Amazon has been taking business away from brick-and-mortar stores for years. Despite promoting the benefits of selling through its marketplace to small businesses, it is clear that Amazon (along with other online shopping platforms that offer fast shipping and easy returns) is increasingly becoming a threat to retail businesses that rely on a steady stream of customers to maintain profitability.
But, even for franchisees who do not have to compete with Amazon for customers, there is another potential risk as well—particularly for those located near HQ2 and Amazon’s various shipping and fulfillment centers around the country: the risk of losing out on quality employees. According to a recent article on franchise news website BlueMauMau.org:
“Mark Zandi, chief economist of Moody’s Analytics, pointed out in a conference call . . . that Amazon announced it was increasing its entry level wages to $15 per hour, which is more than double the federal minimum wage. ‘It is indicative of how tight this labor market is,’ said Zandi.
“He anticipates that this will put increasing pressure on employers that employ lower skilled workers to also raise their wages. ‘I fully anticipate wage growth accelerating as we move to 2019.’”
As Amazon and other companies start offering higher wages even at entry-level positions, franchisees who find themselves struggling to make payroll may face even greater struggles in the near future.
Are Franchisees Hiring? Will They Be Hiring in 2019?
However, even as wages trend upward (many states have minimum wages increases set to take effect on January 1, 2019), the data suggest that hiring in certain small business sectors currently is still strong. This is true among franchised and non-franchised businesses. For example, according to BlueMauMau.org, “Small businesses that have under 50 employees had a change of employment of 56,000 more jobs over last month. Most of those job additions were in service-providing small businesses.”
Yet, within this net figure, some key franchised industries saw significant reductions in employment numbers:
“Franchised restaurants saw a loss of 4,800 positions, while franchised hotels experienced a 1,600 job drop in September. Contrast that with employment at auto dealerships, which is a franchise sector known to provide employee benefits, healthcare and better-than-minimum-wage entry positions, which had an increase of 3,200 positions over the month before.”
What if Franchisees Have to Choose Between Paying Royalties and Making Payroll?
So, what happens if it gets to the point where franchisees are forced to choose between paying royalties and making payroll? For some franchisees, this is already reality. Franchisors will vigorously enforce their right to payment, and many will not hesitate to terminate underperforming franchisees. Ideally, franchisees should weigh their options before getting to the point where this is a choice that needs to be made. If they don’t, they could face costly termination proceedings, and they could miss out on opportunities to keep their businesses running.
Contact Franchise Litigation Attorney Jeffrey M. Goldstein
Jeffrey M. Goldstein is a nationally-recognized franchise litigation attorney who has exclusively represented franchisees and dealers for the past 30-plus years. If you have questions or are facing termination and would like to speak with an attorney, you can call 202-293-3947 or contact the Goldstein Law Firm online for a free and confidential consultation.