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UPS franchisees unhappy with parent company

Four years after United Parcel Service Inc. bought Mail Boxes Etc. Inc. and its thousands of retail locations, many dissatisfied franchisees of what is now the UPS Store are wondering why Brown hasn't done more for them.
/ Source: Business First of Louisville

Four years after United Parcel Service Inc. bought Mail Boxes Etc. Inc. and its thousands of retail locations, many dissatisfied franchisees of what is now the UPS Store are wondering why Brown hasn't done more for them.

A growing coalition of several hundred store owners has banded together to form The Brown Board Owners Association Inc., a group that is carrying their grievances -- centered around concerns of declining profitability -- to UPS' door.

Brown Board president Larry Bowdoin, who owns a UPS Store in Prattville, Ala., said the company is undercutting its franchisees by offering online shipping rates that are lower than it allows the stores to charge.

He said UPS also is expanding efforts to sell shipping labels and services online, and customers then drop off their packages at a UPS store for delivery -- a low-margin service for store franchisees. And, he said, the company promotes direct pickup service for small businesses, bypassing the UPS Stores.

Brown Board chairman Mike Rodriguez, who owns a UPS Store in Lilburn, Ga., said that more than 60 percent of the estimated 4,000 U.S. stores are losing money and that many owners have gone out of business, sold their stores or gone bankrupt keeping them afloat.

"Have you ever heard of a franchisor that competes with its own franchisees?" Rodriguez asked. "Not only does UPS compete with us, but whatever we sell through them, they get a royalty on it besides. They're double-dipping."

UPS has refused to recognize the organization. Spokeswoman Brandyn Jennings said franchisees should express any concerns either directly to the company or through the existing owner-elected committees that represent their interests.

"Neither UPS nor (Mail Boxes Etc.) will be meeting with your association," wrote Don Higginson, senior vice president of franchise relations for Mail Boxes Etc., in a July 27 letter posted on the Brown Board's Web site. Mail Boxes Etc. "reserves all of its rights to remedy any damage or harm that your association causes, or threatens to cause, to (Mail Boxes Etc.), including to its valuable relationships with its franchisees."

The former Mail Boxes Etc. stores were changed to The UPS Store, but the subsidiary that oversees the stores retains the Mail Boxes Etc. name.

Board founded to bring complaints
If the Web site's forum, which is filled with angry postings, is any indication, many of those relationships already are damaged.

Regardless, said Rodriguez, a retired DeVry University dean who bought his own franchise in June 2004, the owner-elected committees are ineffective at conveying owner complaints and not truly independent; hence, the need for the Brown Board.

Bowdoin, who co-founded the group with Rodriguez in April, said his franchise also has been struggling.

"We're not a bunch of torch-bearing folks who want to go down the streets of Atlanta and burn UPS," Bowdoin said. "We wouldn't have bought this franchise if we didn't think it was a good business. But I support my store each month with my other businesses. There's no profit at the end of the day."

The problem also is being felt in the Louisville area, where some franchisees believe they aren't seeing the returns UPS touted when it bought Mail Boxes Etc.

According to the UPS Store Web site,, there are 22 UPS Store locations in Louisville and Southern Indiana.

"Our shipping volume really hasn't increased like (UPS) said it would once we became a UPS Store," said Joyce Vallance, owner of the UPS Store at Highlander Point in Floyds Knobs. "Revenue has increased some (since the UPS acquisition), but so have costs, and volume hasn't increased enough to offset the loss of (profit) margin."

She declined to disclose revenue or net income figures, but she said she believes her business has been hurt because it is limited in what it can charge for shipping. It also must pay a royalty on each item shipped.

"It's not the shot in the arm we hoped it would be," added Vallance, who opened the store as a Mail Boxes Etc. in 1999. "Things are tough right now, but we're hanging in there."

Like many owners, Vallance said she is frustrated that UPS is trying to lure more businesses to use its direct pick-up service.

"We don't just cater to grandmas sending toys to their grandkids," Vallance said. "A good portion of our business comes from small businesses sending packages regularly. If you take that business away, that really hurts."

Improvements suggested
On July 18, the Brown Board sent UPS chairman and CEO Michael Eskew a letter proposing several ways to address its gripes. Higginson's letter was UPS' response to these requests.

The Brown Board's letter suggests that in the near term, UPS let store owners keep 70 percent of the profits on shipping services, the staple of the business, up from about 50 percent currently.

It also asks UPS to reduce the royalties it collects from franchisees to as little as 2 percent, or zero for stores with less than $25,000 in monthly revenue.

In addition, the Brown Board wants more money for processing packages dropped off at its stores (as opposed to those prepared inside them) and the ability to buy goods from outside vendors.

The group wants UPS to phase out Mail Boxes Etc.'s involvement with the stores altogether, an action it says will save its members $100 million.

"UPS has the capability of doing the support and training themselves," said Bowdoin, of the Brown Board.

The group also wants UPS to buy out stores in over-saturated areas, restructure the regional franchising system, and generally provide more on-the-ground support.

The Brown Board letter says that analysts "predict that based on present performance, the entire UPS Store network will probably collapse within 1-2 years."

Franchisees convention
Rodriguez said the Brown Board wants to avoid legal action, but it is in the process of retaining Miles Scully, managing partner of San Francisco-based law firm Gordon & Rees LLP, who litigated two cases against UPS that were settled for sizable amounts in favor of store owners.

Some members also plan to attend the UPS Store convention on Aug. 18 in Orlando, Fla., at which Eskew will speak.

Vallance, who owns the Floyds Knobs store, said she is hopeful that UPS will announce changes to the current UPS Store business model at the convention.

"I think we'd all like to see some changes, but we realize that it's David against Goliath," Vallance said. "What's really frustrating is that we (at the Floyds Knobs store) believe that UPS is on the ball, but they are very deliberate and they move so slow to make decisions. We're entrepreneurs. We don't like to move slow."

Some franchisees reluctant
Susan Kezios, president of the American Franchisee Association in Chicago, said UPS needs to be more receptive.

"In a tough economy, often the corporation will help out if they want to keep a strong, viable network," Kezios said. "But telling them to go to the FAC (Franchise Advisory Council, one of the owner-elected committees) is a total cop-out. The FAC typically rubber-stamps the wishes of the corporation. ... UPS can afford to give a little."

UPS posted second-quarter net income of $986 million, up more than 20 percent from a year ago, on revenue of $10.2 billion. The company does not break out UPS Store performance in its financial statements.

Not all UPS Store owners are up in arms, however. Sheryl King, who owns a store in Norcross, Ga., said she never considered joining the Brown Board because she feels its approach is too confrontational.

And in Louisville, those interviewed by Business First were familiar with the efforts of the Brown Board. But some were hesitant to speak about concerns they have with the future of the UPS Store brand.

Phil Jones, who owns two stores in Louisville -- on Frankfort Avenue and Old Brownsboro Road -- declined to comment, directing questions to Melva Moore, coordinator of co-op advertising for the Louisville market.

Moore, who owns The UPS Store on Brownsboro Road in Springhurst Shopping Center, also was reserved in her assessment of the situation. She said she is not a member of the Brown Board, and she questioned its approach.

"I'm focusing my attention on the convention next week," Moore said. "I plan on taking my concerns directly to the company rather than going through the Brown Board."