Franchising Future Looks Good

Franchising should continue to outpace the rest of the economy, according to the Franchise Business Outlook third quarter update report released by the International Franchise Association Educational Foundation and IHS Economics.

"Franchising is a growth engine for small businesses. Not only are franchises creating new businesses faster than other businesses, the outlook report signals steady growth in all franchise sectors over the last three months despite the struggles of the broader economy," said IFA's Educational Foundation President John Reynolds, CFE.

Key findings from the Economic Outlook Report include:

• The growth of the number of franchise establishments in 2015 is unchanged at an increase of 1.6 percent, matching the pace of growth in 2014.
• Although employment growth economy-wide has moderated, employment in the franchise sector continues to outpace growth in businesses economy-wide, as it has in each of the last four years. The report anticipates franchise employment to increase 2.9 percent in 2015, while total private nonfarm employment will increase 2.4 percent.
• The IHS Economics forecast of output growth in nominal dollars for franchise businesses is 5.5 percent increase in 2015, which is faster than the 5.0 percent gain in 2014 and up slightly from its June forecast.
• The gross domestic product (GDP) of the franchise sector will increase by 5.2 percent to $521 billion in 2015. This will exceed the growth of U.S. GDP in nominal dollars, which is projected at 3.3 percent. The franchise sector will contribute approximately 3 percent of U.S. GDP in nominal dollars.

While the IHS report forecasts positive business conditions in the months ahead, Reynolds noted a word of caution due to the changes in the National Labor Relations Board's (NLRB) joint employer standard. The changes drastically expand the standard and are impacting franchisees' ability to operate as independent businesses through an arms-length relationship with their franchisor.

"The uncertainty and ambiguity of this new NLRB standard will discourage business formation and job creation, not only for franchises but for millions of businesses that use licensing arrangements."

According to IFA's Business Leader Survey completed Sept. 21, IFA members are very worried about the change in the joint employer standard. The survey shows that 94 percent believe a change in the joint employer standard would raise the cost of doing business.

"Applying such a revision of the joint employer standard to franchises will impose additional costs on franchisors due to the need for more oversight and insurance against risks. Uncertainty about the NLRB ruling could impede growth of franchise business formation, employment and output," said James Gillula, IHS economist.