Franchise Owners Say Opening a UPS Store Franchise is a "Bad Financial Decision"
(FranchisePick.Com) In its recent Open Letter to UPS Store Owners, the UPS/MBE franchise owner group
called the Brown Board Owner’s Association detailed 12 serious issues and concerns that it is trying to get its franchisor, shipping giant UPS, to address. (The BBOA is not affiliated with another franchisee group, the BSA, which is trying to force change via a class action lawsuit against UPS).
According to the letter, profitability is a serious challenge for new UPS Store franchise owners:
Overall Store Profitability is a Major Concern.
The majority of UPS Stores do not start breaking even for 36 months with many requiring 48 months or more. That does not mean that the owner(s) have made their money back in 36 months, it means it takes the average store 3 years before the owners stop putting more money into the store. Unfortunately neither MBE nor the Area Franchisee tells this to the prospective buyer. Generally, this means that opening a new store is a bad financial decision. The average store is resold when the original owner runs out of the cash needed to continue operations, then the second or third owner has a chance to start making an income. It is almost always better to buy an existing store!! Some stores start to produce a $35,000/yr income for the owner at about $365,000 in annual gross sales, but the medium store gross sales at present appears to be about $280,000 (available numbers say about 60% of all US stores do not break even).
Taking an example from the PACE manual, it states that a store that does $550,000 STR with a 60% margin should gross about $110,000 in profit. To simplify the math, they take $550,000 and multiply by a 60% margin. Fixed and Variable expenses are estimated to be $220,000. However, if you multiply by 52.5% (the average gross margin according to Financial Planner), gross profit is reduced by $41,500 (to $68,500). This is a ridiculously small return on investment for a store that is in the top 5 to 10 percent of the network.
What is “Churning” in Franchising?
The letter describes a major concern in franchising, an issue called churning, described here: “The average store is resold when the original owner runs out of the cash needed to continue operations, then the second or third owner has a chance to start making an income.” While the original store owner may have lost most or all of his initial investment, the transaction only shows up in the disclosure documents issued to future franchise prospects as a “transfer.” In theory, a franchise company could have widespread failures, but since the stores weren’t actually closed the franchisor can boast they never had a store close. Franchisors can pass off the “transfers” as owners selling their businesses for personal reasons.
Related story on Blue Mau Mau: UPS Store Independent Association Sends Invitation to Franchisee Council
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20 opinions for Franchise Owners Say Opening a UPS Store Franchise is a "Bad Financial Decision"
Franchise Owners Say Opening a UPS Store Franchise is a "Bad Financial Decision" at PIGASYS
Aug 23, 2007 at 11:16 am
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Joel Libava
Aug 23, 2007 at 12:21 pm
Sean,
Once again folks interested in franchise ownership run to a franchise with a nicely branded name, and don’t dig deep enough into getting the important info.
{This is of course, according to the letter you posted}
More shall be revealed, I fear.
Joel Libava
The UPS Store Franchise Owner’s Lawsuit Certified as Class Action
Oct 20, 2007 at 9:48 am
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The UPS Store Franchise Owner’s Lawsuit Certified as Class Action at PIGASYS
Oct 20, 2007 at 10:20 am
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Lisa
Oct 28, 2007 at 1:10 pm
UPS Heartache;
My husband and I purchased a UPS Store franchise in Canada just over 1 year ago today. We have lost our store, our investment and it has left us in serious debt. If you are considering purchasing a UPS Store DONT DO IT. My husband and i are both well educated and smart individuals but buying this store was a HUGE mistake.
We were of the understanding our store was profitable and that the previous owners were just simply “not applying themselves” so we thought being young and energetic we could make it work. Boy were we wrong. We were never advised of just how much money we needed to put into our business to make it work. We really realied on our Area Franchise manager to help us out…we had little support and after one year we just simply had no money left. THe UPS store advised us that we would have to leave our store if we could not come up with the necessary cashflow. This has resulted in our heartache. After 1 yr and over $100,000 later we had to turn our store over to UPS. They are pushing us to sell it to them for $1 and they have taken over and also will turn around and sell our store….end result we will make NO money…they get the sale earnings…this doesnt seem fair. Looks like we aren’t alone in this game..shouldnt we be doing something about it??? This has to stop..innocent people are loosing homes, retirement benefits and peace of mind.
Fred
Nov 3, 2007 at 8:29 pm
I own an MBE store. UPS is trying to make me go eft payments They say I must turn thier invoices over in net 7 days. By the time I recieve it in the mail 3 days have gone by. I have always payed all invoices within 30 days. I have been doing that for 7 years. They have given me notice pay right away or they will suspend my aso with them. I told them to shove it I will ship FED EX. They want everyone in there eft program. Donot llet them in your check book.
I am a small store. But won’t let them bully me.
Tom
Nov 5, 2007 at 10:42 am
Lisa???
I am looking to open up a new The UPS Store franchise in Canada. Where is your store? I’d like to know a Canadian owners perspective, because I was informed that it’s run differently in Canada than in the US where all the legal actions are taking place. I need to know before I invest. Thank you.
[Editor’s Note: Franchise owners who publicly express their frustration with their franchisor are understandably reluctant to share their store location or identities, fearing repercussions. If you would like me to relay your full contact information to Lisa, email it to me at info[at]ideafarm.net. Otherwise, store contact info is available on their website and franchisee contact info should be available in their disclosure documents]
Fed UPS
Nov 5, 2007 at 12:10 pm
Wow, Tom, which part of “If you are considering purchasing a UPS Store DONT DO IT” didn’t you understand?
Did “buying this store was a HUGE mistake.” leave you wondering if she thought it was a good investment?
Was “They are pushing us to sell it to them for $1 and they have taken over and also will turn around and sell our store…” a little ambiguous?
If you are a corporate poser trying to identify a whistleblower, it speaks volumes that you wouldn’t know immediately which franchisee is in that situation… because there are lots of them…
If you sincerely need more perspective and are still considering UPS after reading this, you’d be better off taking your money to Vegas. Or just burning it. At least you wouldn’t be owe on a lease and future royalties.
Tom
Nov 5, 2007 at 10:17 pm
I know I hear all this negative rants, but I seem to be out of the loop as to exactly what is all going on? Is the restrictions on the shipping rates? I was informed that in Canada, UPS Stores usually have 1/3 shipping, 1/3 printing, and 1/3 retail revenue streams, where as in the US it’s higher for shipping. I did find that strange considering all those are variables you can change depending on how you run you business.
I guess I’m feeling that these challenges I hear are challenges I personally feel I can overcome. Am I missing something that I can’t control that UPS will strong arm me on? Please help. Info and feedback is needed. I’ve been seriously considering a franchise location for next year.
Fed UPS
Nov 6, 2007 at 10:19 am
Tom: Click the UPS link in the right sidebar. Read the posts. Read the comments. If you’re still unclear, I think you should buy up some existing franchises. Buy them all! I’m sure they’re all for sale… cheap! After all, you’re much smarter than the hundreds of franchisees who are suing UPS, going bankrupt, or both. I’m sure you can “overcome” the fact that your own franchisor will undercut you by going direct to your customers… cheaper.
You say: I guess I’m feeling that these challenges I hear are challenges I personally feel I can overcome.
People pay the fees and accept the restrictions of a franchise because it’s supposed to give them advantages, not additional challenges to overcome. With thousands of franchises to choose from, why on Earth would you choose one with “challenges” you can personally overcome?
I hate to be mean but, seriously, Tom, what is wrong with you?
Lisa
Nov 6, 2007 at 10:33 am
Hi Tom, I have to say that Fed UPS has some good points. When I mentioned that my husband and I are well educated people I certainly was not joking, nor was I when i mentioned that it’s a “HUGE” mistake and that we have to turn around and hand over our retirement to UPS for $1.
I am not being dramatic on this point. As with any business you have to put in your heart and soul and do your best but the Franchisee give you an estimated amount of money you should have for expenses/spenditures and it was not even close to what we would have needed to keep our store running.
They should have educated us on the true real facts of owning a store and what we would have to put in to run it. Again, we own a part in this im not putting all the blame on them,..but then again im not the one getting rich off this deal am I???
CL
Nov 10, 2007 at 6:56 pm
I have a question for current franchise owners, a local store has been in operation for three years, in ‘06 the store did 485,000 with 60% shipping, 30% printing, 10% retail, and are reporting a cash flow of 80,000. If these numbers check out is it still a bad investment?
this is sad
Nov 14, 2007 at 12:20 am
Hey CL,if you can buy that store for less than 2 years worth of it’s cash flow, then it’s not bad; however, it is painfully evident that most of these stores seem to be bad investment. In my limited research of franchises, it seems there is too much profit to be made by the sellers of franchises (companies or people selling a dream). Please be careful with your money - do not waste it. If you do not possess the skills to determine if a franchise is a good investment, do not invest in one, or hire someone that has the skills.
Math
Nov 17, 2007 at 3:07 pm
I’m going to buy a UPS Store, please let me have some more detail information about the annual net income. Cl is talking about shipping, printing and retail, what about the mail boxes? I have heard almost 50% of annual sale in Canadian stores is coming from mail boxes, is this right?
Tom
Nov 30, 2007 at 8:33 pm
My wife and I purchased an MBE store in 2000. It was a new style store, one of the first in Canada. We did our due dilligance by checking with stores in our area. What we did not realize (and weren’t told) was that they built their stores for max $75,000 at least 5 years prior. This was the amount they were expensing off in their financial statements. We knew we were paying somewhat more than the original stores, what with inflation and the cost of the series 2000 store. It cost us over $250000 to get up and running with the buildout and equipment. We tried for over 4 years to make it. I never drew a penny out of the complany in over 4 years. I was fortunate my wife had an income that allowed us to live. I was relieved when she finally said she would not invest in more money. We closed the doors, and our esteemed Area Franchisee paid all of $11000 for our $250000 investment. Enron fraud — MBE and UPS are worse. MBE stands for mostly bad experience. Don’t touch it unless you’re looking for a huge tax write off.
Lisa
Dec 2, 2007 at 10:33 pm
Tom, im sorry to hear about your investment loss. It is very apparent reading through all of the UPS/MBE franchisee comments that we are mostly all in a similar boat. It’s truly sad, however i was really curious how you managed to even get $11000 from them? My husband and i were in the same situation, i was fortunate enough to have a good job to support us as we were never able to draw any income from our store. We have recently had to turn it over to UPS..and to think not even one person from the company even called to discuss this with us. They cant be surprised by our loss….it doesnt take rocket science to figure out we are all facing losses.
Tell me, did you and your wife do anything further to pursue your loss of investment with uPS? If so what was he response?
Tom
Dec 3, 2007 at 2:48 am
Lisa, we had a Small Business loan from the Royal Bank secured by equipment and a personal guarantee and had a 25% Government Guarantee. When we closed the store, the Royal Bank seized the store for the secuity. To reopen the store, the Area Franchisee made an offer to the Bank for $11,000 and received the store in return. We had to pay the bank the balance owing, (except the part secured with the Gov Guarantee) based on our personal guarantee. Needless to say, our losses are much larger than the small business loan, because we had mortgaged our house to the limit (it was nearly paid for before our crazy decision to go into business with MBE). We will be paying on the mortgage for the next 15 years. And we are both close to 65.
Tom
Dec 5, 2007 at 6:33 am
Further to my comments above, a surprising benefit we did receive was from Revenue Canada. When we closed the company books with our Chartered Accountant, he made a very conservative filing of our loss so we would be eligable for a tax write off. He told us we would be getting an audit from Revenue Canada. He said Revenue Canada are not your friends, and to only tell them what they asked with their questions. We filed our income tax, and sure enough, we received a letter from them that we were being audited. I sent them all of the information they asked for. Within a few days, Revenue Canada phoned me. The gal doing the audit asked me what was going on with MBE/UPS. She said she had several files on her desk that were very similar to ours. I told her the whole story. I twigged that this may be a way of getting some come-uppance. I knew we would never know the results of the audit. She almost sounded excited. She asked who the Area Franchisee was, and the names of the big wigs in Oakville. She asked me to send proof of our total losses (on top of what our accountant claimed). To make a long story short, regardless what we think of Rev Can, we received a great tax write off. Also, I would love to have been a fly on the wall in Oakville when Corporate Office was audited.
J Ecoff
Mar 21, 2008 at 9:37 pm
Wow! I did not know that with such a big name and corporate image, they can do that to so many franchisees. I was looking at a store in Vancouver to buy and if that is the reality, there are many pit holes to avoid.
When they mention the asking price, they also mention the current brand new franchise fee. But then after you pay for the existing store, you still have to pay the franchise fee plus training cost again. This with a personal guarantee obligation!
I don’t think there is a resale market if they disclose all the relevant information. There are only handful locations really make money. Thanks all the posters for the input.
sean
Apr 25, 2008 at 1:15 pm
Which is do you believe?
Your opinions invited:
The UPS Store Franchise: Follow the System and Succeed!
The UPS Store Franchise: This Dog Won’t Hunt!
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