UPS Store owners are angry – Franchisees file a complaint, saying the business model keeps them in the red

More than 200 owners of UPS Stores across the country have filed a complaint against UPS and its franchiser, Mail Boxes Etc.

The franchise owners said in a filing in U.S. District Court in Los Angeles that they haven't been able to make money because UPS undermined them by using the branded stores as drop-off points for prepaid packages and forcing the owners to focus on providing document and printing services.

"For a large group of us, it has been very difficult to make this work," said Larry Bowdoin, the Alabama-based president of the Brown Shield Association, a group of UPS Store franchise owners. "Who would've thought that UPS would've created this franchise and wanted to see it do anything except succeed?"

The complaint, filed in April, claims the business model of the UPS Stores has been disastrous to franchisees' bottom lines.

UPS bought Mail Boxes Etc. in 2001, and many franchises converted to UPS Stores about two years later.

The UPS Web site permits customers to print out their own shipping labels and pay online for delivery. Then they can drop the packages — for free — at a UPS Store.

Those formerly profitable customers no longer paid the stores directly for shipping, so the stores depended on payments from UPS for those packages, a development the franchisees in the suit said has "drastically reduced" the stores' profitability. "The margins . . . do not provide for a level of gross profit necessary to sustain the businesses and make them profitable . . . franchisees received only USD 0.65 per drop-off package while previously they had received as much as USD 5.00 and USD 6.00 and up for handling a typical package," the complaint reads.

Until June 2006, Chuck Wilson's Winter Park location was one of more than 40 UPS Stores in Central Florida.

He had bought into the UPS Store franchisee program using his retirement cash and moved from Maryland to open the store.

But he said he soon realized his dreams of franchise success wouldn't become reality.

"I never made any money at all the whole time I was there," he said. "We were getting so desperate for ways to make money."

After losing "nearly everything," Wilson has taken a job with an electric company and lives, he said, in a trailer park in Clearwater.

"We're so counting on this lawsuit, to somehow recoup all the money we've lost in this whole thing," he said.

Whatever the result, it probably won't come quickly.

It can take months, and sometimes years, for a complaint to be certified as a class-action suit, and for the lawsuits to be resolved.

Ellis Abide, who had a UPS Store in Orlando's College Park area for more than three years, says he also became disenchanted with his investment.

"That wasn't clearly stated, that I would be a glorified drop box," Abide said.

As they began to realize they were losing money on shipping, the franchise owners say they were disappointed and upset.

"There was no way I could make a profit to pay for anything else," Wilson said.

A separate complaint filed May 2 in U.S. District Court in San Francisco accuses UPS of overbilling its franchise owners for shipping rates.

"Once you get in the store, you realize UPS is charging you more than everybody else," said Wilson, who said it wasn't uncommon for customers to balk at — and walk away from — the prices he offered.

But when the franchise owners started to complain, they said UPS had an answer for them.

"They'd say, `You have to get your profit centers going,' " Wilson said. Owners said they were encouraged to rely on their copy machines and document and printing services to boost revenues, but said consumers see "UPS" in the stores' names and associate them with shipping, not document work.

Mail Boxes Etc. continues to tout document services as a revenue source that hasn't been completely explored.

"There is still tremendous opportunity for our franchisees to grow that part of their business. UPS and Mail Boxes Etc. are committed to the success of each and every one of our franchisees. It's in their best interest and our best interest," said Rich Hallabrin, a spokesman for Mail Boxes Etc.

The former franchise owners aren't so sure that document services can make up their losses.

"You'd have to make it over into a FedEx Kinko's" or another company that consumers already associate with that service, Wilson said.

The UPS Store franchise owners say they are just hoping to get back some of the money from their initial investments — which for some was more than USD 150,000.

"What I was told and what I was sold were two different things," Abide said.