Is anyone wondering how the collapse of Kleenmaid will affect their franchisees? Over the last year we have seen Kleins Jewellery hit the wall and their franchisees forgotten. Then there was EzyDVD followed by Midas and Strathfield. Before them was Dare Gallery and Collins Booksellers.
What happened to all of these franchisees? I do understand that in the case of Collins and EzyDVD they were picked up and still operate, but even with these franchises they landed in a business relationship without choice. They could not exit if they wanted to as the administrator holds them to their franchise contract. In the case of Kleins franchisees at the other end of the scale it was found that their contract was worthless and they were virtually out of the street.
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The outcomes for franchisees in this situation were discussed at length during the recent federal inquiry into franchising. It was only one of many areas of franchising that created dire consequences and challenged the ‘smoke and mirrors’ reputation of franchising as being less risky than any other business format.
The Small Business Minister Craig Emerson has to date ignored the recommendations from that inquiry, which to a larger degree was focused on the growth of rogue franchisors and how very little has been achieved by the ACCC. By far the largest issue to confront the inquiry was the inability of franchisees to access justice where financial power gave franchisors an overwhelming advantage and legislation and regulation is weak. Pre-entry education for prospective franchisees was a serious issue if franchisees were to understand the very great level of risk where a franchise contract meant that with guarantees the newcomer was actually putting everything on the line.
So what is Emerson doing about all this? Nothing!