Brown out

When Chuck and Blair Herman decided to move to Chico and start a business 14 years ago, they did a lot of research. They knew they wanted a franchise, because it would come with a proven business model and corporate support. After considering several possibilities, they decided on Mail Boxes Etc., starting up the first MBE franchise in Chico.

They enjoyed it.

Then, in 2001, MBE was bought out by United Parcel Service. The shipping giant hoped to eventually convert 3,500 stores to bear the Brown icon.

Last March, the Hermans were told to report to a meeting in Sacramento about the future of the company. UPS was starting a new program, called Gold Shield, and franchisees who signed up right away would benefit from new signs, marketing and other perks. UPS told them that converting would make the franchisees more money, but the Hermans were skeptical about the numbers generated from studies that “compared apples to oranges.”

They decided to wait it out.

“They only gave us three or four weeks to think about it, and we had no hard numbers,” Herman said. “We were surprised by how many people decided to go with the program.”

A year later, they’re still in wait-and-see mode. They’ve become parties to a lawsuit filed by an alliance of current and former MBE franchisees, dubbed the Platinum Shield Association, alleging that UPS pressured them to switch, didn’t disclose all the relevant information and violated franchise law. Even some of the franchisees who converted to UPS Stores are joining in the suit, feeling misled, saying the Gold Shield rules cut into profit margins.

Brandyn Jennings, spokesperson for the UPS Store and Mail Boxes Etc., said the company believes the lawsuit is without merit and the Gold Shield program was intended to help, not hurt, franchisees.

There are now 3,200 UPS Stores and fewer than 400 MBEs in the United States, she said, as 90 percent of franchisees chose to switch over.

The Hermans’ contract with MBE must be honored through 2010, at which time they can choose to convert to a UPS Store or sell. The Hermans have thought about taking either of those options sooner, but they like the business and their customers and don’t relish the idea of starting over, alone. If they did decide to go independent in five years, UPS would have first dibs on their space in the Park Plaza Shopping Center on Mangrove Avenue, and could enforce a noncompete clause against the Hermans.

At the top of the Hermans’ list of complaints is this: The remaining MBEs are still shelling out 8 percent of their gross sales in franchise fees, but they’re no longer getting the corporate support, such as advertising buys and negotiated deals with vendors. The UPS Store is what’s advertised now. In fact, Chuck Herman said, “I feel like they’re advertising against us.”

“We’re doing a little bit worse [profitwise] than we used to, but I think that’s because we’re not getting any advertising,” he said.

The two UPS Stores in town are owned by Chico City Councilman Larry Wahl (who said he hadn’t heard about the lawsuit), and back when they were MBEs, the owners used to get together and buy a Yellow Pages ad.

Jennings said, “Our national marketing efforts have always come from a pool of money.” Since there are now fewer franchisees paying into the MBE pool, the committee of store owners that decides how to use it has less money to spend.

Also, the stores are now limited in the choices they can offer customers. As quickly as the UPS signs went up, Fed Ex backed off, refusing to continue its profit-sharing business arrangement with stores bearing the rival Brown. The stores can still ship Fed Ex, which recently purchased Kinko’s, the copy center chain, as a way to enter the market.

Under the Gold Shield plan, UPS Stores are supposed to offer UPS before any other shipping options.

Jennings acknowledged that UPS sends “mystery shoppers” to make sure stores push the UPS shipping option. “It’s certainly encouraged,” she said, but not forced upon the customer.

“We ship whatever the customer wants,” Herman said, “whatever best suits the package that they’re sending on. We’re in business to give choices and to give the customer convenience and service.”

Also, he disagrees with UPS’ arguments for capping the prices UPS Store franchisees can charge. The company said it was to protect consumers, but Herman said, “In the 14 years we’re been in business, UPS has raised its costs to us every year.”

Jennings said that even though franchisees are making less money per item shipped UPS, the daily volume has doubled since the program was instituted.

Ironically, Blair Herman worked for UPS two decades ago.

“We didn’t open this business to become a UPS employee [again],” Chuck Herman said.

Even though he’s not happy with the new boss, Herman said, "I’m still pro-franchise, because they have proven business concepts."