another reason to list with them.

Now
It is clear the Internet has becoming the number one choice for the majority of advertising and traditional advertising will move more to branding and exposure for agents rather than expensive listings.

Home buyers do their research almost exclusively online rather than browse shop windows and TV advertising are now consigned to silly campaigns like the “Thank you Mr Hooker” LJ Hooker adverts.

This is why I believe the future looks glum for franchises and franchisee’s.

Property prices have risen considerably since the mid 90″ and as franchise fees are pegged to a % their fees have increased dramatically from franchisee’s but their power has decreased almost as significantly.

Franchises are the winners while franchisees are the losers.
Franchisee’s advertise the franchise site (promoting it) rather than their own (a huge mistake!) and some franchises like LJ Hooker have steered clear of endorsing real estate portals like realestate.com.au/domain.com.au, instead getting their agents to push their own website.

Each week in newspapers all over Australia franchisee’s are promoting franchises sites like www.ljhooker.com.au, do LJ Hooker pay franchisee’s for all of this free publicity? Do franchisee’s receive commissions for companies that advertise on their sites?

Doubt it!

The person in charge of this at LJ Hooker should be tried by a military court, this shows a complete lack of understanding of the Internet and is failing and will fail going forward and this is why!

Consumers do not want to bounce from one site to another, they prefer getting all of their listings from one or two places and realestate.com.au has become the place where all residential agents MUST advertise.

Promoting your own site like www.ljhooker.com.au on TV is a complete waste of money and is a slap in the face to consumers.

The Internet’s success is because of the power it places in the user – not to corporations and I can confidently say many LJ Hooker franchises are losing vendors and sales because they do not advertise on www.realestate.com.au.

I mean what excuse can LJ Hooker sales people give to potential vendors when explaining why they are not on realestate.com.au?

Zero, Nanda, None! Well not with any understanding or conviction. After all…… agents tell potential vendors how they place their ads in front of as many potential buyers as possible. Well realestate/domain have millions of potential buyers visiting their sites each month, and this is about as good as a its gets in Australia.

They are only being fooled by their franchise and many are now going it alone and advertising on these portals anyway. So where is the franchise buying power there?

LJ Hooker might be a popular portal but buyers flock to the main portals and the success of the LJ Hooker site will only come whilst expensive TV campaigns operate and franchisee’s continue to promote the www.ljhooker.com.au site in newspapers.

Franchisee’s will eventually wise up so they cannot do this forever!

Another problem is the change in the way media now operate. TV programs like Today/Tonight and A Current Affair target exclusively dodgy sales people from all industries (because we seem to like it) for ratings and pretty much go after any real estate agents that does the wrong thing.

This was clear when last year some idiot salesperson from LJ Hooker sold a house to a couple for market price and did not mention that the former owners were butchered to death by another member of the family in that house before it was offered for sale.

After news of this went everywhere on TV, radio and print, LJ Hooker stood firmly by its salesperson for over a week (why do they always act so slow on these things) before finally taking action and reimbursing the buyer and sacking the salesperson.

How much damage did this cause other franchisee’s? I would say it caused massive damage Australia-wide and the good honest franchisee’s (majority) paid the price.

So all franchisee’s pay the price when one stuffs up. It is impossible to ensure honesty and integrity runs through all offices, especially in any sales and commission related industry and this is another reason why it cannot last.

The Future
My vision for the future is that the number of franchises will recede and real growth will come from private agencies, the amount of agencies in Australia and New Zealand will probably decrease with the onset of private advertising and some real pressure on fees but I believe the amount of private firms will continue to grow at the cost of franchises.

Interesting times ahead…….

Franchises

SEO For Real Estate
Listing Leads
Agentpoint Real estate

About Peter J Ricci

Peter Ricci is the Director of Agentpoint.com.au, Business2.com.au, Ginga.com.au and ZooProperty.com and has been involved in designing and developing real estate systems and websites since 1997. In July 2001 Peter founded Business2.com.au to help real estate agents better understand the power of the Internet and the real estate landscape in Australia and New Zealand. Since then he has penned over 300 articles on a variety of subjects in the real estate technology industry. Business2.com.au is now the leading real estate technology site in Australasia.

3 Responses to Are Franchises Finished?

  1. Michelle July 28, 2005 at 10:42 am #

    You think you know everything, franchises are the bedrock of real estate agencies, they provide vendors with repectability, accountability and always get better results than private agencies.

    You are an …..

  2. Micheal September 4, 2005 at 8:59 pm #

    Michelle, surely you must realise that when it comes to harvesting the ‘Rivers of Gold’ the Franchises take top spot!

    With fees for branding, training, research, technology… and then of course the ‘Cutt’ of operational profits… Franchise Companies do very little for the hard working agency workers. (Dare we mention the ‘kick-back’ that most franchise groups get for arranging discounts with print companies?)

    Tell me, if Franchises are all that you claim they are… why is it that Franchise Agencies represent far less that 50% of the marketplace?

    Sounds like YOU are the …..

  3. Barry Maskell April 8, 2006 at 2:40 pm #

    Some franchises charge up to 10% fees on the gross commissions

    I have a saying 10% off the top is like 50% off the bottom.

    Or in other words “cream always floats to the top” and they certainly take the cream off the top significantly reducing your nett profit enormously.

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