About Us

The Platinum Shield Association was founded in Chicago in 2003 by Mail Boxes Etc. franchisees who had rejected UPS' Gold Shield program for the conversion of MBE franchises to the competing UPS Store busines model.

PSA is headquartered in Malibu, CA.

The litigation against UPS/MBE was initiated in 2003 and is in the California Superior Court.




SEPTEMBER 2008


Background


Analysis and Opinion: The UPS conversion of Mail Boxes Etc. to The UPS Store

Mail Boxes Etc. was the largest and most successful non-food franchise in the United States and had a twenty year successful track record of sustained growth. It was a publicly held company that was eventually purchased by US Office Products.

The MBE business model was predicated on service and convenience comparable to a hotel concierge for which customers would pay premium prices for shipping and mailbox rental. Franchisees set their own prices and profit margins to reflect local economic conditions.

Prior to the MBE purchase by US Office Products (USOP) United Parcel Service held approximately a 17% share of MBE stock and had a full time employee posted permanently stationed at MBE headquarters. This posting continued after the USOP purchase.

In 1999 UPS opened test retail stores branded “The UPS Store”. It was never rolled out nationally. It is common belief that UPS was concerned about unionization and the financial and logistical cost to expand a retail network nationally.

In 1999 MBE launched a new design for its franchise stores called “MBE 2000.” It had design elements that were very “brown” compatible.

In proximity to the millennium Federal Express and DHL/Airborne Express launched ground delivery service in the United States. Thus, UPS encountered its first serious competitive threat in the shipping of ground packages. As a multi carrier network MBE franchisees were ideally situated to provide Fed Ex and DHL with access to 3000 retail shipping outlets that shipped mostly ground products for their retail customer.

In 2001 UPS purchased Mail Boxes Etc. which was the most valuable asset of the bankrupt US Office Products. There were approximately 3000 MBE franchises in the United States. UPS informed the MBE franchisees that there would not be changes to the franchise system.

Subsequent to its purchase of Mail Boxes Etc. UPS purchased iShip the company that provides the shipping manifest software to franchisees. As a result UPS controls which of its competitors has access to its franchisees.

In 2002 UPS/MBE started making statements to the franchisees that the MBE business model was broken. They cited anecdotal studies that purported to show that this was as a result of the high retail prices charged by franchisees.

UPS began testing the UPS Gold Shield program which was their in house marketing program to convince franchisees to voluntarily agree to the UPS Store conversion scheme. Under this program franchisees would charge dramatically lower UPS national retail prices for shipping packages via UPS. Based on the “success” of this test they tested this new lower pricing along with a choice of three brand names for the franchise network: “The UPS Store”, “Mail Boxes Etc a UPS Store” and “Mail Boxes Etc.” Oddly enough, the UPS Store brand was the most “successful.”

The cities utilized for these tests were: San Antonio, TX, Phoenix, AZ, Charlotte, NC, Seattle, WA, St. Louis, MO. and Harrisburg, PA. UPS/MBE did not adequately reveal to franchisees how these cities were reflective or predictive for the national MBE franchise network. UPS announces that results of Gold Shield testing reveal that business and profitability has increased as a result of lowering prices for shipping and announces that UPS Store brand is most profitable in brand tests. UPS/MBE refuses to share test results with franchisees. Profitability data is from unaudited self-reporting of profitability by franchisees. When asked for the full results of the tests UPS/MBE only agree to disclose 25% and stated that this was sufficient information for franchisees to “volunteer” to convert to the UPS business model because the test showed it would be more profitable for the franchisee. It has been subsequently reported that within that 25% only a portion of the of the test stores self reported on profitability. At the 2007 UPS annual shareholders meeting UPS CEO Mike Eskew stated to PSA Board Member Joe Wightman that franchisee self reporting of profitability is not reliable.

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In 2002 UPS/MBE launched the Gold Shield conversion program. They utilized classic “boiler room” tactics to frighten the MBE franchisees into “voluntarily” converting. (Note: The point man on this project was Rocky Romanella a Senior UPS VP. He is a named defendant in the PSA case.)

Their tactics included the following:

Informing MBE franchisees that the MBE business model is broken and could not be fixed. They provided no data to support this.

That under UPS Gold Shield franchisee profitability is paramount.

UPS stated that even as a UPS Store the franchise network would have a multi carrier shipping platform i.e.: Fed Ex and DHL.

If MBE franchisees did not convert they would be owners of a dying brand because by 2007 there would be 5,000 UPS Store franchises.

That despite language to the contrary in their franchise agreement MBE franchisees would not be allowed to sell or renew as an MBE thus loosing all brand equity and good will in their franchise.

If an MBE franchisee agreed to convert within the UPS imposed deadline UPS would pick up all signage costs related to re branding. They estimated that the costs could be close to $12,000. Thus, if a franchisee wanted to wait to see if the program worked they would be faced with a very significant expense.

UPS withheld the five page amendment to the MBE franchisee agreement, until the franchisees were leaving the meeting. It was never discussed at the meetings. They never identified which specific sections of the franchise agreement were being modified by the amendment. It is contended in the litigation that the failure to issue a new Franchise Offering Circular and Agreement is a violation of California law.

Under this agreement UPS sets retail prices, profit margin and imposes national retail pricing on the franchise system. If a franchisee does not offer the customer the “UPS Solution” it is a material breach of their franchise agreement. After two such breaches MBE and its parent company UPS can terminate the franchise. Franchisees are mandated to buy all supplies from UPS approved vendors even if local vendors charge less.


At the time of the conversion there were approximately 3400 MBE franchises. In April 2003 approximately 3000 of the 3400 MBE franchisees converted to the UPS Store brand. Those who rejected it had read the five page amendment and determined that there was no profitability in the UPSS for the franchisee.

In April of 2003 approximately 150 MBE franchisees that rejected the UPS Store conversion formed the Platinum Shield Association and sued UPS and Mail Boxes Etc. Part of the court complaint is a class action on behalf of the stores that did become UPS Stores alleging violation of a California franchise statute and common law fraud.


Failure Of Disclose by UPS

In the November/December 2005 issue of the Franchise Times reporter Janet Sparks revealed that in May of 2005 the UPSS Franchisee Advisory Council met with UPS management and then informed its members “that corporate still does not have a picture of the precarious financial state of the franchise network.” The same article also states that FAC chairman Bill Anderson told UPS management that “the current business model doesn’t generate enough profit in the first three years of business.”

On July 21, 2005 UPS had a conference call with Wall Street analysts. The Call Street transcript transcribed the Q/A between John Langenfeld of Robert Baird Inc. and Scott Davis CFO of UPS. When asked by Mr. Langenfeld: “we’ve been hearing some noise from, you know…from the franchisees not being able to make it based on the changing business mix that they are receiving …and how are you addressing that?” Mr. Davis responded: “…our network is doing very well…overall the network is doing fine.”

At the UPS annual meeting in May of 2006 Mike Eskew and Scott Davis were asked what percentage of the UPS stores were profitable. They responded that they did not know. They were also asked why the litigation by their franchisees was not in their SEC filings. Eskew and Davis responded that they only list litigation based on materiality and probability of success and that the current franchisee litigation did not meet that criteria. However, they chose to not mention that in April of 2005 they were legally required to disclose in the MBE/UPS Store Franchise Offering Circular that they lost the arbitration to NOHO Enterprises and settled with the prevailing franchisee by buying his store for $5,000,000 which was approximately ten times the historic resale value of such a franchise. Since there are approximately one hundred fifty plaintiffs litigating against UPS and their litigation complaints are similar to that of NOHO it could be prudent to speculate that they may have material exposure.

In May of 2006 The Wall Street Journal confirmed that there are significant complaints from franchisees that the UPSS system is unprofitable for the franchisee. UPS Store President Stuart Mathis indicated to the reporter that “the company is pushing document services” thus acknowledging that a franchise named after United Parcel Service is not profitable in the Parcel business.

UPS told MBE franchisees in 2003 that there would be 5,000 UPS Stores in the network by 2007. Since then UPS has been artfully vague about the number of franchises in the network. However, in August of 2006 in an interview with Start Up Nation UPS Store President Stuart Mathis stated that there are 3800 franchises in the network. Thus, after three and a half years and after deleting approximately 200 remaining MBE there are only 3600 UPS Stores which is a net gain of 200 stores since the forced conversion of 3400 MBE in 2003. Traditionally, one MBE opened each day for an approximate growth of 365 MBE per year. Even UPS was not able to open 1400 stores by January 2007. In the 2007 UPS Store Franchise Offering Circular they report that there was only a net gain of 29 stores between 2005 and 2006. There is speculation that for the first time in the history of the network more UPS Stores are closing than are opening.



Other litigation by MBE and UPS Stores owners are currently pending.