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Franchisees plan to fight UPS on mandatory vendor program
Study: UPS Store has retail’s biggest competitive advantage; franchisees begrudgingly agree.
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Janet Sparks is the former publisher of Continental Franchise Review, an industry newsletter that covered the franchise community for more than 30 years before being acquired by Franchise Times Corporation. Janet can be reached at 303-799-7398 or at jsparks@franchisetimes.com |
With more than 4,200 locations, The UPS Store’s Web site touts that with its retail presence it can provide a value proposition no other company can match. Now, as of January 2007, the National Retail Federation Foundation (NRF) has backed up that statement by naming The UPS Store the Most Competitive Retailer in the United States. In the study, the NRF analyzed data on top-performing companies, including such giants as Target, Walgreen’s, Kohl’s and Men’s Warehouse, over a five-year period from 2001 to 2005. The companies on the competitive list had to meet two conditions: a relatively stable or increasing market share and a high return on invested capital. The institute also collected data from thousands of consumer interviews about how well those same companies meet customer expectations.
But is The UPS Store franchise becoming a little too creative with its retail marketing techniques? According to one franchisee group, the Platinum Shield Association (PSA), the franchisor has crossed the line in the development of its latest marketing programs labeled Corporate Retail Solutions. It was designed to boost retail products and services in offering a variety of customer-friendly business solutions. Under a segment of that program, PSA members feel they are being forced to do business with company-preferred shippers unfamiliar to them. Plus, they now know through a Web search that one participant is in the business of distributing hardcore pornography.
Joseph Wightman, spokesman for the PSA and an owner of one store in Manhattan, said Zero Tolerance is such a company. He said, “According to our franchise agreements, we are mandated to participate in this program with all preferred clients. If you don’t, it’s a violation of the franchise contract.” Wightman said his group plans to challenge UPS on this issue.
One segment of the company’s Corporate Retail Solutions is the Alternate Delivery Location (ADL), which provides the flexibility of package pick-up for customers, and package delivery for UPS Store-preferred shippers. Wightman said the ADL program was a real boon for UPS in that it allows companies to deliver products to franchisee’s stores instead of to home addresses. He explained, “If someone is not home when a package is delivered, the driver is required to leave a sticker on the door, stating they will attempt to deliver it three more times. But now UPS can establish relationships with companies to deliver directly to ADL stores, the franchise locations, requiring customers to come in and pick up the package.” He said that was a real savings for the franchisor and UPS.
But Wightman said it was not a good thing for the franchisees since they are contractually mandated to deliver packages to whomever asks for them. His group believes this UPS practice—when delivering packages such as those from Zero Tolerance—could threaten children and franchisees who might innocently violate state or local laws against the distribution of those materials. The responsibility lies with the franchisee.
But according to Rich Hallibran, spokesman for The UPS Store, although Zero Tolerance is part of their Corporate Retail Solutions, and they make use of the ADL component of that program, they do not utilize it for the delivery of pornographic materials or videos. He said, “Their contract with us is to use the ADL program for distribution of apparel, clothing items, to their dealers/distributors. It goes to their distributors, and it does not go to the general public or go to children.” He also explained that all their customers under the ADL are required to show identification before getting the package, to make sure it is delivered to the appropriate person. Since mid-2006, he said there had been a total of four packages delivered from the company of Zero Tolerance.
UPS Store’s retail history in the making
When UPS acquired Mail Boxes Etc. from ailing U.S. Office Products Co. in 2001, for a mere $192 million, it was in an attempt to expand its retail reach beyond its UPS Service Centers. In looking back, Stuart Mathis, president for the franchise division, said in an interview this year that the name, The UPS Store, chosen for its new franchise venture, seemed to say it all for the shipping giant. In an attempt to expand its retail endeavor he said, how could it lose? The name clearly did the best job of driving customer traffic, improving shipping volume and enhancing the franchisees profit opportunity.
But many question the “enhancing franchisees profit opportunity” part, in view of the turmoil and litigation within the system the past five years. Franchisees have united in various associations, hoping to combat what they view as the company’s heavy-handed methods of converting stores to a model that feels more like UPS shipping centers. They feel UPS has changed its policies to squeeze operators’ revenues and profit margins.
According to a Wall Street Journal article this year, UPS Store turnover is significant—from 2002 to 2005, a total of 1,936 stores either were transferred to new franchisees or had their franchises canceled, terminated or not renewed. Still the company stated that although franchisee profitability was their No. 1 issue and they were trying to improve store owners bottom line, they were also pleased with the growth of new stores.
But as The UPS Store franchise basks in the glow of its latest award of being named Most Competitive Retailer in the United States, maybe it should remember: “One measure of your success will be the degree to which you build up others you work with, while building up yourself.” That from Jim Casey, UPS founder in 1947.
