Explanation

The UPS Store, Inc. (TUPSS) is an indirect, wholly-owned subsidiary of United Parcel Service, Inc. (UPS), a large, publicly-traded, and financially stable corporation. The audited financial statements in Exhibit 6 show TUPSS is profitable with a strong balance sheet. The financial backing of the ultimate parent company, UPS, significantly mitigates concerns about the franchisor's ability to support the system. Therefore, this risk is not identified.

Potential Mitigations

• Your accountant should review the provided financial statements for both The UPS Store, Inc. and its parent, United Parcel Service, Inc., to confirm their financial stability.
• Discuss the franchisor's financial health and its impact on support and growth with your business advisor.
• It is wise to have your attorney confirm if there are any financial performance guarantees from the parent company to the franchisor.

Explanation

Item 20 data for 2022-2024 shows a very low turnover rate. For 2024, the combined rate of terminations, non-renewals, and other cessations was approximately 1.4% of the total franchised outlets at the start of the year. This low rate suggests a stable franchise system with a low level of franchisee distress or failure. Therefore, this specific risk was not identified.

Potential Mitigations

• Your business advisor can help you calculate the annual turnover rate from Item 20 data to confirm system stability.
• Discuss the 'Ceased Operations-Other Reasons' category with the franchisor to understand why these 47 outlets closed in 2024.
• It is recommended to ask your attorney to help you frame questions for current and former franchisees about their satisfaction with the system.

Explanation

The franchise system is large, mature, and has demonstrated consistent, manageable growth over the past three years as shown in Item 20. The franchisor's financial statements in Item 21, backed by its parent company UPS, appear robust and capable of supporting the current growth rate. There are no indications that the system's expansion is outpacing the franchisor's support capabilities. This risk is not identified.

Potential Mitigations

• Consult with your accountant to analyze the relationship between the rate of unit growth in Item 20 and the franchisor's investment in support services shown in its financial statements.
• A business advisor can help you evaluate if the franchisor’s infrastructure seems adequate for its size and growth.
• Questioning existing franchisees about the quality and timeliness of franchisor support is a valuable step.

Explanation

The UPS Store system is well-established, having been developed from the Mail Boxes Etc. brand which began franchising in 1980. Item 20 shows a large and stable network of over 5,000 centers. The management team detailed in Item 2 has extensive experience within the franchise and its parent company, UPS. The system is mature and proven, meaning this risk is not present.

Potential Mitigations

• Your business advisor should review the history of the company provided in Item 1 to understand its evolution.
• It is prudent to discuss the management team's experience, detailed in Item 2, with a business consultant.
• A review of the system's size and age in Item 20 with your accountant can provide additional context on its maturity.

Explanation

The UPS Store operates in the established business services sector, offering shipping, printing, and postal services. The business model has proven durable and adaptable over several decades, evolving from the Mail Boxes Etc. brand. There is no indication that the core services offered are a fad. TUPSS has demonstrated an ability to adapt its model, such as by introducing new store designs. This risk was not identified.

Potential Mitigations

• A business advisor can help you assess the long-term consumer and business demand for the services offered.
• It is a good idea to research the stability of the retail shipping and printing industry with your business consultant.
• In discussions with the franchisor, you might inquire about their strategies for future-proofing the business model against technological changes.

Explanation

Item 2 lists the principal officers of the franchisor. The executive team appears to be highly experienced, with most members having long tenures within The UPS Store or its parent company, UPS. This indicates a deep understanding of the business and the franchise system. While a few executives have joined from other large retail systems like Crate and Barrel or Starbucks, they bring relevant external experience. This risk is not identified.

Potential Mitigations

• It's a good practice to review the backgrounds of the key executives listed in Item 2 with your business advisor.
• Asking current franchisees about their perception of the management team's competence is a valuable due diligence step.
• Your attorney can help you understand the roles and responsibilities of the management team.

Explanation

The franchisor is an indirect subsidiary of United Parcel Service, Inc., a publicly-traded company, not a private equity firm. While this ownership structure still prioritizes returns for UPS shareholders, the operational timeline is typically much longer than that of a private equity fund. There is no indication of a short-term exit strategy. This specific risk is not identified.

Potential Mitigations

• Understanding the corporate structure disclosed in Item 1 is crucial; your attorney can explain the relationship between TUPSS and its parent, UPS.
• Have your accountant review the financial statements in Item 21 to assess the financial relationship and flow of funds between the companies.
• Speaking with a business advisor about the potential impacts of being owned by a large public corporation can provide valuable perspective.

Explanation

The FDD clearly discloses that The UPS Store, Inc. is an indirect subsidiary of United Parcel Service, Inc. (UPS). Exhibit 6 includes the audited financial statements for both TUPSS and the parent company, UPS. The relationship and financial backing are transparent. Therefore, this risk was not identified in the disclosure documents.

Potential Mitigations

• Your attorney should review Item 1 to confirm the identity and relationship of any parent companies.
• It is important that your accountant examine the financials of both the franchisor and any parent company providing guarantees or essential support.
• Ask your attorney to confirm if any guarantees from the parent company are included as exhibits to the FDD or Franchise Agreement.