PMD Furniture Direct to switch to franchising
Expects to attract more well-capitalized prospects
Clint Engel -- Furniture Today, February 9, 2009
COLUMBUS, Ohio — PMD Furniture Direct, which says it saw a healthy same-store sales gain last year but has not added new dealers as fast as it has lost others, will convert to a franchising operation early this year.
The conversion isn't expected to cost PMD dealers more money, but is intended to position the company to seek prospects that typically have greater access to capital.
Jeff Hosking, president and CEO of the 90-store chain of primarily licensed stores, said some dealers that have been with the Top 100 company for six years or more had their best year ever in 2008. But with financial markets in turmoil, PMD's total network sales are down because it hasn't been able to replace the 20% to 25% of dealers it loses annually to attrition.
"It takes $50,000 to $100,000 (plus a $35,000 licensing fee that can be financed) for someone to start with us, and they don't have the access to capital they had five or six years ago," he said.
But Hosking believes the conversion to franchising will improve PMD's recruiting efforts. People burned out on corporate jobs regularly look at franchise opportunities and as a as a franchisor, PMD will advertise where these people are looking.
Until now the company was largely advertising for territory managers/owners in the help wanted sections of newspapers and online.
"The difference is we're going to be fishing in a much bigger pond, where franchisees expect to outlay that kind of money (required for a startup)," he said.
Hosking added that PMD should stand out as a lucrative option when it joins the ranks of franchisors. He contended that franchisees of a national sub sandwich company have to invest $300,000 to $400,000 and make less than $100,000 in annual net profit, citing a PMD attorney who previously worked with the chain.
Some of PMD's current licensees, including startups, do much better. He said the company's top rookie last year was a Pacific Northwest dealer who made $269,000 net profit on an initial investment between $50,000 and $100,000.
Hosking said existing licensees will be grandfathered in at no extra cost and that under the agreement that's in development, there will be no sales royalties paid to PMD. The franchising fee for new dealers will be $50,000.
The plan was introduced at a PMD dealer meeting in January and the initial response was positive, Hosking said.
Part of the reason for that might be the additional legal disclosures required of franchisors vs. licensors, and the additional rights of franchisees. Among them: As licensees, PMD dealers don't have the right to sell their business. As franchisees, they can.
"Now they have an exit strategy," Hosking said.
He said he's not concerned about the disclosure requirements. "We're an open book. We're a transparent business," he said.
Hosking said he hopes to have the conversion completed within 60 days.
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