iSold It announces that it has troubles in an open letter to franchisees

David Crocker, Sr. Vice President of Marketing and Business Development for iSold It, LLC has posted on Blue MauMau an open letter to iSold it franchisees from Chief Executive Officer Ken Sully.
The iSold It franchise opportunity has been named “Hotter than Hot” and the “Best New Franchise for 2007″ by a leading national magazine.  However, a letter currently circulating the Internet indicates this American Dream may have become an entrepreneurial nightmare.
Mr. Crocker stated, “In the letter, it says that we are considering litigation, reorganization or liquidation.” Regarding a time frame to declare bankruptcy, he commented, “I cannot comment on when any liquidation might occur.” When asked whether the eBay drop off store model works, he said, “The model works for some and doesn’t work for others. There are stores that are profitable.”


As we have previously announced, we are now focusing all our headquarters resources on supporting our current base of franchisees, while limiting the sale of additional stores to new franchisees. We will continue to add new stores with existing franchisees under current development agreements and will also help facilitate transfers of existing stores to new owners. iSold It, now in its fourth year of operation, currently has over 170 franchised stores open. The chain has sold more than $100 million of merchandise on eBay since inception.

As you may know, in December 2003, iSold It joined the fledgling eBay drop-off store category, still in its infancy. The first two iSold It stores, one company owned and one franchised, generated significant interest from customers, the press and franchise candidates. The initial customer response was so strong that, encouraged by their results, that first franchisee quickly went on to purchase additional development areas and opened more stores. As the category rapidly grew and sales volumes were easily tracked (due to the transparent nature of eBay), franchise candidates moved forward to open individual stores, often securing areas large enough to develop multiple stores. After 18 months of operation, the 100th iSold It store was opened, and no stores had closed.

Today, while encouraged by system-wide sales exceeding $4 million per month, the distribution of sales by store has proven to be a bell curve – with top stores exceeding $80 thousand per month and others struggling to attain $10 thousand per month. Compounding the situation, average selling prices and labor hours per item also vary significantly by store, creating a wide range in store contribution margins. This has resulted in a significant number of stores operating below break-even, and has contributed to over 60 stores closing. Tragically, many individuals who believed passionately in the potential for the category have lost sizable investments, including homes and retirement savings. We personally find this unacceptable and, despite continued interest in this category, we do not feel comfortable selling any new franchises until we get the failure rate lower.

Over the past 40 months, in an effort to support the network, we have invested nearly $20 million in infrastructure, systems and marketing — spending most of the $8 million in shareholder contributed capital and $13 million in royalties and franchise fees. During this time, no director or shareholder has ever received any distributions or dividends from iSold It, with an exception for a small distribution to shareholders in early 2005 to cover pass-through tax liability related to 2004 company profitability. The company has not been profitable since 2004 and no further distributions have been made. In addition, with the exception of CEO Ken Sully, members of the Board of Directors and shareholders do not draw any salary from the company.

Going forward, the company faces significant challenges.

First, the company must preserve its remaining cash so it can remain solvent to support its franchisees. This is being addressed through significant reductions in expenses, including difficult decisions regarding headcount reductions and moving the office to a smaller location.

Second, the company is now focusing all resources on supporting the existing franchised stores. This is the rationale for eliminating the franchise development group and exiting the company store. (In separate posts, we will keep you current on the 3.0 conversion.)

The third and most significant challenge is addressing the claims of a group of franchisees who regrettably have each suffered significant financial losses. While we all feel very badly for anyone who lost money, we believe we presented this concept fairly from the beginning and it is unclear if we will be able reach a conclusion without litigation, reorganization or insolvency.

The team at iSold It remains committed to supporting our current franchisees and finding a success path for the network. We recognize the hard work and sacrifices that each one of you has made to help build your business and this company. We remain passionate about the potential for our business and appreciate your continued support going forward.

Ken Sully
President & CEO
iSold It, LLC

Recent Same-Store Sales Rundown

Weather seemed to be the common culprit cited by management explaining why same-store sales fell during the first part of 2007.

  • Panera Bread: During the four-week period, company-owned bakery-café sales declined 1 percent and franchise-operated stores’ sales increased 0.2 percent.
  • Frisch’s: Same-store sales declined 0.8 percent at Big Boy outlets, while Frisch’s Golden Corral restaurants posted a same store sales decline of 5.8 percent
  • Mexican Restaurant’s, Inc. (Mexican Restaurants, Inc. currently has 80 company operated restaurants, 19 franchise restaurants and one licensed restaurant. We operate 6 different concepts, which include Casa Ole, Crazy Jose’s, Monterey’s Tex Mex Cafe, Monterey’s Little Mexico, Tortuga Mexican Kitchen and La Senorita. While a large majority of our restaurants are located in Texas, we also operate restaurants in Oklahoma, Louisiana, and Michigan.)
    • For fiscal year 2006, total system same-restaurant sales decreased 1.2%, Company-owned same-restaurant sales decreased 0.9% and franchise-owned same-restaurant sales decreased 1.9% from fiscal year 2005.
    • Popeye’s Chicken & Biscuits:Total domestic same-store sales increased 1.6 percent compared to 3.3 percent in the prior year, and total global same-store sales increased 1.1 percent compared to 2.6 percent in the prior year. Company-operated same- store sales increased 9.0 percent, primarily driven by the re-opening of the New Orleans restaurants which were impacted by Hurricane Katrina.
    • Carl’s Jr. Company operated same-store sales increased 4.9%, the seventh consecutive year of positive same-store sales for the brand.
    • Hardee’s trailing 13 period average unit volume of $916,000 at the end of fiscal 2007 is a $42,000 increase over the level reported at the end of last fiscal year and the highest average unit volume for Hardee’s since 1995.
      • Hardee’s was also able to leverage its strong same-store sales to reduce restaurant operating costs. Hardee’s restaurant operating costs for the year were 81.9% of Company operated restaurant revenue, a 260 basis point improvement over the prior year and the best performance Hardee’s has posted in this decade. Lower food commodity costs and the leveraging of fixed and semifixed costs as a result of our higher same-store sales were the primary drivers behind Hardee’s performance. Like Carl’s Jr., Hardee’s achieved this year-over-year improvement despite the absence of favorable worker’s compensation adjustments compared to the prior year.

    Why Franchising is Not Necessarily a Good Fit for Entrepreneurs

    Choose franchises with care

    …But for others a franchise proves far too restrictive. They have
    thought long and hard about their own ideas to improve the business and
    don’t want someone saying “no” when they want to implement them.

    One example that comes to mind is someone who bought a franchise in
    a sandwich shop chain and wanted to install a coffee machine.

    No one else in the chain had a machine, and the franchisor had a definite view that the status quo should prevail.

    So you had this fight between the franchisee and franchisor over a
    cappuccino machine with the latter having to spend time and effort
    convincing the franchisee that it wasn’t commercially smart.

    What this means is that people have to be “culturally comfortable” with the franchise.

    You will live and breathe this business so you had better like it. Don’t buy a McDonald’s franchise if you hate hamburgers!

    Can a Full Time Mom Effectively Run a Franchise?

    This one apparently can: Party after party

    This mom and Picture This Party franchisee brings her twins to the parties see organizes.

    Her business is just party after party — children’s parties, to be exact. The Zion woman is owner of Picture This Party Inc. and a franchisee of Noah’s Ark Animal Workshop, which teaches children how to stuff their favorite animals at parties.


    “I don’t have to leave the house unless I’ve a party, and then I can take the twins with me,” she said.

    As owner of Picture This Party, she hosts birthday parties and other happy occasions for children. The parties usually have a theme, such as a dragon, a mermaid, Batman or a pirate, for which she furnishes costumes, balloons and cakes. She also snaps pictures at parties.

    Jackson Hewitt PR Problem

    Jackson Hewitt Launches Internal Review of Allegations Against Franchisee

    Jackson Hewitt Tax Service Inc., a leader in the tax preparation industry, today announced it has launched an internal review of allegations made against a franchisee of the company. The review is being led by Fred Goldberg, a partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP.

    Here is background on the IRS allegations

    The government filed lawsuits against several corporations that operate 125
    Jackson Hewitt offices. These offices in four states — including Michigan —
    are owned by one franchisee.

    The Justice Department says they were cheated out of more than $70 million
    after franchise managers and employees took kickbacks for filing fraudulent

    another article: Feds sue Atlanta franchisee of tax prep firm

    S&P Downgrades Jackson Hewitt to Hold

    Fun business moderate investment Fun Bus

    One of the franchise opportunities that I thought was interesting at the IFE last week was the Fun Bus.

    The cornerstone of the Fun Bus franchise is a full-sized and fully operational school bus whose seats have been removed and replaced with a padded playground ideal for children ages 2 to 7. The bus features a trampoline, a rope swing, a punching bag, a parallel bar, a basketball net and a big slide that is attached out the back. The bright green school bus brings fitness and fun directly to children at daycare, nursery schools and birthday parties.

    The Fun Bus visits daycares and nursery schools once a week for a 10-week session, giving the children 30 minutes of learning and fitness taught in a fun way.

    What I find appealing about the opportunity is there is no real estate involved, it’s an easy business to operate and it acts as its own billboard as it drives around town.

    The investment is moderate: franchise fee is $25,000 fee, franchisees get the Fun Bus name in a secure territory, training, manuals, after-sale support and a list of potential customers (day care centers), a customized bus and equipment runs another $25,000. Add additional $15,000 for some advertising, working capital and misc. expenses, and the total investment is approximately $65,000.

    Although they are fairly new to market, they do have some track record, they started franchising in 2003 and have 16 operating units.

    I have yet to see the UFOC (I requested a copy), but I think the concept could be a good match for moms, or 20 something year olds looking to get into business.

    For more information visit: Fun Bus Franchise

    Moms Fitness

    If you thought Curves and Lady’s Fitness were as niche as the workout industry was going to get, think again. Stroller Strides

    At 8:45 a.m., the moms begin to arrive at the Thomas Jefferson Center. Jackets, gloves and hats are shed, children are strapped into strollers, and at 9 a.m., they’re off for a power walk around the gym.

    They start with a 5-minute warm-up. During their

    45-minute routine, the students will go through three body-toning exercises as well as stretches, lunges and an accelerated power-stride pushing their strollers. A 10-minute abs, stretch and cool down finishes the class.

    Blended into the exercise routines are nursery rhymes, the chicken dance and singing of childhood favorites such as “Farmer in the Dell,” “Twinkle, Twinkle, Little Star” and “Head and Shoulders, Knees and Toes.”

    As mothers breeze by drinking from their water bottles, the babies in the strollers have started enjoying their bottles of breast milk and water, too. One woman breaks from the crowd, rushes to the bleachers, and digs through a diaper bag to retrieve a small package of crackers for her teething baby.

    Physical fitness aside, one of the fun parts of Stroller Strides is the social aspect of it, Ashley said.

    “While you’re at home caring for your children, you can feel a little isolated,” she said.

    As a result of that, Ashley has incorporated Luna Moms Club to seamlessly following the fitness class. The club includes a built-in play group that meets on Wednesdays at 10 a.m., monthly community projects and Mommy Time, which offers discussions about books, music, craft projects and an occasional night out for dinner or a movie.

    From the Aisles of the IFE

    I had the opportunity to visit Washington DC this weekend and participate and attend the International Franchise Expo which ended yesterday.

    It was great to see old friends and make new ones; as franchising continues to expand and prosper.

    Walking the aisles I observed and heard many interesting things:

    Read more: From the Aisles of the IFE

    Franchisees say they support Friendly’s

    A group of franchisees, in a letter yesterday to Friendly Ice Cream Corp. shareholders, have voiced their support for the company’s restaurant operating system and for new CEO George Condos.

    The Boston-based group, which represents 95 percent of Friendly’s Ice Cream Restaurant franchisees, was responding to the company’s recent announcement it would explore “strategic alternatives” including the possible sale of the company. Their letter appeared to be a vote for the status quo.

    “We are writing to you to express our united support for preserving the long term interests of the Friendly Restaurant Operating System,” the franchise owners wrote.

    “For many of us, our investment in Friendly’s and the success of Friendly’s restaurants is our livelihood,” they added. “We are very encouraged by the recent actions of the current Board in hiring George Condos … [and] believe he is in a position to grow our business for the benefit of Shareholders and Franchisees alike.

    “Conversely, we oppose any investor(s) or shareholder(s) who do not look to protect the long-term interests and success of the current Franchisees and our significant investment as major ‘stakeholders’ in the Friendly’s Brand.”

    Additional information, including the full text of the letter, is available at

    How to Make Money as a Franchisee

    Value Place franchisee signs deal for 100 hotels – Wichita Business Journal:

    The scale and efficiencies of being a large area developer is a highly-successful strategy to making money as a franchisee.

    Value Place is an extended-stay hotel concept based in Wichita and founded by Wichita entrepreneur Jack DeBoer.

    Liberty Lodging announced Wednesday that it closed a debt financing facility of up to $360 million with Goldman, which will allow Liberty to build properties in Boston, central Florida, Denver, Indianapolis, Montgomery, Ala., Providence, R.I., Salt Lake City and Springfield, Mass.

    Law Franchise for Sale!

    AmeriVestors, Inc. announced yesterday that it has commenced the preparation of legal documents to be filed with State and Federal Government agencies in order to offer franchise opportunities for Justice by the People . Upon filing of the UFOC, the company will file notice and fees with the Texas Secretary of State, so that it may commence the sale of franchise opportunities in the State of

    Justice by the People, Inc., a wholly owned subsidiary of AmeriVestors, Inc., serves consumers that wish to save hundreds, even thousands of dollars, in their simple, uncontested legal matters. The
    US legal industry is a $184 billion sector. The company offers approximately 80 legal documents for uncontested legal issues such as uncontested divorce, living trusts, incorporation, etc. The company has designed a model to create a national franchise chain providing high quality, accurate and affordable legal document preparation services for simple, uncontested legal matters. Justice by the People does not offer legal advice in the preparation of its clients’ uncontested legal documents.

    Now maybe there will be some “copy-cat” law franchises coming out soon. Can you submit some names?

    To start things off how about: “McMalpractice” or “Lawless & Lawless”

    Subway Franchisee in Germany not Happy

    Article link in Business Week

    Birkel and Mauk [former district managers for McDonald’s) thought they could use their know-how to start their own business — as franchisees for Subway, the US sandwich chain. Full of hope, they scraped together their savings, took out a loan for €184,000 ($243,000) and opened a new fast food outlet in the town of Michelfeld in the German state of Baden-Württemberg.


    In the beginning, everything went better than they could possibly have hoped. The Subway system, which allows customers to select their own bread and fillings for their sandwich, was a big hit with customers. The two new entrepreneurs made as much as €16,000 a week.

    But after three months, turnover began to decline, eventually averaging out at about €6,000 a week. What with the costs of rent, electricity, personnel, interest and advertising, combined with high prices for tuna, chicken and bread and the fees charged by Subway, in the end nothing was left over for Birkel and Mauk.

    “We didn’t earn a single cent even though we ourselves often stood behind the counter for as long as 12 hours a day,” Birkel complains.

    After 15 months, bankruptcy was unavoidable — and the restaurant in Michelfeld was sold for just €20,000. “We lost everything we had spent years working for,” Birkel concludes bleakly.


    The franchisees’ objections begin with the English-language franchise contract, which makes a New York City court responsible for arbitration in cases of litigation. On a day-to-day level, the lack of territorial protection for franchisees is more annoying. The DAs are not paid a salary. Instead, they profit from the sale of licenses and receive a percentage of the monthly franchise fees — regardless of whether the franchisee makes a profit or a loss. The system puts the DAs under strong pressure to constantly open new outlets — and they apparently do so without any strategic rhyme or reason. “It’s pure cannibalism,” one franchisee complains.

    New franchisees have to pay an initial fee of $10,000 for the right to use the Subway franchise. Subway then pockets 8 percent of their gross turnover, with an additional 4.5 percent going to the company for advertising costs. The fees paid to the sandwich chain are higher than those paid in other systems, raising questions among store owners. “Many Subway franchisees are asking themselves what they get in return for the fees,” says Fassbender.

    Dropping about $10,000 a week in sales is a shocker. The required capital outlay by Subway for the opening must have worked, but repeat business and word of mouth just didn’t come through. The franchise groups plan to spend most of their pooled advertising budget on television ads, which may help quite a bit given the huge sales during the grand openings. The articles infers that the problems stem from Deluca’s direction that no capital outlay be made to sell franchises – it is all financed by franchise fees.

    O’Charley’s Franchisee Settles

    O’Charley’s settles with franchisee

    A lawsuit between them wasn’t enough to sever the
    relationship between O’Charley’s and its first franchisee, a firm in
    Michigan that sued to get out of its 15-location development contract
    with O’Charley’s.



    Saalfeld said the development schedule was altered; he wouldn’t say whether Meritage is still obligated to finish building 15 O’Charley’s restaurants. Meritage now has five O’Charley’s, all in Michigan, and more than 40 Wendy’s restaurants.

    The original lawsuit claimed O’Charley’s executives had misrepresented sales figures to get the franchisee to sign its 15-location development deal.

    A sales shortfall meant a lender never extended credit to Meritage, and the company had to sell some Wendy’s real estate holdings to finance the development of more O’Charley’s restaurants, according to the suit.



    Satisfaction Guaranteed for Franchisees?

    Here is a unique selling idea from Cex, a retail technology franchisors in the UK – Get some of your investment capital back if not satisfied within 12 months. It’s probably difficult to meet the “conditions” for this partial reimbursement and cancellation of the franchise agreement, but at least the idea of giving a franchisee an ability cancel with a small percentage of your money back within 12 months is a step in the right direction. The devil is always in the details, but by the time you get approval on your location, build out and are ready to operate, I would imagine most of your 12 months from signing the franchise agreement are over.

    CeX Franchise UK – ‘Satisfaction Guaranteed’
    source: The Franchise Magazine

    So confident is CeX of its franchise opportunity that, for a limited period, the company is offering a ‘Buy Back Guarantee’ for new franchisees. Subject to conditions, CeX will refund stock, shop build and fit costs and take over the store management and running costs should the franchise not meet the franchisees’ expectations.

    In the fast and ever developing world of high-end electronic entertainment, CeX provides a valuable service to technology enthusiasts wishing to stay ahead of the game. The ongoing advancements of mobile phones, MP3 players, digital cameras, computers and games consoles means models are quickly updated and replaced. The CeX business model allows customers to buy-and-sell part-exchange quality second-hand technology and entertainment products at attractive prices and with a 12-month warranty – CeX is the one-stop-shop for gadget lovers.

    Franchisee may buy Friendly’s Ice Cream

    It was reported in the Rochester Democrat & Chronicle in an article by David Tyler that the Kessler Family LLC of Brighton, NY, the largest franchisee of Friendly Ice Cream Corp., may be interested in buying the chain.

    The Kessler company said Monday it has retained Mastodon Ventures Inc., a merger-and-acquisition firm in Austin, Texas, to explore “strategic alternatives,” including the purchase of some or all of Friendly’s assets.

    The move follows Friendly’s announcement last week that it had retained Goldman Sachs & Co. to explore its own set of strategic alternatives.

    Friendly Ice Cream has a network of 530 franchised and company-owned restaurants and distributes ice cream at 4,500 supermarkets. The company has been in a public battle with Sardar Biglari, head of the Lion Fund and Western Sizzlin Corp., which controls about 15 percent of Friendly’s shares. Biglari and associate Philip Cooley are seeking seats on Friendly’s board.

    The company has also drawn criticism from 91-year-old co-founder Prestley Blake, who was 20 when he and his brother opened an ice cream shop in Springfield, Mass., during the depths of the Depression, selling double-dip cones for a nickel.

    Kessler Family, run by brothers Dennis and Laurence Kessler, is the largest Friendly’s franchisee, with 46 restaurants. Reached Monday, Dennis Kessler declined to comment, citing the early stage of the process.

    Robert Hersch, a principal in Mastodon, said the Kesslers wanted to explore options because “they believe in the Friendly’s concept.”

    “Most of this is up to Friendly’s,” Hersch said.

    Asked if the Kesslers supported Biglari’s effort, he said, “no comment.”

    In addition to the Friendly’s restaurants, Kessler Family owns upstate Burger King restaurants.