The Action Bikes franchise is marketed as 'The Bicycle Chain That Won't Let You Down'.
"Oh, yes, it does," said one Action Bikes defector, not wishing to be named.
Three franchisees have recently removed themselves from the Action Bikes chain, following the lead of John Robson of Pembroke Cycle Sport in Liverpool (BicycleBusiness30, March 2002). In a legal action started by Action Bikes, Robson agreed to an out of court settlement that saw him paying £19 000 in court costs and a one-off fee to Action Bikes. He was then allowed to trade independently of the group.
The franchisees in Cambridge, Hemel Hempstead and Tunbridge Wells are the ones to have recently renamed themselves, against their contractual obligations, and they are waiting to see if Action Bikes plc will seek to enforce their contracts through the courts.
The Action Bikes stores in Birmingham (Acocks Green), Bradford, Leeds, Bristol and Hertford have all recently closed. Of the 53 remaining stores, 40 are run as franchises, the rest are ‘company shops’.
A statement from Action Bikes plc blames the group’s current problems on a general malaise in the UK cycle industry:
“The downturn in sales figures for much of the cycle trade over the last two years has, unfortunately, claimed its victims. The reasons for the state of our market are under constant scrutiny for us at Action Bikes, along with the rest of the cycle trade, and as such its continual discussion in our related press, notably ‘BicycleBusiness’, will provide us with a number of different reasons why we as a trade are not performing as we would have hoped.
“Unfortunately, this has meant a change to the line up of the Action Bikes group. The actual personal and financial circumstances surrounding these changes is in some cases sensitive and cannot and should not be disclosed in the pages of our trade magazine.
“It is a great sadness to us at Action Bikes when any part of the cycle trade suffers, and of course in particular when for whatever reason one of our group is unable or unwilling to continue to trade.
“It is not, however, all bad news. We have continued to open shops throughout this period, and they, as the rest of the group, benefit from the power of the whole both in terms of the ability to buy at the best rate as independents from a wealth of key suppliers, and also to take full advantage of our own-branded cycle models.
“We will continue to support the still-growing group throughout this difficult period, and will undoubtedly sail, along with the rest of the switched-on independent bicycle trade, into smoother waters in the very near future.”
Action Bikes plc has certainly had to sail through choppy water recently, including the possibility of a ‘group action’ by a number of disgruntled franchisees who, in the summer, met at the Birmingham office of top legal firm Pinsent Curtis Biddle to see if they could successfully defeat the ‘consequence of termination’ clause in the franchise contract, and perhaps lodge an action claiming Action Bikes plc, in the franchise prospectus, had misrepresented likely turnover of an average store.
None, however, decided to take such a group action.
A letter was sent out to all franchisees warning them of the consequences of taking legal action against the group, and asking them to, instead, voice their concerns to head office.
However, Action Bikes plc is a “poor communicator”, some franchisees told Bikebiz.co.uk, a comment echoed by key Action Bikes suppliers.
One of the franchisees to have recently pulled out of the group said franchising is not always as safe as it is portrayed:
“If a customer bought a bike from me and it went catastrophically wrong, it would get sent back to the manufacturers and they would replace it. It seems that when you buy into a franchise operation, you’re tied down for the length of the contract even if the business model proves to be not as good as the prospectus said it was going to be.”
This is a noted pitfall of operating franchises in the UK. In many other countries, laws have been introduced to force franchisors to disclose specific details about their franchise offer.
“Britain does not have any such legislation so you can't look to the law for protection, apart from what is offered by normal commercial law through an expensive and long-winded process,” says Franchise World magazine.
“It took one franchisee of a petrol station eight years of legal wrangling to succeed with a claim against the franchisor for misrepresenting the profits he could expect from the business."
Action Bikes franchisees pay a weekly royalty payment of 7.5 percent of turnover, net of VAT. Some franchisees are now many weeks in default. The best performing shops are the company-owned stores that have been part of the chain since the early days, such as the Isleworth store.
The franchise offer is not being actively sold at the moment. The company was not at the recent Franchise Show and is not advertising in Daltons Weekly, the business sellers’ bible.
“We are constantly reviewing our franchisee recruitment methods. When our budget refreshes in 2003 we will move into the next phase of marketing the franchise opportunity,” said Rob Huddleston, the business development manager at Action Bikes plc, now headquartered in Brighton.
The group can be let down by members who do not perform to expectations. For instance, the Action Bikes store in Cambridge was lambasted for shoddy workmanship by a consumer on a Cambridge consumer-rights website:
“They are inept. I got my bike back after a ‘service’. The front handlebars were not attached properly! I couldn't steer! The shocks were loose. The brake pads were not attached properly. I mean, really, sort it out. I am not going back, go to Howes up the road.”
Franchising is not for all entrepreneurs, stresses Franchise World magazine:
"Although it is your business, you will not be free to run it as you would wish. You will have to do as the franchisor tells you and stick rigidly to the system as set out in the franchise manual...You will have to continue paying royalties throughout the period of the franchise contract, regardless of whether you feel you’re getting value for money, or that your franchisor deserves them."
Franchise World advises would-be franchisees to seek out existing franchisees - at random - ask a number of questions about the franchisor, including:
"Were the figures in the franchisor’s projections for the business accurate? Did the outgoings include everything, or were there some surprises? Was the training adequate?"
Huddleston stresses that prospective franchisees are advised to contact existing franchisees at random.
To reveal ‘telltale signs’ of trouble at the franchising company, Franchise World magazine recommends would-be franchisees to ask tough questions of the franchisor, such as:
“How many franchisees have left the franchise over the past 12 months and the previous 12 months. Why did they leave? How many legal actions are currently on-going with franchisees, and who initiated them?”
Bad apples aside, Huddleston is keen to stress the strengths of the Action Bikes chain:
“A huge amount of hard work goes into Action Bikes, both from the management team and from the franchisees who, like the rest of the trade battle on in adverse trading conditions. They, as do we, work extremely hard to make their businesses successful.”