The Growth of Italian Franchising

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Franchising in Italy Written by Giuseppe Bonani

Only at the end of the '80's Italian consumers were beginning to familiarize themselves with the trademarks of shops, mainly clothing shops, located in the larger cities, in tourist resorts and in commercial centers: the era of franchising in Italy had finally begun. Clothing under the brands of Stefanel, Benetton, Calzedonia, Bata and department stores such as Standa, Upim, Coin, Oviesse started to become evermore present not only in the larger cities, but also in the smaller towns of the Italian provinces.

The following will give us some idea of the first, slow steps of franchising in Italy, which started at the beginning of the 1970's with the launch of the new distribution formula imported from the USA. In 1971, the Italian Franchising Association was founded. The same year, Standa (department stores) launched the first franchising system with the slogan "You are the boss". In 1978 the Italian Franchising Association listed fifteen franchises.

But why such a long gap between the débuts and the first real achievements of franchising in Italy, which only really became established at the end of the 1990's. The reasons: franchising was a non- Italian word, coming from abroad, without clearly defined outlines that could not find any similarities in the Italian Civil Code. The boost that was given to this emerging sector was given by the issuing, by the European Union, of the European Franchising Regulations that, in 1989, practically introduced the content of a standard franchising contract.

Today franchising in Italy is regulated by the law nr. 129 dated May 6th, 2004 introduced on May 25th 2004. The Ministry Decree 204/2005 sets out the pre-contractual disclosure obligations to be fulfilled by foreign franchisors which have not previously operated in Italy.

An Overview of Italian Franchising

The recently circulated Italian Franchising Association Report on franchising gives an up-to-date picture of franchising in Italy: (1) in 2013 franchising turnover in Italy exceeds € 23,5 billion; (2) there were 939 brands; (3) the number of franchisees surpassed 51.000 units; (4) there were 187.384 persons operating in the franchisee outlets.

The B2C and B2B services sector is not only the most dynamic and innovative but also boasts the fastest growth. Networks specialising in services for the elderly and the unwell are entering the market all the time. Baby sitting agencies and nursery schools, beauty centres and health spas, slimming clubs, anti-stress clubs and networks that focus on new technology such as the Internet , telecommunications and telephones are in constant expansion. Then there are the agencies for travel and tourism, security, assistance and maintenance and many more.

It’s a very busy time: there’s certainly no lack of entrepreneurship and enthusiasm when creating new networks. There is, however, evidence that many networks have a very low growth rate, in terms of franchisees. We must bear in mind that for a franchise to be successful it must be built on solid foundations such as: valid management training for new network managers, deciding which are to be the objectives for growth, high quality of products and services, clear strategies for marketing and communication, adequate promotion of the network, assistance and on-going training for the franchisees etc. Even today we are still witnessing the launch of improvised initiatives of scarce professionalism. This creates both doubt and suspicion among investors.

The sectors that have, by now, been consolidated are: clothing, real estate and miscellaneous products and services. These franchises, after having saturated the domestic market often try to expand abroad, especially in Europe. The famous designer labels of Italian fashion are the only ones that have, and for a long time, been established in the rich countries of Europe, the USA, Japan and the Far East.

The services sector shows itself to be the most dynamic, innovative and the fastest growing, with networks that specialize in services for health, the elderly, baby sitter agencies, nursery schools (kindergartens), travel agencies, agencies for security, assistance and maintenance of homes and utilities and networks specializing in new technology such as the internet, telecommunications and telephones.

Franchising is an excellent instrument for the development of businesses and for satisfying the entrepreneurial spirit of an ever-growing number of men, women, young people that, upon entering a franchise network find a different way of working. With more risk, this is true, but surly more interesting in terms of becoming ones own boss. Not to mention the financial returns. Among other things, franchising is revealing interesting opportunities, both for young people and for women who are showing themselves to be capable in the management of clothing shops, travel agencies and other franchising activities. The franchise industry is considered to be an important lever for the development of employment in the central and southern Italy. The demand for franchising is growing strongly, mainly during the last few years, since various forms of finance, for the development of young business people and women entrepreneurs resident in the central and southern regions, started being implemented.

Franchising and Italian Distribution

Italy has a highly fragmented distribution system. There are almost 10,000 shops for every million inhabitants. This is a very high number compared to other European countries. In Germany, for example, there are 5,000 shops for every million inhabitants and in France 7,800.

Over the years franchising has contributed to a modernisation of the distribution system, promoting new management techniques in points of sale, the employment of a younger workforce with a strong entrepreneurial spirit, on-going training courses, the updating of personnel and new sales techniques. Even today the number of points of sale opening up in the franchising sector is still growing rapidly. Its strength in distribution is growing continuously. In fact, in recent years, in the face of a continuing fall in the number of traditional shops, franchising has shown a constant increase in its number of points of sale. In 2001 franchising totalled over 36,000 shops, and of a total of 587,500 retail outlets, achieved a share of 6.1% . The strength of franchising in Italy is surely destined to grow in the next few years. Already today it is approaching the European average.

Historical centres, city high streets and shopping centres in Italy all have shops that are part of the numerous networks. Franchising is becoming an evermore-present “reality” in the Italian commercial and distribution sectors. However, there is an “Achilles heel” to franchising constant development, that is the availability of the right location. The lease price of a shop in commercially valid city centres has significantly increased. Also the demand for “locations” in shopping areas is experiencing a phase of continual growth.

Giuseppe Bonani can be reach at: info@beesness.it or gbonani@betheboss.it

Italian Franchising: 2013 Facts & Figures

Milano, November 21^st , 2014