Three Failed Franchises: Why did they declare bankruptcy?

A question we explore when looking at a business’s finances is: are you declining, on the verge of bankruptcy, or bankrupt? When your business becomes fortunate enough to morph into a franchise, it is vital to develop a profitable financial plan and to keep your business up to date. A lot of enterprises falter due to franchising too many stores which often ends poorly (Target in Canada), or because of unclever marketing schemes (Quiznos), or failure to evolve with the times (Woolworths in the UK). There are many reasons behind a franchise’s financial crisis, including the three factors listed below:

Target in Canada: A tale of overambitious franchising

In 2013, Target, a favoured American brand with e-commerce in the UK, was introduced in Canada. But the general public excitement was not enough to help keep Target afloat. Target spent over 3.7 billion € to expand, and after two short years, they had lost around 1.7 billion €.

The franchise failed to look into the numbers of Walmart – a well-liked department store that’s stocked with clothes, groceries, kitchen items, make-up, and much more. The Canadian version of Target felt like a second-hand knock-off compared to America’s thriving store. People moaned about the prices (cheaper in America), the stores in Canada were a smaller size, and the shelves were reportedly very disorganised.

Over 120 stores opened within the first ten months, which ultimately led to Target’s demise. If they open locations in the UK, let’s hope that they’ve learnt from their mishap and instead, experience a similar prosperity to Woolworths in the early 20th century (after it was introduced to the UK by an American in 1909).

It is worth taking take the time to learn if the public will want to shop at the store. The idea may appear profitable, but a growing franchise needs to do their research before opening new locations.

2. Quiznos: A dull and odd marketing plan

Lacklustre marketing plays a role in the demise of a franchise. Quiznos, an American-founded sandwich shop, wrestled with Subway (a worldwide phenomenon) for many reasons – one being Subway’s smart advertising.

Subway employed celebrities, but average-man Jared Fogle helped skyrocket Subway’s name. Through advertisements, Subway boasted of Jared losing 200 pounds due to eating their sandwiches, which helped guide the people wanting to avoid McDonald’s grease but needed a quick bite to the well-liked sandwich shop. Meanwhile, Quiznos created unrelatable advertisements, including one of a toaster harassing an employee.

Subway departed with Fogle in 2015 due to allegations related to child pornography, but in the same year they stated that they were hoping to appease to millennials via social media and they released a campaign with actor Tony Hale from Arrested Development. Subway is doing their best to adjust their marketing plan as needed, whereas Quiznos fell short and ended up applying for bankruptcy protection in 2014.

3. Woolworths in the UK: An outdated store with irrelevant products

Purchasing a franchise or starting a business is pointless if the products are useless. No one in their right mind would ever begin a business with old stock. It is doomed to fail; a fate that commonly leaves already-established franchises who ignore the current market demands, bankrupt. Unfortunately, Woolworths, a favourite convenient store, decreased in value, financial profit and, popularity in the 2000s. They closed their doors to the public in 2009 in the UK.

In the 20th century, Woolworths prospered, their glitzy success is highlighted in the 1920s when they opened a store every 17 days. However, throughout the 1900s, Woolworths innovation was challenged by up and coming supermarket rivals. Woolworths managed to stay relevant but failed to develop grand ideas on how to triumph over their competitors, which resulted in the closure of some stores in the 1970s.

Yet they continued to expand, just not as rapidly as the first half of the century. Eventually, its competitors succeeded over the once-adored supermarket. Woolworths became irrelevant, expensive (shoppers opted to shop elsewhere for the same products), lost shareholders and, plummeted in finances. The store became unfashionable, which resulted in a closure that left 27,000 workers unemployed.

It is so crucial for small businesses and franchises to develop a detailed financial plan and to study the general public and ask questions like, “what do they want to buy?” and “what do they react to?” – the answer to these will benefit any marketing and financial plan.

For help with your company’s financial difficulties contact Irwin Insolvency for impartial and understanding advice. You can reach us on our contact form or by calling 0800 009 3173 today.

Image attribution: Christine Matthews / Former Woolworths Store, Regent Street, Shanklin, Isle of Wight / CC BY-SA 2.0. Unmodified.

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About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency, rescue and turnaround.