Uruguayan clothing brands are betting more and more on the franchise model as an option to expand in the national and international market. So much so that during the first year of the pandemic the granting of franchises within the country tripled and during the second, the Uruguayan franchisor began to bet abroad.
“It is a business model that we were not used to in Uruguay and that, for some time now, we have begun to understand,” said the treasurer of the Uruguayan Chamber of Franchises (Caufran), Neber Travieso. “Today, the word franchise is associated with a pattern that works all over the world,” he added.
The owners of the Uruguayan brands saw the benefits of this model and decided to implement it.
In an interview with Café & Negocios, Travieso listed two reasons why companies bet on growth through franchises.
On the one hand, he highlighted that it is a solution for owners who want to grow, but not lose the quality of work in the new branches. “You can’t be everywhere,” said Travieso, explaining that when the owners of a company decide to expand their presence in the market –and they don’t have the possibility of operating all the branches–, they choose to do so through the franchises to avoid careless management of some stores.
On the other hand, he mentioned a fundamental factor for companies: the economy. According to the treasurer of Caufran, the franchise regime allows growth without indebtedness for the brands. It is that the company’s production will reach many more points of sale, and the final cost will be lower for the firm.
In addition, he highlighted that the model –by including the opening of new points of sale– allows betting on an economy of scale with which the entire work chain ends up benefiting. “If you do all the work from scratch with each new store, it’s going to cost you a lot more than if you do it all together,” he said.
Two success stories
In the clothing industry, there are many brands that are committed to the franchise model to grow in the national territory and –in a more timid way–, there are few that expand around the world.
The Urban Haus is one of the most outstanding companies for its expansion process through franchisors.
The decision to grow under this model was made by the owner of the brand –Fernando López– when the store had already become a benchmark in the Uruguayan market: “I felt the need to go further,” said López in an interview with Café & Negocios .
So, a professionalization process began – with mentorship from Endeavor – for The Urban Haus to reach new markets. And, in 2017, it arrived with two branches in Paraguay. Two years later, the process to disembark in Bolivia, Costa Rica and Peru began, but was stopped as a result of the pandemic.
The Urban Haus had a change of course. After having refused to grant franchises in the national market, López decided to launch the franchises in Uruguay. He began to work with Svet –a franchise consultancy–, and with some adjustments in the model that he offered in the international market, he began the development of franchises in the interior of the country. “Since the brand was consolidated, seven franchises were opened in four months,” said the owner of the brand.
Currently, the brand has 14 franchises in Europe, the United States, El Salvador, Paraguay and Uruguay. In addition, it has signed an agreement for the development of new branches in seven Central American countries and is in negotiations with Abu Dhabi, Dubai, London and Mexico.
In addition to this brand, there are other Uruguayan companies that, with a more moderate growth, are also successful with the franchise system.
Limit is a clothing brand that although it is present in multi-brand stores throughout the country, this year it opened its first franchise in Salto.
The process to enter this business model began in 2019. The brand began working on the development of the franchise with the support of Svet, but when the pandemic arrived and slowed down the process. It was not until this year that the initiative gained strength again, and the new branch in Salto was completed.
“We are very happy with the franchise in Salto”, the CEO of Limite, Jackie Devoto, stated in an interview with Café & Negocios. “Their sales are increasing day by day,” she added.
The cases in numbers
Asked about the investment required to open a franchise, the representatives of the companies said that it varies according to the point of sale. To exemplify, López said that the last opening of The Urban Haus –in Miami in 2022– required an investment of over US$500,000. For his part, Devoto said that for the Limit franchise, US$45,000 had to be disbursed.
Regarding the profitability of the franchise regime, López pointed out that there are two models. On the one hand, it can be an association with the brand itself. On the other hand, it can be exclusive and in that case the minimum annual return is around 20% of the investment.
The Limit franchise has a minimum net return of 13% on sales.
The future of the franchisee
According to the owner of The Urban Haus, developing the franchise model is very demanding. “It’s like a spin-off of the company, so it’s essential first to have a very solid foundation so that later it can be passed on to the franchisee,” he explained.
Lopez said the process of passing information to the franchise is where brand expansion often fails. Then –to conclude– he argued that The Urban Haus stands as a reference brand for Uruguay. “We aim to spread our momentum in the franchise model so that other Uruguayan brands follow the same steps.”
Meanwhile, Limit is one of the companies that are looking for a process similar to that of the López brand. According to Devoto, they hope to establish themselves as a reference brand for Uruguayan women with a greater presence at the national level. “We aspire to open 10 stores in three years. And the passage outside the borders… time will tell”, he concluded.
