Retail Store Options - Dealerships

Is a dealership the right option for you?

Retail Dealerships
Getty Images

Retailers may find the business model of a licensed dealership to be a mix of franchise and independent retailer. The licensee has the right (sometimes this is exclusive) to sell a brand of products. Unlike a franchise, the dealer can sell a variety of brands and there generally no fees to the licensor. Dealerships may or may not be identified as an authorized seller or by the company's trademark.

​The difference between a franchise and a licensee is in the fee structure and support. For example, franchises get lots of support from the company. This support comes in the form of training and development, marketing, inventory management and much more. Dealerships, on the other hand, tend to leave the retailer to "fend for themselves." This is really because a dealership has such a strong brand recognition that the company feels the brand will carry the day. Franchises have a larger fee structure, meaning the dollar amount they take each month from you sales. 

With dealerships, there may be some branding or product name recognition by the customer. as stated. And the dealership relation is much more flexible than that of a franchise. In other words, much less rules or reporting each month. Franchises require intensive reporting of your efforts. After all, they get a % of the total revenue.

They also have very strict guiltiness on what you can and cannot do with the brand and the store design. 

A dealership may be a good business model for part-time retailers or those just starting in retail. In my study of independent retailers, a large percentage of them have never been in retail before.

They simply have the dream of owning their own business. If this is you, then a dealership or franchises is a great option. Retail is a much more complicated business than people realize. It helps to have a "system" you can follow versus having to figure everything out on your own. There are so many laws and processes and procedure to follow that it truly helps to have a company partner behind you. Plus, managing a P&L can be tough, so this support is valuable. 

Because of the ease and flexibility of getting started, there can be a lot of competition in a particular area for a certain type of customer. Like the independent retailer, every business decision rests on the owner(s). There is also great deal of risk in this business model. Dealerships are not as strict in their treaty protection as franchises. By this I mean, when you buy a franchise, you are guaranteed a territory (geography) to be protected from another franchisee moving in.

With dealerships, it's not necessarily the case. Therefore you are not only in competition with other retailers, you may be in direct competition with another dealer. And since the brand is the dealer, customers truly don't know the difference. In fact, in one retailer we worked with, the customers thought all of the three dealership in town belonged to the same person.

So they had no loyalty to one location. Consider this as a reality when you thinking about a dealership. 

Independent retail is very hard. Dealerships offer a "plug and play" option. However, the customer loyalty to a dealer is much less than to a true independent. With so much compassion today from min-channel and online, it's wise to take some tome to consider the right option for you. If you have a great deal of experience, the dealership is probably not the best option But if not, it could be just the answer.