A wild elephant can crush its enemies with a single footfall. Now that's a tremendously effective use of one foot of real estate. Likewise, placing a greeting card rack in one square foot of space, as recommended by franchisor Elephant House Inc., could make a large positive impact on your finances.
Since the early 1990s, this franchisor, the No. 1 greeting card distributor and the No. 371 overall franchise in Entrepreneur's 1999 Franchise 500? has had the exclusive rights from a British affiliate to publish, print and distribute various lines of high-quality greeting cards, postcards, envelopes and related items bearing the Elephant House and Original Poster Co. brand names. Elephant House franchisees are given the rights to distribute the products to merchants in individual territories through placement in freestanding display racks on a consigned basis. Merchants are attracted to the concept because they don't need to make any capital investments, the risk of not selling goods is borne by the franchisee, and the franchisee chooses the cards and stocks the racks. Elephant House franchisees like the concept because they're not required to maintain retail hours, pay expensive rents or work full time (unless they choose to). Instead, franchisees develop their own strategies on when to restock display racks and what products to purchase from the franchisor.
In the beginning, franchisees inevitably carry a few slow-moving cards, but savvy franchisees will find ways to create a proper inventory mix after they learn the idiosyncrasies of their markets. Typical places to display racks range from hotel lobbies, car washes and gift shops to postal centers and tourist destinations. Unfortunately, the franchisor only gives sales statistics for its top five products, which makes finding the right product mix a bit of a mystery for the earnest franchisee.
The Uniform Franchise Offering Circular says the total initial investment ranges from $33,300 to $46,000, including $18,000 to $25,000 for inventory and racks, plus territorial and initial franchise fees.
Predicting potential earnings at this point is difficult, as there are presently only 45 franchise locations in the United States and the franchisor doesn't make earnings claims. The strongest franchisee now has more than 250 racks in place and reported monthly sales in April 1998 of $8,000, according to the company's newsletter. You may be able to piece together your own estimate by understanding that the greeting cards, on average, retail for $2.25 each. Typically, merchants pay franchisees $1.25 for each card sold, which in turn costs the franchisee $0.50 to $0.53. Display racks cost $78 each. Franchisees have reported selling as many as 85 to 100 cards per month at single locations.
Elephant House doesn't charge a royalty or require an advertising contribution. This philosophy creates mixed emotions because a group advertising plan is one of the foremost benefits of a typical franchise system. Further, the franchisor's audited financial statements for 1997 show a net loss of $280,810, which follows on the heels of a net loss of $340,700 in 1996. The company's president, Graham Peace, stated that the loss would be lower in 1998; however, a number of franchise registration states have required this franchisor to defer or escrow potential franchisees' initial fees until the franchisees commence business because of Elephant House's financial position. Before you invest any money, have your financial advisor investigate further in this area so you can be confident you'll have the full benefit of your initial seven-year franchise term.
Todd Maddocks is a franchise attorney and small-business consultant. You can reach him at TMaddocks@aol.com