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Franchisees File Lawsuits Saying the Business Model Keeps Them in the Red
The Orlando Sentinel is now reporting on two class-action suits of franchisees who say that the Mail Boxes Etc. and UPS Store business model has been disasterous to franchisees' bottom-line. A March Los Angeles case, handled by celebrity O.J. Simpson's attorney, Robert Shapiro, represent owners of UPS Stores who have filed.
So why do the shipping stores no longer make money? It seems that when Mail Boxes Etc. franchisees started converting to The UPS Store after the buyout in 2001:
Customers no longer paid the stores directly for shipping, so the stores depended on payments from UPS for those packages, a development the franchisees in the suit said has "drastically reduced" the stores' profitability. "The margins . . . do not provide for a level of gross profit necessary to sustain the businesses and make them profitable . . . franchisees received only $0.65 per drop-off package while previously they had received as much as $5.00 and $6.00 and up for handling a typical package," the complaint reads.
Ouch! Then there is the other complaint filed May 2 in U.S. District Court in San Francisco that accuses UPS of overbilling its franchise owners for shipping rates.
The franchisors address such problems of diminishing mail service profits by pointing at other services for franchisees that need exploring, namely, copying and document services.
"There is still tremendous opportunity for our franchisees to grow that part of their business. UPS and Mail Boxes Etc. are committed to the success of each and every one of our franchisees. It's in their best interest and our best interest," said Rich Hallabrin, a spokesman for Mail Boxes Etc.
But the quick print industry has long spoken about how copy margins are so low that they often are loss price leaders to other document services such as finishing or design. Besides the problem in poor margins in copying, consumers associate UPS with shipping and not document work.