A recent article from the International Franchise Association (IFA) sheds light on the significant impact that the COVID-19 crisis has had on the franchise industry over the past six months. The article, which relies on a report prepared by FRANdata, concludes by quoting the organization’s President and CEO as stating that, “COVID-19 has caused a staggering amount of business closures and layoffs across franchise businesses. . . . Additional broad-based and long-term Congressional action is desperately needed to stave off additional closures and layoffs, particularly for the hardest-hit businesses.”
The COVID-19 Crisis’s Impact on the Franchise Industry
The IFA’s article reports that in the first six months of the COVID-19 crisis, “[m]ore than 1.4 million franchise jobs [have been] lost, and more than 32,000 franchise businesses have closed.” This includes nearly 11,000 franchises that have closed permanently. Worryingly, the IFA projects that another 36,000 franchised businesses will close in the next six months if nothing is done to curb the economic impacts of the pandemic.
Overall, FRANdata predicts that one in 20 small businesses will close permanently over the next six months if the current economic trends continue. Additional notable statistics from the FRANdata report include:
- As of the end of August, just 26 percent of franchises have resumed their normal operations or faced only minimal effects from the COVID-19 pandemic.
- On average, franchisees have experienced a 19.3 percent decline in revenue during the COVID-19 pandemic.
- Of the 1.4 million employees in the franchise industry who have lost their jobs, it is estimated that 40 percent have lost their jobs permanently.
- The hospitality and restaurant industries have been most heavily impacted by the COVID-19 crisis, followed by personal services and retail.
- Franchisees in the Northeast and West Coast states have experienced the greatest impacts from the COVID-19 pandemic, while franchisees in the Midwest and Western states have experienced the least impact.
- The start of the COVID-19 crisis coincided with the first major drop in FRANdata’s Franchise Performance Index in more than four years; and, while the Index has seen a slight rebound, it still remains significantly below its pre-pandemic level.
- The permanent business closures and job losses resulting from the COVID-19 crisis are expected to lead to, “a large percentage of unemployed workers choosing to invest in franchises.”
What Should You Do if Your Franchise is Struggling During the COVID-19 Crisis?
If your franchise is struggling as a result of the COVID-19 crisis, what should you do? Some franchisors are offering additional support and temporary financial relief to their franchisees, and various government programs have made funding available to small businesses in the United States. Depending on your individual circumstances, you may have various other options as well. However, before doing anything that could impact your franchise rights, you should consult with an experienced franchise attorney.
Request a Free Consultation with Franchise Attorney Jeffrey M. Goldstein
Are you a franchisee who is feeling the financial effects of the COVID-19 crisis? If so, we encourage you to contact us for a free consultation. To discuss your options with national franchise attorney Jeffrey M. Goldstein in confidence, please call 202-293-3947 or inquire online today.
