Franchise Owners Losing Money as Brands Prevent Closures
Rising costs are forcing more franchisees to consider closing unprofitable locations. However, complex franchise agreements often prevent owners from shuttering these sites.
Franchise owners are facing increasing financial strain as operational costs rise, impacting profitability. Many owners wish to close their underperforming locations, but a significant number of franchisors are refusing to allow these closures, often citing restrictive contract terms.
Doug Luther, an attorney representing franchisees, characterizes many franchise agreements as one-sided. He notes that while franchisors provide a brand name, some marketing, and training, the bulk of operational responsibilities—including product selection, store appearance, and local marketing—falls on the individual franchisee.
Historically, franchisees with multiple locations could manage their portfolios by closing individual unprofitable units. This is becoming more difficult, according to Luther. He reports that franchisors are increasingly denying requests to close struggling locations, threatening franchisees with demands for future royalties or liquidated damages if they cease operations.
Luther's firm, Luther Lanard, specializes in franchise document review, lease negotiation, and dispute resolution. The firm has observed a rise in litigation related to these issues, reflecting broader challenges within the franchise sector and the power imbalance often experienced by franchisees.