Grand & Toy mediation strikes out

Les Stewart, president of the Canadian Alliance of Franchise Operators, says the stores have increased sales by 88% over the last eight years, despite the increasing market share of rival home office outfitter Staples/Business Depot, which has about 190 Canadian stores.

The Financial Post
November 5, 2001

Grand & Toy mediation strikes out
23 franchisees suing retailer over move to take back stores
Hollie Shaw

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A mediation session has failed to quell a dispute between Grand & Toy Ltd. and a group of its franchisees who are suing the office supply retailer for up to $29-million in damages.

Grand & Toy, which has 75 stores across Canada and an extensive direct-to-office business, informed the franchisees in June that their franchise agreements would not be renewed. The retailer offered no compensation to the owner-operators, and said it would take back the stores at the end of December.

The 23 franchisees, all in Ontario, believe Grand & Toy's actions contravene parts of the province's franchise law, and argue they had been assured of a long-term relationship with the company.

In a July 25 statement of claim, the franchisees allege that their most recent contract, signed in 1998, was oppressive and saddled them with unfair fee increases; that Grand & Toy appropriated the franchisees' commercial accounts, reducing potential profitability of the stores; and that Grand & Toy required franchisees to pay for store improvements at largely their own cost.

The franchisees want $24-million in damages from Grand & Toy for alleged breach of duty, breach of contract, negligence, and breach of fiduciary duty, and an additional $5-million in punitive damages. Alternatively, they are seeking $12-million in damages for wrongful dismissal, plus the $5-million.

A mediation session two weeks ago failed to yield results. Grand & Toy has yet to file a statement of defence in the civil case, but in a Dec. 6 motion will request further details in the plaintiff's statement of claim.

The franchisees' lawyer, Evert Van Woudenberg, argues the franchisees enhanced the retailer's brand by increasing sales.

"They need to pay fair compensation for the value of the businesses," Mr. Van Woudenberg said in an interview.

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Les Stewart, president of the Canadian Alliance of Franchise Operators, says the stores have increased sales by 88% over the last eight years, despite the increasing market share of rival home office outfitter Staples/Business Depot, which has about 190 Canadian stores.

Grand & Toy argues it is under no legal obligation to renew the franchise contracts or pay compensation.

Ontario's new franchise law, which came into effect last January, says both parties must treat each other in good faith and in a "commercially reasonable" manner.

When Grand & Toy's corporate stores were struggling in the early 1990s, company officials approached store managers with offers to take over the businesses as franchises.

"This isn't a franchise as you or the public would believe it is," said Brian Ward, Grand and Toy's vice-president of retail. "This is a licence agreement that called for very little investment on the part of the licensee. Grand & Toy has put all of the investment into these businesses. The licensees bought all of the inventory, but we're buying it all back."

The owner-operators did not put any money into store improvements, he said.

Running corporate and franchise divisions had become costly for Grand & Toy, Mr. Ward said, and "the business model no longer worked. As our company becomes proportionately more focused on the [direct to office] contract business, the licensed environment becomes challenging."

Just 20% of Grand & Toy's yearly revenues come from its retail division. Management wants to open more corporate stores across Canada this year, Mr. Ward said.

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