How Batteries Plus Recharged During the Recession

HARTLAND, Wisc. ( TheStreet) -- Batteries Plus seems an unlikely place for business owners to learn lessons about managing through a recession.

Yet the 500-plus franchised chain, specializing in retail-sold and business-to-business battery and light bulb products, was able to ride out the recession better than other franchise systems by choosing to invest in its business. By spending the last four years improving its infrastructure and business model and focusing on "controllable outcomes," Batteries Plus has been able to grow same-store sales, on average, by 12% over the last five years.
Batteries Plus deserves a AA grade for its recession strategy.

Last year the company opened 59 stores and signed a record 49 franchise agreements that would put an additional 71 Batteries Plus stores on the map.

It helps to have the backing of a private equity firm. Batteries Plus is one of two dozen consumer-focused companies owned by Atlanta-based private equity firm Roark Capital.

One of the biggest maneuvers Batteries Plus implemented was to expand its product line during a time when many other companies were retreating from the market. The company made the decision to expand into light bulbs in 2010.

Light bulbs? Yes.

The light bulb industry is growing rapidly, particularly because of the incandescent bulb phase out laws initiated in 2007 that are intended to spur the adoption of more efficient bulbs by consumers, Batteries Plus says. More than 300 of its stores now sell light bulbs.

CEO and President Russ Reynolds shares more lessons from the recession.

What is it about your product line that allowed it to be recession-proof?

Reynolds: We're all familiar with the fact that we're more reliant on portable energy. Whether it's a tool or how we communicate over the phone -- today we carry it with us. It requires rechargeable batteries. We can't take credit for the fact that the demand drivers have been strong, but as we headed into the recession the first thing that we needed to do was focus on our industry and the controllable outcomes in the business.

What were the key lessons Batteries Plus got out of the recession?

Reynolds: We urged our franchisees to work on the elements of their business that were in their control.

For example, we encouraged stores to have the right depth and breadth of inventory assortment so they could serve any customer need. Stores expanded hours of operation in order to be open when customers want to shop. Franchisees accelerated commercial or business to business sales activity in their markets as area businesses looked for ways to save money and be more efficient. It was also important to have the right staffing in the store at the right time of the day to be able to engage the customer and not just ring transactions.

We also invested in our business in a number of ways to support owners and fuel growth. For example, we tripled our field support team, which helps franchisees with best practices, inventory management, back office support, marketing and merchandising. We expanded our training staff and our training facility and increased the training opportunities and touch points in the field. We introduced new product lines -- in this case, light bulbs, in part, because we knew about the incandescent light bulb phase out laws initiated in 2007 which would make lighting a more complex, assisted-sale category.

What do you mean by 'controllable outcomes'?

Reynolds: We looked at the strengths of our business. Thirty-five percent of what we sell is actually to small business and during the recession the ability to make small local deliveries quickly meant you didn't have to keep additional batteries in the warehouse.

We're being very intentional about where we put our efforts and have our franchisees focus time and energy. There are a lot of businesses that were suffering , but probably could have been better had they not just gotten paralyzed and instead focused on what they could control.

Another part of that is we want to grow with our franchisees. Now is a great time to expand because of available real estate and good talent. We came up with incentives to have them open additional stores.

What about the difficulty in getting capital?

Reynolds: When we saw the economic storm clouds developing and the banking crisis hit, we anticipated that obtaining financing would become more difficult for new franchisees. We created incentives and support to help our existing owners expand. Real estate costs were low, labor was plentiful and business was good, and for many of our franchisees it was the ideal time to grow.

Candidates considering the Batteries Plus opportunity saw existing owners opening more stores, which is about the best validation for a franchise concept, and that helped us gain new franchisees. Our net worth and liquidity requirements are high enough that most of the candidates we worked with were able to access funding or were able to self-finance, and with the results and growth they were seeing from existing franchisees were willing to do so.

The other thing is there were franchisees that looked at programs -- such as 401(k) rollovers -- to access to their own capital.

Where are you now and where would you like to be going forward?

Reynolds: We're a quasi-national retailer where our brand is approaching being recognized nationally. Tomorrow we will be a national retailer with some scale. Our goal is to get to a point where people are looking for us to come to their neighborhood.

We want to establish critical mass to the brand. We want to grow in new and different ways. We continue to focus on building an appropriate support infrastructure. We tell our franchisees we want to support what we sell and so our success is built around their success.

Can you name a company that you would like Batteries Plus to emulate?

Reynolds: As a retailer we always look at how much we sell per square foot. Right now Vitamin Shoppe ( VSI) is the best guy around as a benchmark.

I think that as we look at a brand that's gotten critical mass and scale in franchising that continues to find ways to reinvent itself there is McDonalds ( MCD). I think it's so cool what they've done with the beverage segment and how they position that.

-- Written by Laurie Kulikowski in New York.

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