San Diego For many years, those all-purpose letters, "Etc.," served Anthony W. "Tony" DeSio very well. He built Mail Boxes Etc. into a highly successful national chain that managed to compete with the post office and also dodge a financial bullet: It was acquired by a company that collapsed in ignominy, but the San Diego franchiser slunk out of the slough and wound up with one of the nation's few AAA-rated companies as its parent, the superbly managed United Parcel Service (UPS).
But the second time, Tony DeSio, along with another group of former Mail Boxes Etc. investors, couldn't carry the mail. Three months ago, Image Arts Etc. -- which claimed it could put a digital photo on almost anything -- filed for Chapter 7 liquidation bankruptcy in San Diego.
There's a final insult: More than 90 percent of domestic Mail Boxes Etc. franchisees are changing their names to The UPS Store.
There was a logic behind the use of the word "Etc." at both DeSio-directed companies. In 1981, DeSio became president of a one-year-old Carlsbad company, U.S. Mail Boxes. In 1986, the name was changed to Mail Boxes Etc. because the company offered a variety of services besides mail boxes: wrapping and mailing packages, copy and fax machines, teleconferencing equipment, and the like. DeSio boasted to potential franchisees that a store was a group of profit centers under one roof -- and that's one reason the company became one of the fastest-growing franchisers in the U.S.
In 1999, DeSio launched a company that also offered potential franchisees diverse profit centers within a store. This one was based on digital photography and wide-format printing. Within each store were a frame shop, art gallery, sign shop, and portrait studio. Again, the "Etc." in Image Arts Etc. was an attempt to bundle up the various profit centers in a snappy name.
"It was tough picking a name for it," says San Diegan Blaine Roberts, who was chief executive officer until right before the Chapter 7 filing in May. "The stores had a nice combination of profit centers." Also, the word "Etc." on the end, as well as the participation of DeSio, helped attract franchisees who knew about the success of Mail Boxes Etc. Image Arts Etc. also expected to do a land-office business online, mainly through Home Shopping Network.
According to Blaine Roberts, DeSio plunked in about $600,000. Eastman Kodak put in $2 million, with the understanding that it would be an exclusive supplier of certain media and digital-imaging equipment. Other former Mail Boxes Etc. investors were Norman Roberts, La Jolla investment banker and Blaine's father, $250,000; and Blaine Roberts, $100,000. Venture capitalist Michael Dooling, a former chairman of Mail Boxes Etc., also put money in the pot.
"We went through two rounds of venture capital and needed one more round of $3 million," says Blaine Roberts. But venture capital had dried up drastically since the halcyon days of the late 1990s, and little was available.
"They needed a million dollars to last them to get into the black," and more beyond that, says Norman Roberts. "I didn't want to give them a million dollars. They couldn't raise it, so they went into Chapter 7. They sold the inventory and everything; it is a done deal."
The company's goal was to have 1000 franchisees by 2005, but at the end, it had 46 franchisees and 35 stores open. As Image Arts Etc. sunk, former franchisees sued the company, DeSio, Blaine Roberts, and others. It was settled out of court. Only two months before the bankruptcy filing, the company lost $10,000 when an employee stole software.
Blaine Roberts says that most stores are now running on their own, and that's partly a blessing, because there is no franchiser to which to pay fees.
In fact, Blaine Roberts's wife and sister, Barbara and Laurie Roberts, respectively, still run an Image Arts Etc. store on India Street. "We're operating without the help of a corporate parent and doing very well," says Barbara Roberts.
"Nobody lost a lot of money, but suppliers did," says Norman Roberts. Bankruptcy records show that more than 100 creditors -- largely suppliers -- filed claims for $1.7 million. The company's assets are $819,000. "We have an ongoing investigation into the debtors' financial affairs and conduct," says Gregory A. Akers, bankruptcy trustee.
San Diego's OAP Packaging is owed $29,500, says co-owner Jim Janney. "We were selling boxes for them to ship stuff with online. They did not use them and they did not pay," he says.
DeSio, who could not be reached for comment, has experienced spectacular ups and downs. Mail Boxes Etc. was a rapidly growing franchiser when it made the ghastly mistake in mid-1997 of selling itself to U.S. Office Products Co., then run by a Washington, D.C., entrepreneur, Jonathan Ledecky, who touted his "roll up" concept -- that is, buying up small companies as fast as possible. That is almost always a recipe for disaster, but Wall Street keeps touting the idea because investment bankers pile up so much in fees.
By the end of 1997, U.S. Office Products had gobbled up 206 companies -- 97 in 1997 alone. As the stock cratered, Mail Boxes Etc. investors holding the parent's stock wondered if they would go right down the toilet, too. In 1998, U.S. Office Products split itself into five publicly traded companies and bought back 28 percent of its stock. The buyback helped Mail Boxes Etc. investors get some cash for their company.
U.S. Office Products Co. went bankrupt in 2001, right about the time it was selling Mail Boxes Etc. to United Parcel Service for $267 million. Just recently, U.S. Office Products, also known as BRM Holdings, chalked up a dubious achievement: On July 23, the stock hit a 52-week high of half a cent (0.005). Two days later, the stock hit a 52-week low of zero (0.000). The company lost $804.1 million through its last nine months.
Ledecky left U.S. Office Products at the time of the split-up. He still preaches roll-up, rapid-fire acquisitions. He got involved in a notorious affair: U.S. Technologies. When former CIA and FBI head William Webster was named to lead the newly created accounting oversight board last year, critics immediately noted that Webster was a director of U.S. Technologies, whose accounting turned out to be very questionable.
Webster backed away from the federal accounting post. Said James J. Cramer on TheStreet.com, "U.S. Technologies is an awful company, an Internet incubator roll-up that was controlled by none other than the notorious Jon Ledecky."
But Mail Boxes Etc. escaped the opprobrium. In 2001, as U.S. Office Products was going into bankruptcy, Mail Boxes Etc. was sold for $200 million to United Parcel Service, which had had a minority stake in the company. (For those curious about the company's capacity, in the main, the UPS Store utilizes UPS and the post office for shipping.)
The company that Tony DeSio nurtured is booming. It now has 4500 franchisees worldwide, about 3400 of them in the U.S. The company expects to have 5000 franchisees in the U.S. by 2007 -- even without an "Etc." in the name.
But Image Arts Etc. investors were wiped out, says Blaine Roberts.