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NEW YORK CITY – Some old-time Mail Boxes Etc. franchisees are saying that working with their franchisor has caused stress, health problems, depleted retirement funds, and bankruptcies, while they waited seven years for their lawsuit against UPS to come to trial. The current and former MBE franchisees, who are members of a nonprofit group called the Platinum Shield Association (PSA), are about to get their time in front of a jury on April 26. Howard Spanier, president of the association, says that franchisees will square off against their franchisor in Los Angeles Superior Court in Case 294647, Morgate LLC v. Mail Boxes Etc., Inc.
"We just don't quit," says Spanier.
The problem started all the way back in 2001, when United Parcel Service purchased the franchising firm of a 3,400-store chain, Mail Boxes Etc. According to Spanier, UPS executives informed all MBE franchisees in 2002 that the old business model was broken. UPS tested a new business model. Soon Mail Boxes Etc.’s brand was renamed The UPS Store and the business was changed to include parcel delivery.
Joe Wightman, a New York City-based Mail Boxes Etc. franchisee for seventeen years, says that unlike the old MBE days, UPS came onto the scene dictating the retail prices, profit margins and national pricing for the retail outlets as if the stores were all company-owned. It is rare for franchisors to ban franchise owner-operators from adjusting retail prices to meet local market conditions and costs. A franchise operating in New York City would not want to be held to the same fixed prices as a store running in Somerset, Kentucky, where rent, taxes, insurance, and vendor costs would be considerably less.
Some Mail Boxes Etc. franchisees are certain that United Parcel Service is forcing them to buy a lemon. UPS says it has the right to stop Mail Boxes Etc franchisees from operating if they do not sign The UPS Store contract when their Mail Boxes Etc. franchise agreements expire.
The Catch-22 choice of either converting their stores or being terminated has some MBE franchisees in a huff. They simply want to be left to run under the old model and name, Mail Boxes Etc. After many years of running a successful Mail Boxes Etc. store, they are concerned that the termination of their franchise robs them of a livelihood. But they also estimate that the forced conversion of the old store to the new but faulty model would mean almost certain loss and mounting debt. As proof, Spanier’s group of franchisees cite a 2005 Boston Consulting Group report for UPS that analyzed just how poorly The UPS Store outlets were doing. The study found that 77 percent of The UPS store locations were at financial risk. According to Wightman, the report was buried out of sight until the company was later forced to reveal it under court order. The full contents of the secretive report have yet to be disclosed by the franchisor to prospective franchise buyers or current franchisees.
“The twenty years of equity that I put into my Mail Boxes Etc. store is now threatened,” says Wightman in discussing how a noncompete clause bans him from operating an independent store and will not allow him to continue his line of work.
Jonathan Solish, a certified California franchise law specialist at Bryan Cave in Santa Monica, advocates that the franchisor has a case too. He says, " . . . franchisors have a strong interest in maintaining the adaptability of their franchise systems over time." Solish cites a dispute he handled for a real estate franchisor in the 1990’s over whether it could force its franchisees to buy computers, even though they were not obligated to do so under their franchise agreements.
He also cites the example of Midas International. "As the quality of muffler design improved over the years, the franchisor realized that the brand had to expand its scope of services in order to remain competitive," says the attorney. "After retaining consultants, Midas changed its system to expand the services associated with the brand to the benefit of its franchise system." While Solish would not comment specifically on the merits of the MBE dispute, he did note that franchisors must maintain control over their brands so that they can make appropriate changes over time to remain competitive in the marketplace.
Surprisingly, Wightman agrees.
“One of the reasons I bought a Mail Boxes Etc. store was because it was a dynamic company in improving the brand,” he declares. “But in this case, UPS has thrown the baby out with the bathwater. UPS killed the brand. It killed the advertising for MBE, and it killed franchise profitability. UPS forced a radically different business on the mail box rental business.”
The 141 members of the independent franchisee Platinum Shield Association think that The UPS Store conversion does not lead to better competitiveness in the marketplace. The members have been in litigation against UPS since 2003.
Wightman adds, “I didn’t buy a shipping business, I bought a Mail Boxes Etc because of the dynamism of the business. But UPS has made the business a one-vendor franchise.”
In a 2005 arbitration decision, where the specifics of the resolution have been placed under seal and are not available to the public, UPS settled with an MBE franchisee for $5 million. Spanier thinks that the arbitration complaint of that one franchisee was quite similar to the current complaint, calendared to go to trial April 26th.
In anticipation of the trial, Wightman exasperatedly asks, “What is UPS afraid of? Why hasn’t it come clean with the information that it has and knows is needed in order to make an informed purchasing decision about this franchise?”