Complaint Review: Mail Box Etc. - Nationwide

Mail Box Etc. rip-off franchisees

.... Sweet Deal Between USPS and Mail Boxes Etc.

Not So Sweet for Some Store Owners

Mail Boxes Etc. (MBE) franchised store operators began to receive their U.S. Postal Service Authorized Retail Outlet contract packages from the Postal Service this week. After reading the fine print, several of the operators don't view the controversial deal as being quite as favorable as once thought.

One MBE store owner, requesting anonymity said, There is no way I'm signing this deal, all it does is line the MBE corporate pockets and leaves us store owners out in the cold. The source went on to say The original pilot program was a pretty good deal for store owners, but this one leaves a lot to be desired.

In August of 1998 the Postal Service and Mail Boxes Etc. (MBE), the largest franchiser of mail and parcel centers entered into a highly controversial agreement which would eventually make all of the approximately 3,000 plus franchised locations of the San Diego company, U.S. Postal Service Authorized Retail Outlets.

A pilot program including 250 locations in eleven major markets began over a year ago. The pilot program allowed store operators to receive postage and other postal products directly from the Postal Service on a consignment basis and provided them a 5% - 20% incentive [discount] when replenishing their stock. Supplying postage on consignment is a common USPS inducement to get postage resellers such as supermarkets to sell postage at cost.

Under the new arrangement store owners would have to purchase postal products online from the franchiser's partner / vendor presumably Stamps.Com, not directly from the Postal Service. The agreement between the Postal Service and store owner requires that the store must use [MBE's proprietary POS/VSAT] digital network to transact all sales of postal goods and services.

Under the new agreement the Postal Service will pay all incentives [discounts] due individual stores to MBE Corporate, theoretically these incentives will flow back to the store operators some 30 to 60 days later. Sources contend that the terms of the pilot program allowed the store owner to enjoy positive cash flow, now this new deal gives corporate the entire float.

Independent competitors of MBE have charged that the deal gives MBE stores an unfair advantage. These independent storeowners find it curious that MBE's once very active opposition to the controversial CMRA regulations enacted a year ago evaporated once the deal was announced. In March of 1999 the Postal Service enacted rules governing roughly the 10,000 mail and parcel centers the Service refers to as Commercial Mail Receiving Agencies or CMRAs. A year later these rules remain a source of much consternation within the industry and on Capitol Hill, sparking congressional hearings and legislation to overturn the rules.

Postmaster General William Hederson made an unprecedented appearance at MBE National Franchise Meeting in August of 1999 and proclaimed that the pilot program would be expanded and rolled-out to all 3,000 stores. During this same meeting, MBE introduced an entirely new decor package and store theme dubbed MBE 2000. Since the meeting store owners report MBE has been executing a strategy called Rolling Thunder to convince and pressure store owners into coughing up the $50,000 to $100,000 necessary to upgrade to the dcor package and spend $175 monthly to lease the company's POS/VSAT private digital

network.

John Boyd, a Maryland MBE storeowner, was shocked and enraged to

learn that MBE would prevent him from selling his store unless he upgraded the dcor and bought into the VSAT program. He was so enraged that he formed the Independent Association of Mailbox Center Owners, Inc. (IAMCO) to oppose the demands of the franchise.

The group boasts a growing membership of more than five hundred MBE owners. Boyd said, I don't appreciate MBE levying what

amounts to a 40% - 50% Exit Tax on the sale of my store. I've worked hard for (11) years building my business and I'll be darned if I'm going just turn over $75,000 of the sale proceeds because they say so. Michael Einbinder, counsel for the organization stated, The impetus behind the formation of IAMCO was a series of recent radical changes to the system announced by MBE. Organization officials indicate they will soon launch the group's website at http://www.iamco.org.

Boyd said, Ever since they [MBE] purchased 17% of iShip.Com last May they have been pushing franchises to route their shipping manifests though iShip, paying a ten-cent per item fee on all shipments including USPS parcels.

Several store owners expressed concern over using the iShip

manifesting system because it would allow MBE / iShip to capture the name, address and phone number for both the sender and recipient of every item they ship. The operator's fear MBE or iShip will go around them and deal directly with their customers or sell the sender-recipient database to direct marketers. Another unnamed store owner concerned for his customers privacy said, Wait til people find out that their unlisted phone number is being sold because someone they know sent them a package from a MBE store. We won't be able to give our services away!

It was announced earlier this month that Stamps.Com will purchase

iShip.Com. Stamps.Com is the leading internet postage partner

licensed by Postal Service and has former Postmaster General Marvin Runyon on its' Board of Directors and former USPS chief marketing officer Loren Smith serving as its president and chief operating officer.

MBE is wholly owned by US Office Products (NASDAQ: OFIS). US Office announced earlier this month that investment-banking firm of Credit Suisse First Boston had been retained and possible transactions under consideration include an initial public offering of MBE stock.

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