THE UPS STORE Franchisees: Drop-Offs Can Drop Dead

Comments

1. Answering Service says:

   December 24, 2008 at 11:46 am

   It’s a shame that the UPS stores didn’t quite catch on but they are what you mentioned in the article – glorified drop off boxes. Sure, there are the occassional customers who come in needing the full “package” (i.e. box, peanuts, etc.) but most people will save money by packaging @ home then taking your box to the store to ship.

   It is understandable that the owners of these stores are irritated but I highly doubt UPS – the shipping giant – would make empty promises to these people about expected profits. I’d like to speak to an owner about the franchise pitch they bought into from UPS.

   Reply
2. carol cross says:

   December 24, 2008 at 2:21 pm

   Which of these stores do you think does better financially?

   -Cause and effect are not clear RE: this issue. Without a clear understanding of the issues involved (each situation to one degree or another unique). Employees are not likely to care about issues like drop-off (pre-paid) as opposed to paid (at retail) shipping. If you get an attitude likely it is from someone that cares about that issue (i.e. 6×12hr owner-operators). These people did not start out this way (owners with attitudes) but none-the-less find themselves there in spite of themselves as a result of total desperation. Do these issues affect business? Probably so.

   Is the effect determinative of success or failure? Probably not, since the “attitude problem” is a direct result of “desperation” driven by a business model that no doubt has an atrocious profitability record to begin with. The question really is which stores are really profitable and how and why are they profitable?

   The truth is that full-pay, original franchise owners, who bear the cost of opening the franchise and “the hurdles” of the first couple of years of operations are probably a minority of these “profitable store owners”. A store that cost $300,000 to open is a lot easier to run profitably if you buy it for $10,000 and leverage UPS/MBE because (just between friends) you are doing them a favor.

   Owners of a particular kind/profile are steered to these “subsequently churned” units by MBE. These new owners use the stores current status to cut a deal that “meets their needs” otherwise “no deal”. Most of the sacrifice is made by the store owners the remainder by MBE. UPS still have what they want, an open retail location. And MBE still has an operating unit that pays royalties. The franchisee has usually lost everything and sometimes this is literally evvvvvrything.

   Which of these franchisees is happier (or less miserable)?

   The answer is clear. But to suggest that their actions and attitudes are what make them happy or less miserable is probably missing the point badly. If you are interfacing with employees that right there is an indicator. That store can afford to hire employees. To assume that happiness is the problem and the result is poor business is misinformed at best.

   And which has more credibility in building a case against UPS?

   This/these issues (in the real world of franchise law) would have “no material bearing at all. Think what you like but it is really the farthest thing from reality that being nice to customers would have anything to do with how UPS treats you RE: issues that effect the bottom line. Will they take retributive action for non-approved actions (i.e. customer care standards)? Yes. Will they help you when you tell them that you are on the brink of loosing everything and this is what makes you “cranky”? NO.

   Reply
3. michael webster says:

   December 25, 2008 at 3:58 pm

   I am going to disagree with you on this one, Sean.

   The UPS model forces a TUPPS to cheerfully service walk-ins who aren’t their customers, or go postal.

   The psychic damage to the franchisee in either case is both premeditated and known.

   There is a good case here for an intentional tort against the franchisor.

   Reply
4. Sean Kelly says:

   December 25, 2008 at 4:56 pm

   I’m not defending UPS Store in the slightest. I think this is one of the most blatant screwing-overs in the history of franchising.
   I also think this further exposes one of the destructive fallacies of franchising: That big name, established companies necessarily provide a safer opportunity and more benefits. Large companies like this, and others, like Quiznos, seem to act with little to no regard for those who’ve trusted them with their financial futures. Many people, like answering service here, can’t comprehend that a respected brand like UPS would act so callously – but they do. I think TUPSS owners are justified in seeking all available legal remedies. I think they also should be even more aggressive in spreading awareness and putting pressure by any means possible.

   If individual store owners think they’re better off venting their animosity on people who come in to drop off packages instead of embracing the service philosophies of successful companies, by all means go for it. Let me know how that works out for you.

   Reply
5. carol cross says:

   December 26, 2008 at 2:34 pm

   Thanks to both Michael Webster and to Sean Kelly for their comments concerning the “screwing over” by UPS/MBE of “good faith” first owner franchise investors as well as former MBE franchisees who were made “an offer that they couldn’t refuse.”

   While the first owner-buyers have taken the greatest hits, even those UPS owners who purchased “churned” units are suffering because of lack of profitability of the model and have been put at risk of losing everything by MBE-UPS who may find it more difficult to CHURN an appearance of the viability of their franchise network in the future.

   It sure looks and feels like the whole idea of The UPS Store was an intentional tort that UPS believed could be committed with impunity and immunity under cover of federal regulatory policy and the status quo of law, process and procedure surrounding franchise law.

   I accept Sean’s advice above; i.e. that it is still better to put on a happy face for the dropoff customers if you have a chance of breaking even, but I know that he knows that it is hard for the “drowning” TUPSS victims to put on a happy face when there is no life preserver in sight and it is almost the END and the statute of limitations has run out.

   Christmas 2008 will not save TUPSS owners who are operating at a loss or the breakevens who are teetering on the edge of failure and loss of their entire investments. UPS will continue to profit even as they allow the UPS Store System to die of attrition. I believe that it was Richard Solomon of Franchise Remedies who suggested that this was their intention.

   Lots of blood will be spilled in the future and yet MBE-UPS still advertises this unprofitable franchise in the business sections of newspapers and on the Internet and will victimize newly recruited franchisees under cover of federal regulatory policy that doesn’t mandate that they disclose the unprofitability of their units to new buyers of the franchise.

   If the new buyers of The UPS Store franchise really understood how small a percentage of first- owner franchisees achieve breakeven, let alone profitability, within the startup estimates of MBE-UPS, they wouldn’t buy this franchise.

   Hopefully, new prospects will be warned and will understand that the biggest corporations involved in franchising do not make voluntary disclosure under Item 19 of the Franchise Disclosure Document because they can then hide the unprofitability of the units from new buyers and use their visibility as prove of viability in the sales process.

   This “trickery” is enabled by ineffective federal and state regulation of franchising.

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6. Aleksandar M. Velkoski says:

   December 26, 2008 at 2:47 pm

   Interesting article. I never really thought about why the above could be the case. I mean, I’m trying to put myself in the store owners position but I can’t logically agree with their actions. Maybe it’s because I don’t truly understand what they face on a daily basis, but based on the explanation above I’m not convinced.

   Reply
7. carol cross says:

   December 26, 2008 at 4:12 pm

   Yes! Aleksandar M. Velkoski —-if you have never been in the position of working 12 hour days for six days a week to no avail ( but you are busy with lots of drop-off customers coming in and out of your store) because there is NO profit and you are NOT breaking even or just breaking even because you pay yourself minimum wage and your PT help as little as you can get away with, you really can’t empathize with these owners.

   The UPS Store owners who break even because they pay themselves no wages or low wages have to stand in this status for the entire term of the contract, or try to sell the unprofitable store to another who thinks he may be able to break even because the owner will sell at a loss or a wash that will enable them to break even. Those who don’t break even, either first generation franchisees or later generation franchiseesm lose their entire investments and more if they are driven into bankruptcy because of their personal guarantees on the space and equipment leases and the franchise itself.

   MBE/UPS knowingly sets a malicious legal trap in its contracts for its franchisees in both success and failure that ensures that they will always profit whether or not the franchisee is operating at a loss, breakeven, or a profit because their only interest is in producing gross sales for the system upon which they realize their profits. MBE-UPS disclose no UNIT financial performance statistics in their franchise disclosure document or actual contract and can hide the unprofitability of their units from new buyers.

   Those who suffer from the malice of premeditated store churning but who are trying to save themselves to no avail are not inclined to put on a happy face when they are dying inside. Stores don’t fail overnight and there has already been several years of stress and pain in woking toward breakeven.

   Even though the owners understand that the dropoff customers DON’T UNDERSTAND THAT THE STORE IS INDEPENDENTLY OWNED and NOT OWNED BY UPS, they are human and resent being USED for UPS profits at the expense of the store owners profits. They sometimes know that MBE-UPS are waiting for them to default so that they can take over the store for a third-party standing by who may be able to get to breakeven if he gets their business for nothing. It is not surprising that they don’t greet these drop-off customers with a smile because they are stressed out and sick at heart knowing what the future holds for them.

   Many UPS Store Franchisees have already failed out of business and into obscurity. Some failed as well as operating franchisees are in court looking for justice. Those still working in their stores are hoping to survive. Some UPS Store Owners are making a profit, but how many? and who are they? and why are they making profits when so many (some say 77%) are not making profits and are in danger of failing?

   Why is UPS still selling these stores to innocent prospects who have no idea of the unprofitability and the rate of failure of first owners of The UPS Stores?

   Reply
8. J. Brown says:

   January 12, 2009 at 3:06 pm

   I can understand that some of you are skeptical with regard to the plight of the store owners. Why would UPS let these fail? Well, it depends on how you define failure.

   How UPS/MBE works this scam is through the churn and burn. There are currently 4,300 stores domestically. From April 1st, 2003 (the time when most of the stores converted from Mailboxes,etc), until December 4th, 2007, 2,553 stores changed hands. Of those, 441 stores (17%) changed hands more than once. In addition, 455 stores closed, for a total of 3008 stores that either closed or sold.

   If an owner sells his or her store for $1, is it a success? To MBE/UPS it is. That store is still in operation. In my experience, and I admit this is only an opinion, it takes the average owner one to two years before they realize that they’ve been duped. So then what happens? Sue, close, sell, or continue to complain.

   Reply
9. MBE No More says:

   January 12, 2009 at 10:11 pm

   I was one of those 455 store owners that closed since the change to the MBE/UPS Store concept.
   I was an MBE and did reasonably well. Then the Brown monster arrived and you could see the writing on the wall. I had built another business while owning the store and used the store to my advantage until it was time to close at the end of my franchise.

   I had compared the figures and I came out further ahead by selling all my equipment and inventory and got on with my life after 15+ years.
   And MBE/UPS did not make any money off me if I had sold they would have made $50k, by closing I cost them thousands of dollars in royalties and fees that I did not pay.

   Good luck to all. Happy New Year.

   Reply
10. Dropbox says:

    January 13, 2009 at 8:23 am

    I invite all skeptics, to go to McDonalds with your own hamburger meat, ask the smiling associate to “just cook this for me and oh, could you throw it on a bun with a little ketchup”, do not pay them, and watch their reaction. Then have 50 people do this everyday for 5+ years and I guarantee they will either be out of business, or would be asking you to leave, and not with a smiling face. Now McDonalds Corp selling the hamburgers will still be in business making $$ because they are not supplying ANY of the Customer Service/supplies/labor/brick and mortar/utilities/taxes/equipment…After you do this little test at McDonalds, have the same 50 people take their own Starbucks coffee made at home to a Starbucks retail location everyday, and see how they react, they are not a franchise, so why would these employees care whether you bring your own coffee? Because if the Starbucks location doesn’t make $$ they are out of jobs!!! Name another retail store you can go to and have services provided for “FREE”?

    This would make a GREAT documentary, the average retail customer should be educated on what is actually going on here.

    Reply
11. Sean Kelly says:

    January 13, 2009 at 8:59 am

    Dropbox writes: …the average retail customer should be educated on what is actually going on here.

    I think this is a great point. (And the McD’s example is great, too) Small business owners are an important part of the overall UPS customer base. How many of these small business owners really understand how UPS has treated the small business owners (their franchisees) who trusted them with their livelihoods and life savings?

    When Pillsbury’s Haagen-Dasz tried to coerce retailers to drop the fledgling Ben & Jerry’s ice cream line, B&J launched a grassroots “What’s the Doughboy Afraid of?” campaign consisting of bumper stickers, t-shirts, an 800 number and a couple of hippies picketing Pillsbury HQ in Minneapolis. It was so successful, Pillsbury settled out-of-court and the press made the previously unknown Ben & Jerry’s a household name.

    I’m sure most attorneys would have told Ben & Jerry to only do battle in the courtroom, and to not speak out outside official channels… in those stock press releases few people read. I’m sure the court case would have gone on for years while Pillsbury drained B&J of funds and ultimately prevailed. (Sound familiar?) Ben & Jerry’s could never have beaten Pillsbury in court, but their low-budget PR campaign worked immediately for no more than a few thousand dollars (if that).

    I’m not saying that the lawsuits were not worth pursuing… or that the negative outcome was predictable… But I wonder if The UPS Store owners will be considering alternative ways of being heard. I’m sure they could have commissioned a heck of a documentary with even a portion of what they paid the law firms.

    Reply
12. J. Brown says:

    January 13, 2009 at 10:00 am

    What negative outcome are you referring to? There were three major cases. One case settled. The second went to appeals, which reversed the lower court’s decision, and they go to trial next month.

    The last one will go to appeals just like the previous two. I’m guessing the outcome will be the same as long as the law is applied correctly.

    Reply
13. Sean Kelly says:

    January 13, 2009 at 10:16 am

    Maybe I misunderstood. Last month’s ruling wasn’t a negative outcome for the franchisees?

    Reply
14. J. Brown says:

    January 13, 2009 at 10:34 am

    I see where you are going. Yes of course it’s negative. However, it’s not the outcome. More like par for the course. Or losing a battle in the war.

    The worst part about it is that federal judges need to get these cases off their books in a hurry, so the complicated cases often end up in appeals. Unfortunately, this takes more time and money for the plaintiffs.

    Reply
15. carol cross says:

    January 13, 2009 at 10:47 am

    Sean, as always, makes a good point!

    If the public knew what UPS-MBE has done to the Moms and Pops who bought The UPS Stores or those MBE owners who were made an offer that they couldn’t refuse, they would be appalled and disgusted that “big business” like UPS would and could exploit and abuse the little guys so brazenly under the laws and the malicious binding but unbargained contracts that govern franchising.

    If franchisees could ever get before juries and expose what franchisors are doing, there would be a change in the laws.

    The public doesn’t understand that the FTC, in effect, with the FTC Rule “pimps” for explotive franchisors because franchisors are allowed to sell their franchises on the basis that there will be great profits and success and yet disclaim this in the package of the disclosure document and the actual contract. But, at the same time, they are not required under law to provide proprietory UNIT performance statistics to new buyers upon which buyers can access the odds of profitability or success of the investment. Lots of pigs and dogs are wrapped up in government disclosure documents. .

    Wasn’t indentured service and slavery outlawed? Should multi-billion dollar corporations who have investigated building and operating their own retail outlets but rejected the idea as too expensive be permitted to buy a franchisor and exploit and use the savings and cheap labor and debt of “captured” franchisees to serve THEIR bottom line? —and then throw these “resources” away as needed because of their ability to CHURN an appearance of viability to new buyers.

    But, of course, the public has no idea that these UPS Stores are independently owned. They think they are a division of UPS, and why wouldn’t they? This is the whole idea of franchising, isn’t it.

    If UPS is shamelessly exploiting the retail store owners who wear their name, it is because the status quo of the law appears to allow them to do exactly this! When they advertise the UPS Store, using the contributions of the franchisees to the advertising fund, the American Public thinks this store is a retail outlet of United Parcel Service.

    The public has no understanding that the little independent business person who rents the brand name has none of the protections of the law provided to either consumers or to employees or to big corporations –yet this independent business person bears all of the risk and expense of building and operating the physical business that wears the brand name and produces gross sales/royalties for the franchisor and shipping fees for the owner of the franchisor, The United Parcel Service –even as the franchisee is operating at a loss or teetering at breakeven.

    The franchisors make their profits on the gross sales, NOT the PROFITS, of their franchisees and in the instance of UPS-MBE, both the franchisor and the owner of the franchisor, UPS, have done very well, as was their intention, apparently from the get go!

    Yes, it will probably take a documentary on one of the main TV channels or a BIG story in the business media and the main media to EXPOSE what franchisors are doing to franchisees who are “duped” into buying unprofitable franchises because of government regulatory policy.

    Maybe franchisees would be better off trying to use a PR campaign instead of trying to address the courts to bring about change, especially since the courts and almost 30 years of case law support the franchisor and his system. Something to think about! Might be cheaper and more effective than lawsuits —and better theater, at that!

    Reply
16. Michael Webster says:

    January 13, 2009 at 11:56 am

    @Dropbox and Sean;

    The stores that became a new franchise system, the TUPPS system, never had enough strategic planning to consider how to a) effectively disrupt the drop-off system without b) alienating the unsuspecting public, and c) doing so in a way which caused monetary damage only to UPS.

    UPS is a notorious union busting company, so any collective action is difficult.

    But, simply bringing it to the attention of the public that the drop-off is doesn’t make the franchise operator any money is not likely to fly.

    Why should the public care? Although the McDonalds example is cute, it would be different if McDonalds gave away coupons on the internet and required its franchisees to redeem them. Oh, it does do that already!

    Reply
17. Sean Kelly says:

    January 13, 2009 at 12:19 pm

    I admit… I’m a marketing and pr guy so that’s my bias. I just don’t see much getting returned to franchisees for their investment in these big lawsuits. They seem to lumber on forever… and the big company has the time, resources and their agreements in their favor.
    Meanwhile, the plaintiffs are told not to speak about the case, so the franchisor is free to keep collecting franchise fees to fuel their war chest.
    I feel for those participating – it’s must be far from a liberating experience.
    In the revolutionary war, the redcoats lined up in neat rows and shot on cue, while the Americans hid behind trees and rocks (At least in my grade school history class). If we had adopted the same techniques, we’d all be drinking tea & talking like John Cleese.
    Today, the revolution is online… the weapons are youtube, email campaigns, blogs, videos, and new media… an unprecedented chance to get the word out.
    But hey, it’s probably prudent to stay quiet and let the lawyers fight it out at their hourly rates.

    Reply
18. Francois says:

    January 13, 2009 at 12:21 pm

    “The worst part about it is that federal judges need to get these cases off their books in a hurry, so the complicated cases often end up in appeals. Unfortunately, this takes more time and money for the plaintiffs.”

    J. Brown, a good portion of the federal judges are now appointees of republicans. The importance of this is that the only way to make their “bones” and have a chance to move up to the next level (US Appeals Court) is to rule on absolutely every single abortion case that comes along. The loonier and kookier the decision (look at some some of the stuff Alito wrote) the better chance that some nut job will push them for an appeals court job. Unfortunately, this leaves very little time for these Judges to worry or care, or work to understand cases that involve franchisees. Additionally, to rule in favor of a bunch of little franchisees against a large corporation can only undo some of the goodwill gained by the loony, kooky, bozo rulings in the abortion cases!
    (Luckily, (especially in California, the ninth circuit court of appeals) many of these nutjobs have not been successful in getting appointed to the appeals court!)

    Reply
19. Sean Kelly says:

    January 13, 2009 at 12:41 pm

    Michael: You’re creative. Internet- and new media-savvy. And a franchisee advocate. I think you should lead this guerilla info insurgency. You could be franchising’s Paul Revere. Thomas Paine. G. Washington.

    Reply
20. carol cross says:

    January 13, 2009 at 12:54 pm

    Wow! Sean Kelly! That’s telling it like it is! Amen! Hallelujah! Just love the fighting Irish who know that so many of the attorneys have kissed the “blarney stone” and play the game of “law” only in their own interests.

    But Michael Webster makes his points as well, and if I lived in Canada, and needed an attorney, I would feel safe with Michael Webster —and, at least, Ontario has a private right of action for violations of disclosure laws. Maybe the public wouldn’t care at all if they knew what was going on! Maybe he is right —but at least the public is available to franchisees to get the word out —and jury trials seem to be a thing of the past.

    However, when the deck is stacked in the Courts, as here in the US, through law, process and procedure and the franchisor has the means to delay and fight and still sell new franchises out the front door and discounted businesses of failures out the back door —and still collect royalties and shipping fees and commissions, etc.. from struggling franchisees, why aren’t the INTERNET –as Sean says, “the weapons of the youtube, email campaigns, blogs, videos, and new media, and not the Courtroom, the better and cheaper alternative for ALL franchisees to get the word out.

    Just look at what those Curves Franchisees are paying as a retainer and monthly dues as well but, in my opinion, public regulatory policy and the federal Courts will protect the Curves organization if enough of those 10,000 Curves are still standing and serving the economy —-want to bet?

    Just look at what it has cost the UPS Store franchisees to get this far and how much more it will cost them in Appeal in terms of money and time and suffering? And the courts will be inclined to protect the UPS paper that is out there and the billions of dollars in franchisor securitizations that have been completed in the past couple of years.

    I believe the current status of the economy and the widespread fraud that will be dealt with just as “civil violations” because it is so widespread that it cannot be thought of as “deviant and criminal” will not be dealt with by the courts —-in my opinion. Read the new Fortune Magazine Article on this subject matter.

    Reply
21. J. Brown says:

    January 13, 2009 at 1:11 pm

    Francois,
    I’m not playing politics here, but actually it was a well meaning Joe Biden who introduced the legislation requiring federal cases to move more quickly.

    Reply
22. Francois says:

    January 13, 2009 at 1:24 pm

    Moving quickly may actually be in the franchisees interest. Most franchisees would actually rather have their day in court quickly. The problem is that some of these Judges do not find these cases “sexy” and no upside for them. The large corporations have great influence (lately, like the last 8 years) over which judges have a chance to move up the ladder.

    Reply
23. Dropbox says:

    January 13, 2009 at 5:25 pm

    From what I am reading here, I guess judges no longer take this oath–

    Each justice or judge of the United States shall take the following oath or affirmation before performing the duties of his office: “I, XXX XXX, do solemnly swear (or affirm) that I will administer justice without respect to persons, and do equal right to the poor and to the rich, and that I will faithfully and impartially discharge and perform all the duties incumbent upon me as XXX under the Constitution and laws of the United States. So help me God.”

    Reply
24. Bob says:

    March 31, 2009 at 1:23 pm

    The UPS store isn’t competing with mcdonalds or starbucks. You’re competing with Fedex-Kinkos. And since Kinkos are not franchises but instead all owned by Fedex Inc, they’re more than happy to take drop offs- in fact, I can walk in something to ship and my fedex account number, have them package it and they’ll bill me at my prenegotiated rate, with a smile and no franchise surcharge!

    I have a local UPS store that is extremely nasty for UPS dropoffs. So I switched my shipping from UPS to Fedex ground, and the people at my local Kinkos are absolutely delightful to work with. I don’t know if this is representative of a nationwide trend, but my local UPS store (and there are only two in my whole city) usually has five or six packages every night for pickup, and my local Kinkos (one of seven) has packages stacked five feet high through half the store.

    Reply
25. Carol Cross says:

    March 31, 2009 at 2:53 pm

    Obviously, UPS bought the MBE franchise with the view of competing with FedEx and using the cheap labor and venture capital of franchisees to secure a retail presence.

    Apparently, they knew the status quo of low and process and procedure would allow them to use and unfairly exploit their The UPS Store franchisees while growing their profits and visibility throughout the United States on the backs of their franchisees.

    Their “drop dead” attitude and arrogance is typical of those who know that “big business” like “franchising” is protected by the laws that they influence and under which we live.

    Reply
26. SMOKE says:

    May 8, 2009 at 12:48 pm

    The corporate PIGS that run UPS should be made to work 60-70hrs a week at a UPS STORE only then will they understand the evil that they do.
    Lets start with the coward, and grossly incompetent, Stuart Mathis
    The dude should be in jail

    Reply
27. L E P says:

    July 19, 2009 at 10:45 pm

    Amos Exposes Insider Information in UPS Acquisition of MBE
    Posted Fri, 2009/07/17 – 17:07 by Janet Sparks

    LOS ANGELES – Franchisees are currently engaged in litigation with the world’s largest package delivery company regarding whether they should have been forced to convert from their original concept of Mail Boxes Etc. (MBE) to that of The UPS Store. United Parcel Services (UPS), through its acquisition of the 20-year-old franchise system in March 2001, has dramatically altered the MBE network, and now it is having to defend its actions in court against claims that it withheld crucial information and made misrepresentations in persuading franchisees to change over. In the closely watched trial of Morgate LLC v Mail Boxes Etc., a deposition taken in July 2006, MBE president and CEO James H. Amos’ memory was tested on the intricacies of the sale of his company. When he was asked about certain details surrounding the acquisition, he stated, “UPS actually only ended up acquiring MBE by accident.” Amos proceeded to tell the story, under oath, as to “why UPS owns this company [MBE] today.”

    Now, these detailed accounts could prove to be crucial in the upcoming trial, currently scheduled for August 3 in Los Angeles Superior Court, as they could be with other similar court cases. Along with Amos’ testimony, other vital information will be allowed as evidence, including the following:

    Boston Consulting Group report (sections now unsealed by the court, pdf) – An intensive study on the franchise network determining the health of the system.
    UPS Asset Purchase Agreement with the “deal bonus program and deal bonus payment made by MBE to Thomas Herskowitz in the amount of $182,150 and deal bonus payment made by Parent to James Amos in the amount of $455,375.
    2000 Strategic Overview of the Mail Boxes Etc., a simultaneous presentation used in discussions with potential buyers of MBE showing its success, while testimony suggests otherwise.
    But there are certain aspects to Amos’ testimony that must be questioned.

    Jim Amos’ deposition shows that he took confidential company information and passed it on to UPS, such as U.S. Office Products (USOP), then-parent company of MBE, was going to file for bankruptcy. His testimony also shows that USOP had negotiated a deal with Apollo Equity Group and that through insider information that he passed on, UPS was able to return to the bidding game and eventually acquire MBE. Those close to the case argue that in this regard Amos did not protect the interests of MBE franchisees by making sure that UPS in the asset purchase agreement would not force their own agenda on the franchisees in the system.

    And regarding the bonus program, Amos and Herskowitz were only paid if the UPS/MBE deal closed, showing that they were in conflict with the idea of protecting Mail Boxes Etc.

    Amos’ Untold Story of UPS Acquisition

    Amos gives his testimony of how UPS’s purchase came about, stating, “I am the only person, one of a handful of people that really knows the truth, because after these transactions, there is always a lot of revisions [to] history, particularly when things go well.” As background, he said he came on board with MBE in 1996 because the board felt it was time to move former owner/CEO Tony DeSio out. After that, MBE gave Amos a year to complete the transaction of selling the company to U.S. Office Products, and in 1997 it was finalized with a transaction cost at $75 million.

    After a chain of events, detailed in the deposition, Amos and his team were looking for an opportunity to sell the chain through private placement, engaging in management discussions with 18 interested parties. At that time, he said he presented his strategic overview of the Mail Boxes Etc. system. That’s when UPS first engaged MBE. But after all negotiations were whittled down to one company, Amos and his team entered into formal talks with Apollo Equity Group. The MBE parent company reached an agreement with Apollo. Amos, according to his testimony, put a management buyout (MBO) on the table with American Securities for $175 million. When the investment bankers and dealmakers became involved in the acquisition, they would not accept Amos’ offer. Later, they once again started over in the process, bringing the interested parties back to the table, including Apollo Equity and UPS. The bid ended with U.S. Office Products selecting Apollo Equity as the top acquisition prospect. At the end of the day, according to Amos, their offer was somewhere around $220 million. But as negotiations went forward with the successful bidder, Amos said Apollo became brutal in their tactics against USOP and he became concerned.

    As the discussions were continuing with MBE and Apollo, Amos was also stepping into the chairman position of the International Franchise Association during its Las Vegas convention on February 27, 2001. Early in that week Amos said he received a call on behalf of stamps.com, or Stamps (previously doing business as Iship), in which MBE had invested $4 million on their technology to do online shipping. They were negotiating on a new program to benefit the MBE network. The call came from David Mounts who was running mergers and acquisitions for UPS when USOP first engaged them. Amos stated that at that time he and Mounts had become good friends.

    As they were talking, Mounts told Amos that UPS was interested in an acquisition with Stamps, and the two discussed some of the problems MBE was having with that company and how they could resolve them. But then Mounts asked Amos how the “transaction” was going. Amos told him he couldn’t answer that. But when Mounts asked if the pricing structure was anywhere close to what he knew UPS would have offered a year ago, Amos told him it was in the ball park. Amos stated that UPS knew the right price was what he had put on the table with American Securities ($175 million).

    But, according to the transcript, Mounts called back within an hour and told Amos UPS wanted to re-engage. Amos testified that he thought he was talking about Stamps, but Mounts told him no, they wanted to re-engage with MBE. Amos said he felt he had a moral and ethical dilemma—he could say nothing and the deal with Apollo would happen, or he could call somebody and talk to them about it. He said he had no love lost for U.S. Office Products. “I thought they were horrible operators and bleeding us dry,” he said in his testimony. He added, “The worst thing you want to be is the crown jewel in the hat of a bleeding parent.”

    Amos said he sympathized with USOP because of the way Apollo had treated them, but he made the decision not to call them. He said he prayed about it. His final decision was to call the person involved in the transaction with Apollo, who was now co-chairman of Credit Suisse First Boston, and lay it out to him. According to his testimony, Amos stated, “ . . . I need to tell you what just happened, and I’m not going to make this decision, but I think it’s beyond my scope of authority with fiduciary responsibility to you as well as the system not to tell you what just occurred.” Credit Suisse thanked him for the information.

    One person close to the case, who did not wish to be named, said, “The revealing of confidential insider information is inconsistent with the fiduciary duty that Amos owed MBE.”At that time, USOP officials were getting the paperwork done with Apollo to sign the contracts, and they were at such a late date they decided to bring in consultant Michael Seid to work with them on the franchising side. Apollo officials were toasting with champagne because they thought it was a done deal, since MBE had an exclusive with Apollo that they couldn’t talk with anyone else. But in a day or so Amos said he received a call back from Credit Suisse First Boston in New York, which owned 38 percent of USOP, saying they made the decision to disengage from Apollo Equity Group. Amos stated that records now show that USOP had to pay Apollo several million dollars as a break up fee if USOP could get through the process with UPS in order to complete the sale with UPS.

    The Rest of the Story

    But in his deposition, Amos said he wanted to tell one other thing that was salient. He said he also received a call a week or two before the IFA convention from Chase Bank in New York, a banker who knew him, asking, “Jim, do you know what USOP is about to do?” Amos told him he wasn’t sure and asked him what he was talking about. He answered, “Well, I have to tell you off-line because I can’t tell you officially, but I think you need to know that they [USOP] are about ten days away from filing bankruptcy.”

    Amos testified that he immediately called USOP and confronted them with this news. He told them he was leaving on Friday to attend the IFA convention to become its chairman. He knew that he was within a day or so of having a deal cut that would exclude USOP, but “with a company that may be worse.” Amos said the whole breakup process was going on as he went to Las Vegas. On Monday he was named chairman, and on Tuesday he said he spoke on the phone with 200 bankers making a strong case that he’s not a “dip.” He said he had “upstreamed” 80 million bucks, and he hadn’t “taken a dollar from these guys.”

    Wednesday, a year after their first discussions with UPS, MBE re-entered the war room with UPS. They didn’t leave for three days, Amos said. At the end, Jim Kelly, chairman and CEO of UPS, called him saying that they had a deal.

    Amos said the whole deal was made in one week. When people asked him if he thought it was a miracle he told them no, “I know absolutely it is.”

    But Amos also stated in his testimony, “And here is what the franchisees, my good friend[s], don’t understand.” He said he had several options, including the choice to say the heck with it and allow USOP to go into bankruptcy. He said, “I can become a debtor in possession.”

    When the deposing attorney asked Amos if he believed the UPS acquisition was in the best interest of the franchisees, Amos said, “Absolutely 100 percent, no question.” He then asked if he knew during the discussions leading up to the execution of the Asset Purchase Agreement, that UPS was going to require the franchises to convert from MBE to The UPS Store. Amos responded with, “Of course not. How would I know that?” When he asked at what point he knew UPS was going to in fact require the franchisees to convert to The UPS Store, he answered that you can only offer them incentives. You cannot force them or require them to convert, not in the MBE program or any other program.

    When the attorney asked if it was Amos’ understanding that the MBE franchisees had the option of converting to The UPS Store or remaining an MBE until the conclusion of their franchise agreement, Amos stated, “Well, I think that’s exactly what happened.”

    After reading the Amos deposition, one person close to the case, who did not wish to be named, said, “The revealing of confidential insider information is inconsistent with the fiduciary duty that Amos owed MBE. The legal duties that he owed the MBE franchisees is no doubt what will be revealed in the courtroom. They were supposed to protect the franchise agreements and instead, they turned over the franchise to a company that had no interest in maintaining the franchise. And then that company, once they got hold of the franchisor, exercised their authority and power to wipe them out.”

    –

    Related reading:

    UPS Denies Existence of Feasibility Study, Now Unsealed as Evidence
    Court Certifies Nationwide Class Action against UPS on Fraud Claims
    Mail Boxes Etc Franchisees Head to Trial with Crucial Exhibits in Hand
    James H Amos, Franchipedia entry
    Amos to Lead IFA in 2001
    UPS Picks Up Mail Boxes Etc. – Forbes.com
    COMPANY NEWS; U.S. OFFICE PRODUCTS FILES FOR BANKRUPTCY – The New

    Reply
28. David says:

    August 10, 2009 at 7:28 am

    Hello I own a UPS store and these “drop-offs” have greatly diminished my business so much that I will probably sell it within 1-2 years.
    My new tactic will be to go after drop off customers by telling them that I can ship the same box at lower rates than UPS corporate. This may work but will be less than 5 percent of drop off customers may switch. Would be very hard to do this I know.

    My other new policy sure too ANGER MANY PEOPLE will be to charge $2.00 fees for all untapped dropped off packages. Since it takes time and material why not do this. I encourage all UPS store owners to do this ..

    UPS like most big business is extremely crooked and deviant business.

    Reply
29. Ian says:

    August 10, 2009 at 2:02 pm

    I find it amusing that UPS is always delighted to inform store owners of new agreements with companies for their customers to drop-off their returns at UPS stores. Wow, thanks, looks like I’m gonna be earning an extra $5 a day (if that much).

    Charging fees for drop-offs is probably not the way to go. I only work at our UPS store, but I realize that customer relations is big. Most of the time, drop-offs won’t pay for any other services, but in case they do (and whether they do is completely dependent on your ability), you don’t want to drive them away for the sake of $2.

    Reply
30. ritajwilson says:

    August 10, 2009 at 2:10 pm

    I am sorry, but I own 5 businesses and 3 of the 5 businesses have UPS stores within a block of them. We do TONS of mail orders to clients and do you know that I have never been visited once by an Owner or a Manager of a UPS store inviting me in to do business with them. How can a concept succeed without sales calls? These UPS stores have tons of opportunity all around them, and they are so busy blogging and complaining instead of going out and working for new accounts to fund their P and Ls. It really is pathetic. Who says anyone should sit in their store all day and wait for customers to come to them? Get out with flyers, do some direct mail, go call on accounts. WORK!

    Reply
31. Ian says:

    August 10, 2009 at 2:27 pm

    I find it amusing that UPS is always delighted to inform store owners of new agreements with companies for their customers to drop-off their returns at UPS stores. Wow, thanks, looks like I’m gonna be earning an extra $5 a day (if that much).

    Charging fees for drop-offs is probably not the way to go. I only work at our UPS store, but I realize that customer relations is big. Most of the time, drop-offs won’t pay for any other services, but in case they do (and whether they do is completely dependent on your ability), you don’t want to drive them away for the sake of $2.

    Reply

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