Fewer franchises is chain reaction to bad economy

Franchise owners may close 10,000 locations this year, the first decline on record, as U.S. consumers spend less at stores and restaurants.

The number of U.S. franchise locations may fall 1.2 percent to 854,000 in 2009, the International Franchise Association said today. That translates to a loss of 207,000 jobs, or 2.1 percent, and $4.2 billion in economic output, the Washington-based group said.

Franchises in real estate, building and contracting services may experience the biggest drop, while McDonald's Corp., Burger King Holdings Inc. and other restaurant chains may see gains. Tightening credit and the global recession have staunched sales, and borrowing for expansion and renovations is expected to fall 27 percent, the group said.

"After steady growth in the franchise business for the early part of the decade, we're preparing for significant economic challenges in 2009," Matthew Shay, president of the IFA, said on a conference call.

There were more than 864,000 franchised businesses employing about 9.79 million people in the U.S. last year, the trade group said. The franchising industry has grown through previous economic slumps in the 1980s and 1990s, said Alisa Harrison, spokeswoman for the IFA.

The association represents franchisors and their operators in the retail, food service, automotive and hospitality industries. PricewaterhouseCoopers prepared the 2009 outlook.

The U.S. economy is expected to contract in 2009, and consumer spending may fall through the first half of the year following what may have been the worst holiday-shopping season in 40 years, according to Bloomberg surveys of economists.

Franchisors in eight of the 10 business categories may see locations decline this year, with real estate and building-related chains falling more than 3 percent, the IFA said. Hotels, retailers, food stores and business service providers are forecast to lose more that 2 percent of sites.

Fast-food restaurants are projected to grow by 1.5 percent, while table-service eateries will expand 1.3 percent, as economic output rising more than 2 percent on higher menu prices, the IFA said.

Adjusted for inflation, restaurant industry sales are forecast to fall 1 percent in 2009, the National Restaurant Association said last month.