UPS Store operators say parent squeezing margins

Organized as the Brown Board Owners Association Inc. of Atlanta, the group has complained about what it says are nominal drop-off rates, as well as UPS's cheaper online shipping rates and UPS offering package pickup for small businesses.

Columbus Business First
September 9, 2005

UPS Store operators say parent squeezing margins
Kathy Showalter

Joe Forsythe loves QVC Inc., not for what he can buy from it, but for what QVC shoppers return.

When customers decide they won't keep what they bought at QVC, they return it via a UPS Store like the one Forsythe runs in Grove City, paying postage based on the package's size and weight.

That's not how some other catalog retailers handle returns. Those merchants, such as Victoria's Secret and Lane Bryant, provide postage stickers with each catalog purchase so an item can be returned at the retailer's expense. But the postage rate those retailers pay is often based on volume and negotiated with UPS Inc.

That means franchisees like Forsythe get a flat rate for handling each package.

And that makes a bottom line difference at Forsythe's UPS store, which is one of 1,500 in UPS's Mail Boxes Etc. subsidiary. Since UPS acquired Mail Boxes Etc. in 2001, franchise owners say they've seen their business pick up but their margins go down.

"Profitability is decreasing," Forsythe said, "but I'm seeing more volume. I'm shipping twice the volume I shipped before we were purchased."

What's changed is UPS's pursuit of clients, franchisees say. The parent company is targeting large corporations with deals to get their business, often pitching prepaid services as a convenience for catalogers' customers.

"I understand that," Forsythe said, "but I'm a middle man definitely being cut out."

Forsythe declined to disclose his shop's annual sales, but he said sales grew 20 percent to 30 percent in each of his first seven years in business. Since UPS acquired Mail Boxes four years ago, his sales have been flat or declined.

"We've screamed about it ever since we became a UPS Store," he said.

But a spokeswoman for UPS in Atlanta said these "authorized service return customers" are new customers for UPS and new revenue streams for its franchisees.

"It's increased opportunity," Brandyn Jennings said. "If these customers weren't getting return labels to UPS Stores, you can bet they'd be getting a label from our competition and going somewhere else."

Jennings said UPS encourages franchisees to build relationships with these new customers to encourage more spending per visit.

Parcel drop-offs at UPS Stores or FedEx Kinko's spots are a booming business, partly due to the rise in Internet retailing, said Colography Group, an Atlanta research firm.

More than 14 percent of U.S. ground parcel shipments and 13.7 percent of U.S. domestic air shipments last year were dropped off to retailer outlets, rather than picked up by company trucks, Colography reports.

Central Ohio UPS Store franchisees can attest to that rise.

"So many stores have seen a radical increase in drop-offs," said Jack Jeneen, owner of the Bexley UPS Store, "but we just get a nominal payment."

Jennings said UPS has no interest in competing with its franchisees.

"Our bottom line is this: If the stores aren't profitable and successful, then the franchisor is not going to be successful," she said. "(But) when UPS is making its strategic plans, they can't be limited to the UPS Store."

Consequently, complaints are getting louder.

Jeneen referred to a group of franchisee activists who have taken their complaints to UPS. Organized as the Brown Board Owners Association Inc. of Atlanta, the group has complained about what it says are nominal drop-off rates, as well as UPS's cheaper online shipping rates and UPS offering package pickup for small businesses.

"There's a strong sentiment out there that we're not quite getting our fair share," Jeneen said. "Every franchisee has a territory, but they're shrinking those to put more stores in."


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