The champagne bubbles died fairly quickly at the awards celebrations for Clark Rubber franchisees this month.

The Townsville Queensland franchisee was recognised as the store owner with the highest sales growth in the chain which deserved a clinking glass or two.

But the dampener on celebrations was the placement of the store in receivership on the same day it picked up the award.

Fair Margin understands the Clark Rubber conference in Queensland was a well-organised event with good content and supportive messages from the franchisor management team.

But the mood was sombre amongst suppliers whose order books were underwhelmed and franchisees who were worried about the future of some of their colleagues, if not themselves.

Clark Rubber acknowledged earlier this year that trading conditions were difficult and that the franchisor realised that some of the stores were doing it tough.

The economic stutters were one thing, water restrictions in key markets that hit pool sales were another, but the chain also made some mistakes that have generated some serious challenges.

With the benefit of hindsight, Clark Rubber may well have taken a different tack with its expansion strategy and the selection of store locations.

Clark Rubber has now decided to curtail new store development and to concentrate on getting the existing franchise outlets through the current heavy weather.

A decision to upsize stores from around 700sqm to 1000sqm or even 1200sqm added substantial extra costs to retailers without the sales gain.

Clark Rubber has now abandoned the big store strategy, but that leaves a number of franchisees who did upsize struggling to meet the higher occupancy costs.

New technology and store merchandising packages have also drawn down bank accounts without boosting customer traffic or revenues for the franchisees.

Clark Rubber is now also tackling cost structures within the franchise system and has cut staffing levels.

But one of the key issues for the franchise has been its preparedness to allow franchisees to operate multiple outlets.

Franchisees have over-extended themselves to take up franchises close to their existing territories to protect their primary business and the result has been disastrous.

The multi-store franchisees have been closing the new stores they took up and encumbering their primary franchise with substantial debt. They are battling to survive, especially since interest rates have risen.

Clark Rubber is not the only franchise system under pressure as consumer confidence wanes and spending drops. Quite a number of franchises are feeling the heat with higher rents, staffing costs, finance costs, government charges and regulation compliance costs as well as rising inventory pricing and transport.

The problem for franchisees is the franchise levies handed over to the franchisors doesn't leave much margin to take home for income or a return on investment, especially when sales are going backwards, as they are at Clark Rubber currently, and the cost of money is on the up.

Fair Margin has been taken to task in the past by franchise hot gospellers for adding our touch of realism to the advertising sponsored coverage of the franchise sector.

The hot gospellers, by the way - unlike Fair Margin - are selling franchises and negative or cautionary stories are not good for business.

Fair Margin has pointed out that franchising in the retail sector is not growing. Franchise growth today is largely from the services sectors.

Indeed, a significant number of retailers who have expanded with franchising are now opting to concentrate for corporate stores and they include one of the biggest in Yum International as well as mid-range chains such as Beacon Lighting.

The number of people clamouring to buy retail franchises has also diminished with high employment rates and fewer redundancy packages for middle-aged executives and with a growing aversion to working seven days a week hands on in a store when you could be working fewer hours and playing more golf doing something else.

The cracks in franchising are also starting to show in situations like Allphones, a chain that grew rapidly on the mobile phone tidal wave and once had plans to list on the Australian Stock Exchange. The high growth phase of the mobile phone category is over, most Australians have simply run out of pockets to put all their phones in and the competition is more fierce; the retailers' deals with Telstra and Optus less generous.

The Federal Court in Sydney has found in a civil action that Allphones unfairly introduced new fees to its franchisees and, more significantly, withheld commission income payable to the franchisees.

The Australian Competition and Consumer Commission is also hot on the trail of the Allphones franchises and the company is likely to face compensation claims for millions of dollars from franchisees and penalties from the regulator.

Fair Margin suggests it is hard to see the self-proclaimed 'leading mobile phone specialist' surviving the fallout but their other slogan fits perfectly, Allphones: we'll keep you talking!

Then there is the Kleins budget jewellery and accessories retail chain which will close within weeks after being unable to find a buyer. The closure is the biggest franchise network collapse since Traveland shut its 165 stores. There were 200 stores before the administrators Ferrier Hodgson lobbed at Kleins South Dandenong HQ.

Kleins' collapse was blamed on the owners taking their eye off the ball and failing to reinvent the business as competitors flew by and on extraordinarily generous rental subsidies and income guarantees to franchisees. The problem for the franchise industry is that Kleins, a reputable franchisor that had relied more on its wholesale income than on sharing the spoils of retail sales racked up by franchisees, has forced the closure of 130 small businesses, whether they wanted to or not.

Kleins held the head leases on their premises and must surrender those leases at the end of its liquidation sale.

The West Australian and South Australian state governments have both conducted inquiries into the franchise sector and are pressing for changes to the Franchising Code of Conduct overseen by the Australian Competition and Consumer Commission.

The major issues they have tackled are unconscionable conduct and the grant of ongoing franchise rights, particularly where the franchisor is keen to takeover the location and its goodwill for a corporate store.

What the franchising sector needs more than anything right now is a dose of realism and a recognition that franchise systems may need to be restructured if retail networks are to survive, let alone prosper.

A little realism? Well we could start with Sportsco which claims on its website that it has 80 store locations throughout Australia but can only manage to list 65 of them.

The Sportsco claim was highlighted by a Fair Margin reader who was none to kind about the prospects of the sports chain notwithstanding a recent change in management ranks.

Fair Margin's view is that it is not all doom for franchising but it will require a lot more hard and hands-on work for franchisors, just as Clark Rubber management said in presentations to its retailers this month.

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