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Angus and Robertson franchisees seeking to flex their muscles

12 April 2011

Angus & Robertson franchisees seeking to flex their muscles

The unfortunate financial administration situation at Angus & Robertson is illustrating at least two important points relevant for franchising and other small businesses:

1 Franchisees have economic power – and are prepared to try to use it (even if this might be regarded as putting the system at risk).
2 Regulation designed to assist one business community can have serious (and perhaps, unintended) consequences on others.

A legal contest is now underway between the Angus & Robertson administrator, Ferrier Hodgson, and a group of A&R franchisees who want to terminate their agreements and opt out of the system. Ferrier Hodgson says it cannot allow this attempted move to go unchallenged as it would undermine the business’s viability and the administrator is always obliged to act in the best interests of the business and its creditors. How this will play out in a legal sense is yet to be seen. However, it is apparent that in this situation, the franchisor (in administration) has very little economic power, while franchisees have relatively more, possibly individually as well as collectively. The Midas administration of 2009 also illustrated this point. In the Midas case, the franchisor was in financial difficulty. An administrator was appointed and quickly moved to restore franchisee royalty payments, which had been withheld. The outcome was the franchisor lost his business, a bank equity holder took over, and franchisees carried on, many without any interruption. The message is simple: when the going gets tough, the tough may seek to get going. It won’t save a fatally flawed business model, but strong, positive franchisor-franchisee relationships may represent the best prospect of achieving a business revival instead of a business insolvency.

Angus & Robertson and Borders were both hit by a double-whammy of international competition and regulation: competition from internet booksellers and regulation which may have undermined their ability to meet that competition head on. Book retailers in Australia have long complained of having their competitive hands tied by regulation intended to protect the interests of local authors and publishers. The regulations make it virtually impossible for Australian retailers to match the prices of global internet book sellers such as Amazon.com. The regulations may have succeeded in keeping prices high (by internet comparison) for Australian publishers, but they made it very difficult for book retailers here – especially those having to meet the high cost of renting store space in shopping centres. A & R and Borders are unfortunate examples.

Author: Steve Wright

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