FDD Talk 2018: Plato’s Closet Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Plato’s Closet franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Plato’s Closet franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Plato’s Closet franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Plato’s Closet outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Plato’s Closet’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average, high, and low gross sales and average gross profit of the 437 franchised Plato’s Closet stores in the United States and Canada that had been in operation by the same franchisee or owners for the 12-month period ended December 30, 2017, grouped by year opened (2016, 2015, 2014, 2013, 2012, and 2011 and prior)

• 2017 average gross sales for the first, second, third, and fourth quartiles of the 437 franchised Plato’s Closet stores in the United States and Canada that had been in operation by the same franchisee or owners for the 12-month period ended December 30, 2017

Section I – Background Information

11 Things You Need to Know About the Plato’s Closet Franchise

Newest Location

1.  Plato’s Closet is one of Winmark Corporation’s franchises that consistently opens new stores every year. One of the brand’s newest locations for 2018 opened in early April in Parkersburg, West Virginia. This is the third Plato’s Closet store for the state, and Elizabeth Mireles, manager of the Parkersburg location, said a fourth store is scheduled to open in Charleston, West Virginia.

2.  Mireles and the store’s 30 other employees underestimated how excited people were for the store to start selling merchandise. They sold about 25 percent of their total inventory during the grand opening and Mireles said the day was “maddening but fun.” This new Plato’s Closet is located in Lakeview Center, which is also home to two other Winmark franchises, Once Upon A Child and Play It Again Sports.

Top Worldwide Sales Growth Over 10-Year Period

3.  In February 2017, Plato’s Closet said that outside of the food industry, it is the top franchise in worldwide sales growth over the past 10 years. A chart published by the Franchise Times showed that Plato’s Closet’s worldwide sales had grown by 433 percent over a 10-year period. The Winmark Corporation, Plato’s Closet’s parent company, said that the brand is set to continue this growth for the next 10 years and beyond.

Nominated as One of Colorado Springs’ Greenest Businesses

4.  At the beginning of April 2018, Colorado Springs announced which businesses, schools, organizations, communities, and individuals were in the running to receive a 2018 Greenie Award. Plato’s Closet was one of five businesses nominated. Colorado Springs’ residents were able to vote until April 22.

5.  The brand was nominated because it encourages people to sell their unwanted clothes and accessories instead of dumping them in the trash. Plato’s Closet also saves consumers from spending time and energy attempting to sell the items themselves through garage sales, social media, or classified advertising websites. It is also a great place to shop for high quality, fashionable, and trendy clothing at an affordable price while being better for the environment than brand new clothing.

Staying in Touch with Target Demographic Through Style Blog

6.  The target demographic for Plato’s Closet are teens and young adults and the brand is reaching out to this audience through its style blog, where it uploads new videos and blog posts that feature whatever is currently in season. Plato’s Closet has also established a strong social media presence through its Instagram, Twitter, Facebook, Pinterest, and Youtube accounts.

7.  One of Plato’s Closet’s most recent social media campaigns was a series of videos and blog posts highlighting the current spring fashions. Plato’s Closet partnered with a few social media influencers to talk about some of the spring styles currently offered by the brand. One influencer discussed her five absolute essentials for spring and showed off the pieces she picked up at her local Plato’s Closet. Another influencer created a few looks for her spring break trip using clothing and accessories from Plato’s Closet.

Company History

8.  Plato’s Closet was founded in 1998 by Lynn and Dennis Blum in Columbus, Ohio. The Blums were also the founders of Once Upon A Child, a resale franchise that they sold to Winmark Corporation in 1992. Plato’s Closet is similar to Once Upon A Child, except that instead of buying and selling clothing for babies and young children, Plato’s Closet buys and sells clothing for teens and young adults.

9.  The name of the store came from the Blums’ son, who was learning about the philosopher Plato at the time. Plato was an early advocate for recycling and the Blums thought the name was perfect for a store aiming to recycle used clothes.

10.  The Blums had four Plato’s Closet locations before they decided to expand the business across the United States. Once again, they turned to Winmark Corporation for help and they sold the franchising rights to Plato’s Closest in 1999. Winmark was able to grow Plato’s Closet and today, it is one of their most successful brands. There are currently 460 Plato’s Closet stores across the United States and Canada.

Entrepreneur’s Franchise 500

11. Plato’s Closet placed in the Top 100 of Entrepreneur’s 2018 Franchise 500 list, ranking No. 97.

Section II – Estimated Costs

• Please click here for detailed estimates of Plato’s Closet franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Plato’s Closet’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  426
• Outlets at the End of the Year:  456
• Net Change:  +30

2016

• Outlets at the Start of the Year:  456
• Outlets at the End of the Year:  468
• Net Change:  +12

2017

• Outlets at the Start of the Year:  468
• Outlets at the End of the Year:  476
• Net Change:  +8

Company-Owned

2015

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2016

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2017

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• The following is a financial performance representation entitled “Unaudited Statement of Average Annual Sales and Gross Profit.” The gross profit figures do reflect the cost of sales but do not reflect the operating expenses that must be deducted from the gross profit figures to obtain your net income or profit.

• The following statement of average annual sales and gross profit includes average gross sales and gross profit during the 12-month period ended December 30, 2017 as reported by the 437 franchised Plato’s Closet Stores located in the United States and Canada that commenced operations during the years 1998 through 2016.

• This statement includes information from only those Plato’s Closet Stores located in the United States and Canada that had been in operation by the same franchisee or owners for the 12-month period ended December 30, 2017. No other Plato’s Closet Stores are included in this statement due to insufficient history of operations (i.e. not in operation for the 12-month period ended December 30, 2017 or transferred during this period).

• There were 437 franchised Plato’s Closet Stores that had been in operation by the same franchisee or owners for at least 12 months as of December 30, 2017. All 437 Stores are reflected in the average.

• This financial performance representation does not include information for the 39 Plato’s Closet Stores that opened or transferred in 2017. No Stores closed in 2017 after being opened less than 12 months.

• The financial statements Winmark (the franchisor) receives from franchisees for these Stores are unaudited and Winmark does not audit or independently verify, or express an opinion regarding, these statements.

Part 1 – Statement of Average Gross Sales and Gross Profit for the 437 Franchised Plato’s Closet Stores for the Fiscal Year Ended December 30, 2017

Year Opened – 2016