Does Franchising Really Help? - A Case Study of the Geek Retreat Franchising Model

4 Sept

Starting a business can be daunting. Most of us set out with the goal of expressing our passions while serving a community — but the pitfalls are endless, and it’s very easy to become overwhelmed by what you don’t know. The challenge as an entrepreneur is to look at the cold hard facts and see if your vision is viable, so as not to inevitably let down the communities you intend to serve.

Faced with this task it can be tempting to pursue a franchise, to rely on the brand recognition of an established business and the guidance that their years of professional experience will provide.

But is a franchise always the right decision for your business?

Franchising within the Local Game Store Industry

Recent closures of small businesses in my area prompted me to do some research into franchising, and to conduct a case study on a particular franchise model.

In 2013 a store called Geek Retreat opened in the city of Glasgow.

Glasgow hosted the first Geek Retreat location but in 2016 — following the successful opening of their second location in Newcastle — the company made two exciting announcements:

1 ) The exciting, visionary project of GRVR (Geek Retreat VR) which received £30,000 of funding and has yet to materialise - https://linkedin.com/pulse/geek-retreat-vr-vision-peter-dobson?trk=mp-reader-card

2 ) That Geek Retreat was now open to franchisees.

By 2020 Geek Retreat boasted 14 locations, with the intention to open 100 new locations in the next two years. It was rarely mentioned in any of the publications at the time but all of these new locations would be franchises, and would not be operated by head office.

The Geek Retreat Franchising Model

Before we dig into the franchising model on offer, I would like to be clear that I am criticising the franchise model not individual franchisees.

Speaking from personal experience, during my visits to Geek Retreat franchised stores I’ve always found the owners and staff to be highly motivated and enthusiastic about creating a positive environment and building a strong community. It was clear to me that the day-to-day operations of their business were conducted competently.

As per Geek Retreat’s website the franchise owners ask for £4000 (plus VAT) upfront to reserve a franchise territory and:

“…Of course, you will also need to invest in setting up your new store and buying your initial stock. The total investment required is approximately £75,000 (including a franchise fee of a further £10,950 plus VAT)”.

They go on to acknowledge that the most successful franchises are joint ventures of two to three people, and that they may facilitate acquiring a loan from a high street bank, but that they will not provide any financing directly.

They further highlight that there will be additional Ongoing Costs for franchisees, which include annual franchise fees and an ongoing charge of 8% of monthly gross.

In return for these eye-watering sums they promise the following services:

● Use of the Geek Retreat Brand

● Your Own Exclusive Territory

● Comprehensive Training and Support

● Help Setting Up Your Store

● Specialist Product and Event Advice

● Marketing Support

● Access to Our Tech

● Management Support.

Breaking Down The Offer

Drawing on my personal experience setting up similar businesses, the capital outlay for establishing a functional store should look roughly like this: £7,000 to secure the location, £8,000 on furniture and fittings, and £10,000 on initial stock. These prices may vary considerably based on the vision for the store, but in all cases will be far lower than £75,000.

The astronomically high costs outlined on Geek Retreat’s website mean that prospective franchise holders who are not independently wealthy will likely need to engage with some form of loan to begin the process – increasing the costs of operating a small business with potentially unnecessary loan repayments.

These costs are further compounded by ongoing franchising fees and the monthly charge of 8% of gross.

You can begin to see why this model may prove unsustainable for a franchisee, but I would like to take a moment just to highlight why this 8% of gross model could be considered parasitic.

As Geek Retreat takes a percentage of gross, not net, franchise holders will continue to owe money to geek retreat in fees, even when their store is operating at a loss.

Any efforts to increase cashflow to mitigate that loss will only incur more fees to the Geek Retreat. Additionally, giving away 8% of turnover is inherently self-destructive for most small businesses, who will typically only be operating on 5-10% profit margins in a good quarter. Even large, successful businesses operate at under 8% profit margin, with Asda reporting only 4.4% profit so far in 2024.

In exchange for larger than average start up costs and absorbing the lion's share of a franchisees’ profits, most of the services Geek Retreat offer seem lacking. I will analyse some of the issues with franchising as a small business owner empirically, as well as highlight why Geek Retreats’ offerings are either low value or undesirable within a cottage industry, such as the UK Local Gaming Space.

Use of the Geek Retreat Brand – It is debatable how much value should be put on use of the Geek Retreat branding. Where a potential customer has had a bad experience with another Geek Retreat store, it can be hard for a franchise holder to express that their store is “different” especially when the interiors and exteriors will look close to identical. Franchisees aren’t just getting into bed with Geek Retreat: they’re depending on the professionalism of their many fellow franchisees, and this reputational liability only deepens with every new franchise opened.

Your Own Exclusive Territory – This has little to no value, as it only ensures another Geek Retreat will not open in the immediate area. There is no protection from other large chains encroaching on your space. Nor are franchisees protected from other independents, who will be able to operate more nimbly and without franchise fees.

Comprehensive Training and Support – What is advertised on their website as Geek Retreat’s training programme includes one week of shadowing another franchise holder, and access to an eight-week online course, which looks akin to many “launching your own business” courses that are available for dramatically less investment.

Access to Our Tech – Little information is provided on this tech, but it appears to help in setting up store wifi and POS, granting access to an online ordering system and using Geek Retreats’ established HR & financing systems. It should go without saying that most prospective entrepreneurs don't need help setting up WIFI or an instore POS, and most suppliers will set up online ordering systems with their customers.

Management Support – This is perhaps the most appealing aspect to prospective franchise holders: assistance in running their own store. However, unlike other franchises, Geek Retreat does not appear to offer any opportunity for a franchise to be operated by head office, meaning franchisees who would prefer a simple investment opportunity must instead take on the role of store manager.

Supposedly, this support is where the majority of the value from being a franchise holder will come from, although in a sector like Geek Retreat’s it can be actively harmful for stores to take general advice from remote individuals who do not fully understand their specific situation.

The Local Game Store Industry thrives on building a strong community to engage with products and events. This means a store owner needs to be willing to adapt to the needs of their customers and ride the trends they identify. What works in one game store will not necessarily work in another; the expectations of customers in one area may be drastically different from those elsewhere.

This stands in stark contrast to the likes of Subway sandwich stores, where a customer looking for a ham and cheese sandwich has the same needs and expectations, whether in Saltcoats or Cardiff.

Why is This a Bad Model?

The above makes clear why I believe the financial arrangements on offer do not serve the franchisee: large start-up fees, encouragement to engage with personal debt, and erosion of potential profit margins.

What about the benefits franchisees receive in return? To reiterate, they're fairly intangible. Owning a franchise does not appear to confer preferred rates on the products and services sold within the franchise, and the training and interventive support on offer could be acquired at lower cost from external, impartial bodies or professionals.

Moreover, the terms of the franchise mean the franchise holders are unable to engage in ecommerce or advertising in the ways that might best serve their business, and also put them at the mercy of supporting lines and events dictated by the franchise owners, who may not share their values or understand their community. In such an environment, it would be easy for these entrepreneurs to feel like they’re running someone else’s store.

All of this makes me think that this business model exists to entice people with little business acumen, who are being led to believe Geek Retreat will be able to help their dreams come true. Upon signing, they are locked into a 5-year contract where the majority of their profits are being siphoned away by head office, and so their franchise is unlikely to survive (as the many closures show). This leaves otherwise capable entrepreneurs with nothing to show for their labour but the start-up debt incurred.

Replaced Post from Newcastle 2024 (seen above)

And When Franchises Fail?

Where franchises collapse, control over social media accounts appears to revert to Geek Retreat’s head office. Their social media team appear to have a habit of deleting personal posts from previous franchise holders and replacing them with generic “temporary closure” announcements… presumably, while their franchising team find a new franchisee to take over the retail unit.

Whenever this happens, it also takes a toll on the communities who previously supported the stores. These communities are almost always home grown and will have a personal relationship with local management or the staff. Personal relationships are the heart of all cottage industries, and why Local Game Stores can thrive by becoming a hub for nerdy vices and a home-away-from-home for their regulars.

Ultimately, I think the saddest part of the entire Geek Retreat franchise churn is that owners are robbed of the ability to truly express their passion through their own lens, and that the dreams and ambitions of a community are tied to what feels like a pop-up shop — destined to fail or close after the 5-year contract expires.

Closing Thoughts: Why Franchising is Not a Good Choice for Entrepreneurs

Case studies like this are useful because they can help us see the bigger picture. Geek Retreat is only one franchise among many, but the apparent issues with its offering to entrepreneurs indicate a much larger, more general problem with franchises.

Your business is your dream. It should directly reflect you. It should have a name you chose, for a reason you decided on, and it should look the way you want it to. Entrepreneurs need to take pride in every aspect of their dream, and for your business to be successful it must follow your vision.

Franchising robs entrepreneurs of their autonomy, and only in very rare cases can the financial rewards outweigh the burdens for someone who is passionate about providing a service.

The support offered by franchises comes in one package that is easily accessible, but that means it can never be bespoke for you or your business. Your business is as unique as you are, and it deserves the right support and scaffolding to flourish.

When an entrepreneur puts down money to invest in their dream, they should be sure they are spending it wisely, in a way that serves them and their future plans, setting themselves and their business up for a sustainable future. Without a franchise, you have the opportunity to dictate who you work with, where your money is spent, what professionals you choose to take advice from, and hopefully – one day – bask in 100% of the profits your hard work has earned.

If your dream is worth bringing into reality, it’s worth doing it your way.

Kevin Pass