What Is A Franchise Store & How Do They Work?

When you see that a company has multiple stores or retailers spread all over the country and sometimes all around the world, you can easily guess that that’s a franchise.

But what is exactly a franchise store? And how does it works? Keep on reading if you want to find out the answers to these important questions.

What Is A Franchise Store
What Is A Franchise Store?

What Is A Franchise Store?

What Is A Franchise Store

A franchise store is a retailer owned by an entrepreneur that has obtained a franchise license from the main company.

Thanks to the franchise license, the entrepreneur, who is not part of and is not an employee of the main company, can be the owner of a store that uses the name and products of the main company.

Let’s give an example so that you can understand better: Zara, the famous brand of fast fashion clothing, is a franchise.

It means that the Zara stores you see in your town or in your country are franchise stores. They are privately owned by people who are totally external to the Zara company.

However, they have the license, given by Zara, to open a Zara store and sell Zara products in it.

Of course, this doesn’t mean that anyone who wants can open a Zara store. They need to get the franchise license from Zara, and to get the franchise license, you need, of course, to pay for it.

Read: Who Is A Franchisee?

Also Know What Is Initial Investment In Franchise?


Franchise Stores: How Do They Work?

Franchise Stores How Do They Work

When entrepreneurs want to open a franchise store, they contact the franchise company.

The company usually has some requirements and runs some checks; if you are eligible, they’ll give you the franchise license after you’ve paid the franchise fee.

The franchise fee can be:

  • A fee you need to pay at the beginning of your relationship with the franchise company and only once;
  • A percentage you need to pay on all your sales to the main company;
  • Both of them; in this case, you’ll have to pay the franchise fee (the one you pay before you open the store) and the royalty fee (the percentage on all your sales).

In exchange for these fees, you are allowed to use the brand name and sell the brand products, and you are the owner of your store.


Franchise Stores: Limitations

Franchise Stores Limitations

It is true that those who run franchise stores own them, and they are not employed by the franchisor company, but franchisees still have some limitations.

They can’t furnish the store as they like, for example, but they must follow the franchisor company’s indications and requirements.

All the requirements are specified in the franchise contract, just like the type and amount of the franchise fee.

Read: What Is Total Investment In A Franchise?


What Is A Franchise Store: Wrap Up

A franchise store is a store run by someone external from the main company who has obtained a franchise license.

The franchise license allows external entrepreneurs to open a store in the name of the main company, run it independently (but respecting the company requirements specified in the contract), and gain profits from it (by paying the possible royalty fees when required).

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