Franchise failures keep rising

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Franchise failures keep rising


Despite growth in franchises opened by retired baby-boomers, the number of franchise stores shutting down also increased significantly.

The Fair Trade Commission said yesterday, the number of franchises that closed up shop and unregistered their businesses amounted to 592 last year, the highest since 2009.

Franchise chains must disclose their business information every year to the FTC.

According to the FTC, 155 franchisees shut down in 2009, followed by 226 in 2010 and 451 in 2011.

“There are a few cases, where some franchisers accidentally miss reporting the number of newly registered franchisees or some franchisees skip renewing their registration as they have no plans to expand,” said a spokesman at FTC. “However, most of the unregistration seemed to come from the shutdown of businesses.”

The number of newly opened franchisees and existing stores that renewed their registration was 1,091 in 2009, 2,250 in 2010, 2,947 in 2011 and 3,400 last year.

“Franchise businesses are often attempted by retired baby-boomers,” said an industry source. “Since the baby boomers are retiring now, the number of new franchisees is overflowing while the number of those going out of business is also on the rise.”

According to a study conducted by the Ministry of Knowledge Economy and the Korea Chamber of Commerce and Industry at the end of last year, the average life span of a franchise outlet was 5.38 years.

Those who closed their businesses in less than a year amounted to 16.1 percent, while 46.8 percent of franchisees closed their businesses between one and five years.

“Intensifying competition among franchises with new brands and a consumption downturn made it difficult for franchisors to survive. The new franchisees must prepare thoroughly to avoid going out of business,” said an industry insider.

By Kim Jung-yoon []
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