FDD Talk 2019: 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 2019 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 2019 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 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Plato’s Closet’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average, high, and low gross sales and average gross profit of the 443 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 29, 2018, grouped by year opened (2017, 2016, 2015, 2014, 2013, and 2012 and prior)

• 2018 average gross sales for the first, second, third, and fourth quartiles of the 443 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 29, 2018

• number and percentage of 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 29, 2018, grouped by range of gross sales ($0 to $250,000; $250,001 to $500,000; $500,001 to $1,000,000; $1,000,001 to $2,000,000; $2,000,001 to $3,000,000; and greater than $3,000,000)

Section I – Background Information

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

Achieves Highest Average Unit Volume in the Resale Franchise Segment

1.  According to the Winmark Corporation, the parent company of Plato’s Closet, its brands’ unit-level economics are often 50 percent higher than those of its competitors in the same space. In fact, unit for unit, Winmark’s brands frequently outpace the competition three-to-one.

2.  Plato’s Closet is one of Winmark’s top brands, achieving an average gross margin of 61.69 percent (according to its 2019 FDD). Winmark says that all of its brands achieve average gross margins greater than 45 percent.

3.  All of Winmark’s processes and procedures are designed to drive sales and profits for franchisees. As a resale franchise, buying is Winmark’s top priority. Winmark ensures all of its marketing, training, and operational support is geared toward helping franchisees buy more of the right inventory at the right price.

4.  The first way Winmark does this is through its buyer certification program, which trains and certifies employees on the company’s best practices for purchasing inventory. Winmark franchisees are also equipped with a state-of-the-art, fast, and efficient POS system to help them identify items in the system, decide what to pay for those items, and set the retail price for those items. Winmark’s POS system generates a quote to the customer and ultimately a buy ticket should the customer want to go through with the transaction. This makes transactions quick and easy for both franchisees and their customers.

5.  In addition to acquiring merchandise, inventory management support is also critically important for franchisees. Once franchisees are buying more inventory than the prior period on a consistent basis, they inevitably end up with excess inventory. This requires a disciplined approach to inventory management, keeping inventory turnover high and utilizing various markdown strategies to address aged inventory. Winmark provides franchisees with the support and training they need to ensure that buying more does not turn into too many dollars tied up in dead inventory.

6.  According to Winmark, the last crucial piece for franchisees is delivering a top-notch customer experience for every customer. That includes creating the right environment in the store by ensuring all inventory is organized, merchandised well, and easily shoppable for the customer. Winmark makes sure that franchisees are delivering on their customer experience and making each customer’s experience a positive one, whether they are buying or selling merchandise.

7.  All Winmark franchisees and their staff are extensively trained on buying, inventory management, and customer experience so they can run their business efficiently and effectively, and ultimately achieve higher average unit volumes than other brands in the resale space.

Ontario Franchisee Remodeling Store to Celebrate 10th Anniversary

8.  At the end of February 2019, Jennah Esposito, owner of a Plato’s Closet franchise in Ontario, Ohio, said that her store was undergoing a remodel in honor of its 10th anniversary. As part of the remodel, Esposito’s store had new walls, floors, and fitting rooms installed. Esposito worked with a Texas-based company that does all of the remodels for Plato’s Closet.

9.  According to Esposito, “It’s just a completely new look. We’re making the walls white, and there’ll be a little bit of gray and a little of a magenta color, but it will look like a completely different store. It’s going to be so bright. The white is going to make it look so fresh.”

10.  Esposito also thanked her customers and community for their support over the past decade. She said, “They’ve been amazing, and we love being in Ontario. We have the best customers. It’s just crazy to think that 10 years later we’re still doing it.” On a final note, Esposito said that she hopes to still be operating her Plato’s Closet 10 years from now and will remodel once again, as franchisees are required to remodel their stores every 10 years.

Company History

11.  Plato’s Closet was founded in 1998 by Lynn and Dennis Blum in Columbus, Ohio. The brand is a clothing resale store that targets teens and young adults. The store’s name was inspired by a Blum son’s schoolwork about Plato who had been an early advocate of recycling, which parallels the aim to recycle used clothes.

12.  The Blums had previously opened Once Upon A Child, a similar recycled clothing store that targets babies and children. In 1993, the Blums sold the franchising rights to Once Upon A Child to the Winmark Corporation and after opening four Plato’s Closet stores, the Blums once again turned to Winmark to help grow their new brand.

13.  Under the Winmark Corporation’s leadership, Plato’s Closet has grown across the United States and Canada and by 2011 there were nearly 300 franchise locations. Today, Plato’s Closet is one of Winmark’s most successful brands.

Entrepreneur’s Franchise 500

14.  Plato’s Closet ranked No. 187 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Plato’s Closet franchise costs, based on Item 7 of the company’s 2019 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 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2018

• Outlets at the Start of the Year:  476
• Outlets at the End of the Year:  480
• Net Change:  +4

Company-Owned

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

2018

• 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, 2019 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 29, 2018 as reported by 443 of the 444 franchised Plato’s Closet Stores located in the United States and Canada that commenced operations during the years 1998 through 2017.

• 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 29, 2018. 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 29, 2018 or transferred during this period).

• There were 444 franchised Plato’s Closet Stores that had been in operation by the same franchisee or owners for at least 12 months as of December 29, 2018. Only 443 of the 444 Stores are reflected in the average, however, because one Store was temporarily closed for several months.

• This financial performance representation does not include information for the 36 Plato’s Closet Stores that opened or transferred in 2018. No Stores closed in 2018 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 of 443 Franchised Plato’s Closet Stores for the Fiscal Year Ended December 29, 2018

Year Opened – 2017