What began in 1980 as a convenient alternative to the post office, where people could ship packages and make copies, has grown into a multibillion-dollar network of more than 5,000 stores that offer a range of products and services including packing, shipping, printing, office supplies and passport photos.
Global shipping giant United Parcel Service Inc. purchased San Diego-based Mail Boxes Etc. in 2001, and rebranded some 3,000 stores in 2003 as The UPS Store, a wholly owned subsidiary of UPS. The chain now includes some 4,800 stores in all 50 states, including 70 in San Diego County, and about 350 stores in Canada. The UPS Store’s corporate headquarters is in San Diego’s Sorrento Mesa neighborhood.
Under The UPS Store’s business model, all of its locations are franchises, meaning they are owned by independent entrepreneurs, rather than by the company. That sets the company apart from its competitors, such as the U.S. Postal Service, FedEx and big box stores, said Tim Davis, president of The UPS Store.
“They put their heart and soul into these businesses,” said Davis of the franchisees. “(They’re) far more willing to go above and beyond in how they serve customers.”
A Family of Franchisees
One of those owners is Burke Jones, who bought a Mail Boxes Etc. store in 1996 with his parents, after his mother had purchased her own franchise location. The younger Jones stayed with the business through the transition to The UPS Store, and he has owned seven stores over the years. Today, he operates two UPS Store franchises, in the Midway District and Pacific Beach.
“The brand is super strong,” said Jones, which translates into steady business for his stores. When he recently launched a “new build” store, “on Day One, I had customers.”
The UPS Store’s corporate office supports the franchisees by landing contracts with national firms such as Apple, Amazon and AT&T, which drive customers into the stores to return items with prepaid shipping labels, said Jones. The company also backstops its franchisees in such areas as cybersecurity and employee training.
“There’s a whole infrastructure behind us I would never be able to hold together ... as an independent operator,” Jones said.
On the con side, said Jones, the cost of a UPS Store franchise is greater than a less-established brand, and existing stores command a higher sales price. Currently, he said, there are no stores for sale in San Diego, which he attributes to how well the stores are doing.
More Than $2B in Revenue
The estimated startup cost for a standalone UPS Store franchise ranges from $161,657 to $470,031, according the company’s Franchise Disclosure Document. This includes an initial franchise fee, site rent and security deposit, leasehold improvements, equipment and supplies. By comparison, a McDonald’s franchise requires an investment of $1.1 million to $2.2 million, and a Dunkin’ Donuts franchise has up-front costs of $229,000 to $1.7 million, according to Entrepreneur Magazine’s 2019 Franchise 500 ranking.
UPS Store franchisees must pay monthly royalty fees equal to 5 percent of gross sales and commissions, less exclusions, as well as a 1 percent marketing fee and a 2.5 percent national advertising fee, according to the Franchise Disclosure Document.
The document states that for 2018, the average adjusted gross sales for all centers was $494,418. The average gross sales for the top 10 percent of centers was $876,809, and the average gross sales for the bottom 10 percent of centers was $239,092.
Davis said annual revenue for the entire UPS Store network is more than $2 billion. (UPS, the parent company, reported revenue of $72 billion for 2018.)
A Better Batting Average
Using a franchise model can benefit companies because it takes less capital to increase the number of stores in the network, said Nikhil Varaiya, a professor of finance at San Diego State University’s Fowler College of Business. And the franchisees get the benefit of the parent company’s marketing and purchasing clout, potentially saving on the costs of supplies and ingredients for their products.
In addition, he said, “the success rate for franchisees is very high.” He cited a study conducted a number of years ago by the U.S. Department of Commerce, which found that after one year, 97 percent of franchise startups were still in business, compared to 62 percent for independent businesses. After five years, the study found, 92 percent of franchises were still in business, compared to 23 percent of independent businesses.
Frank Caperino, who teaches a course on franchise management at SDSU and has extensive experience in both owning and selling franchise businesses, said the franchise model offers three major advantages: brand recognition for customers, the ability of franchise owners to command higher sales prices for their businesses, and a preference by the U.S. Small Business Administration to provide loans to franchise businesses.
On the downside, he said, when franchise networks are put up for sale, they are often purchased by private equity firms that want the steady revenue provided by franchisee royalty payments. Those owners are often less interested in building the business and developing new products and services than the original founders of the franchise companies, Caperino said.