The six-year feud between UPS and the franchisees of its Mail Boxes Etc. retail subsidiary will come to a head in a Los Angeles court Aug. 3.
The trial, which is expected to last five days, follows Los Angeles Superior Court Judge William F. Highberger's ruling last month granting more than 3,500 Mail Boxes Etc. franchisees class-action status in the suit.
Two key things are at issue: The first involves the 175 franchisees who did not convert their Mail Boxes Etc. stores to UPS Stores after the shipping giant's $190 million purchase of Mail Boxes Etc. in 2001.
UPS didn't require franchisees to convert to the UPS Store nameplate immediately. But when franchise agreements expired, conversion was mandatory as a condition for renewal.
The plaintiffs —- including a Fairburn man who owned a now-closed Mail Boxes Etc. store on Briarcliff Road —- argue that rebranding the stores destroyed the business model since the customer base was built on the Mail Boxes brand name. Those core 175 franchisees are seeking an average $1 million in damages per store, plus punitive damages and attorney fees.
The second issue concerns a claim by plaintiffs that UPS failed to supply them with key information about converting to the UPS Store brand. In particular, they highlight a 2006 study Boston Consulting Group did for UPS examining the profitability of the stores. Though that study identified several strategies for increasing the stores' profitability, it also highlighted problems, such as per-store revenue, slowing new customer growth and the reliance on shipping alone to increase sales.
UPS, which undertook the rebranding initiative in 2003 under a program dubbed "Gold Shield," says it was looking at ways to increase revenue at both the converted stores and the ones that remained under the Mail Boxes Etc. brand.
"Our position is that the Gold Shield program in no way violated the terms of the agreement and when we look at the performance of the network since 2003, it validates that decision," said Rich Hallabrin, a UPS spokesman.
As for the study, he said only a portion of it was made public in earlier court hearings and the intent behind hiring a consultant was to look for opportunities to increase stores' profitability.
"That report goes back several years and that report cannot be taken in isolation," he said. "When we brought Boston Consulting Group in 2005 it was to help us get a handle on the things that we were going to have to do. We said, 'What's the information we need to know to help us continue the momentum since the rebranding in 2003?' "
He said the stores' profitability has increased since the acquisition and rebranding, but declined to say by how much. He did say the controversy has not stemmed interest in potential franchisees, citing the 47 stores that have opened in Georgia alone since the rebranding, including two so far this year, with three more slated by December.
UPS has a total of 4,800 retail outlets in the United States and Canada. Of those, 104 still operate as Mail Boxes Etc.
As for the plaintiffs' claim that UPS didn't do enough to market those outlets that remained Mail Boxes Etc., Hallabrin said: "We are contractually obligated to provide support to Mail Boxes Etc. centers and we continue to do so."
Those efforts include giving them quarterly marketing kits.
"Some centers refuse these shipments and send them back to us unopened, while others admit to throwing them away without looking at the contents," Hallabrin said.
Boniface Thomas, who bought a Mail Boxes Etc. franchise on Briarcliff Road in 1998 and ran it until closing it 2004, said the marketing efforts were weak and led to confusion.
"They were marketing pretty much against us," said Thomas. The emphasis on the stores that were branded UPS puzzled customers who were unaware the two brands were in the same shipping network and not competitors, the Fairburn resident said.
"People weren't coming in, our volume was down and a lot of people were confused about what we were," Thomas said. "We were not getting the kind of support from corporate that we were supposed to be getting."
