FDD Talk 2021: Style Encore 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 Style Encore franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Style Encore franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Style Encore franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Style Encore outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Style Encore’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, high, and low gross sales and average and median gross profit for the 64 franchised Style Encore Stores in the United States that had been in operation by the same franchisee or owners for the 12-month period ended December 26, 2020, grouped by year opened (2019, 2018, 2017, 2016, 2015, and 2014 and prior)

• 2020 average, median, high, and low gross sales and average and median gross profit for the first, second, third, and fourth quartiles of the 64 franchised Style Encore Stores in the United States that had been in operation by the same franchisee or owners for the 12-month period ended December 26, 2020

• number and percentage of franchised Style Encore Stores in the United States that had been in operation by the same franchisee or owners for the 12-month period ended December 26, 2020, 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; and greater than $2,000,000)

Section I – Background Information

21 Things You Need to Know About the Style Encore Franchise

Franchisee Moved Shop Completely Online to Adapt to COVID-19 Restrictions

1.  At the end of March 2020, Carolyn Rivera, co-owner of Style Encore in Fort Myers, Florida, said, “We are 100 percent online based right now.” Rivera and her husband own the resale shop. Before the COVID-19 pandemic, they did 5% of their business online. Style Encore has had to change just about everything to stay open.

2.  “We buy and sell clothing, handbags, shoes, and accessories. Amazing prices, really high-quality pieces,” Rivera said. However, around the beginning of March, customers stopped coming in to Rivera’s store. Rivera and her husband decided, for the health of their customers and employees, they needed to close the store.

3.  Rivera added, “It was a little bit of an unknown, but honestly, I think humans adapt. And it was a no brainer, I don’t want people in and out of the store. And at that point, I was like, ‘I love my customers, I love the community that comes here everyday. Why don’t we see if we can cultivate that online?’”

4.  For a business that did so few online sales, it was a leap. But it was a way to keep the store going. Every day the store did Instagram Lives. An employee would hold an item up to the camera and describe it. If a viewer wanted to buy it, they simply typed in “sold” in the comment section. The customer could pay online with PayPal or they could call in a payment. Then the store would either ship the item or the customer could come to pick it up at the store where they have a curbside drop-off lane set up. The store did something similar on Facebook as well.

5.  Rivera continued, “It’s day to day. I think my biggest hurdle and the hardest thing for me is that not all my employees can be here every day. So for me as a business owner, trying to provide for these people, it’s really hard in that way. The biggest thing that we can do is just stick together. Help each other. Let’s find out who needs it and give it if you can. It’s going to pass, it’s just a matter of when it does. So my thing right now is pivot if you can to make your business productive or yourself productive, and help as many people as you can. We’ll all come out on the other side.”

Owners Able to Capitalize on Ecommerce

6.  In late August 2020, Winmark announced that Style Encore was the first of Winmark’s apparel resale franchises to develop a robust ecommerce platform to complement its brick-and-mortar model. The company is building off the success of its two non-apparel franchises, Music Go Round and Play It Again Sports.

7.  Music Go Round has had an ecommerce storefront for the past 10 years, owing to the brand’s unique inventory of quality used products that sell at a higher price point than most of the other concepts within Winmark’s portfolio. In 2019, the Play It Again Sports online store launched, providing franchisees the opportunity to stand out online and get the brand and sports equipment in front of digital shoppers. Now, Style Encore franchisees are poised to capitalize on having a robust ecommerce presence, building brand recognition while generating greater online and in-store traffic.

8.  As a brand, Style Encore has been able to come out of the gates in a competitive position because of its resale model’s unique features:

• Provides consumers the opportunity to sell their gently-used items and be paid for them on the spot;
• Stocks a vast array of products and brands, ranging from Old Navy apparel to Gucci and Louis Vuitton handbags and accessories;
• Offers discounts up to 90 percent off regular retail prices;
• Provides customers the opportunity to create a wardrobe that’s unique to their specific style and needs;
• Creates a more environmentally-friendly way to shop.

9.  Since Style Encore launched as a franchise in 2013, the brand has grown to more than 60 units across the U.S. and Canada. Winmark recognized that creating an ecommerce storefront accessible to all franchisees and their customers would help usher in the next phase of growth. Style Encore’s top priority when it comes to its ecommerce strategy is driving consumers who are searching for products online into a local Style Encore store.

10.  To put franchisees in the best position for growth, it’s increasingly important to be visible wherever consumers are, particularly when they’re hunting for a specific item. As of 2019, 81 percent of retail shoppers research products online before making a purchase. While consumers are apt to begin their search for the perfect item online, the vast majority of shoppers still make their purchases in a traditional retail space. In fact, ecommerce made up just 16 percent of total retail sales in the U.S. in 2019.

11.  As Winmark built the Style Encore online store, the company designed it with both of these factors in mind. The products that are sold to individual stores are automatically uploaded to the inventory management system, and franchisees can decide which items they want to make available through the ecommerce site. The franchisee can then provide a high-quality image and unique, compelling product description for the items they wish to sell online.

12.  All participating stores have their items pooled into the online store, allowing consumers the opportunity to shop for every available product across the system of Style Encore stores. Shoppers can filter the selection by ZIP code to find items nearby or elect to have their selection shipped to them. If the purchase is made online, the store with the item in its inventory is credited with the sale.

13.  As opposed to a traditional ecommerce model that provides customers with an online catalog that changes based on seasonality, the Style Encore online store is continuously updated. The resulting experience for consumers mirrors what they encounter in a physical store in being able to discover unique finds. For franchisees, they’re able to expose the brand to a wider shopping audience and motivate consumers to visit their locations to make a purchase.

Parent Company Looks to Continue Growth After Strong 2020

14.  At the beginning of January 2021, Winmark said that it was capitalizing on 2020’s growth and anticipating more momentum throughout 2021. While the past year was challenging for many retail brands, Winmark’s resale retail franchise concepts saw growth as its franchisees helped its brands expand into new markets and continue to grow their customer bases. From coast to coast, Winmark’s five brands opened a total of 26 new stores.

15.  Last year was a big year for the resale retail industry. With so many families suddenly tightening their budgets due to job loss or cut hours, resale shops came to the rescue as they continued to provide necessary items for families in the United States and Canada. Winmark’s franchisees opened five Plato’s Closet stores in Alberta, California, New Jersey, and Ontario; 16 Once Upon A Child stores in Tennessee, Arizona, New York, Manitoba, Iowa, Florida, British Columbia, California, Ontario, Nova Scotia, South Carolina, Missouri, Wisconsin, and Pennsylvania; four Style Encore stores in Washington, Virginia, Ohio, and Ontario; and one Play It Again Sports store in Tennessee.

16.  These 26 resale locations have not only breathed new life into quality used items from members of the community, but have provided a sustainable eco-friendly shopping option during the current economic downturn. Winmark said it was pleased to see that this growth into new markets came from a healthy mix of new franchisees and existing Winmark franchisees who found success in the system and looked to expand their portfolio.

17.  As Winmark looks toward 2021, the company has pinpointed ideal growth markets for each of its five resale brands. For each brand, Winmark chose its top development markets with local community needs, multi-unit growth, and current brand exposure in mind. Top markets for resale in general include Boston, Los Angeles, and Phoenix.

18.  Here are the top five markets for each brand in 2021:

• Plato’s Closet focus markets include Boston, Los Angeles, New Jersey, Phoenix, and San Diego.
• Boston, Dallas, Los Angeles, Phoenix, and San Diego are top priority markets for Once Upon A Child.
• Play It Again Sports has available territories in Dallas, Houston, Los Angeles, Philadelphia, and Pittsburgh.
• Style Encore focus markets include Atlanta, Baltimore, Chicago, New Jersey, and Tampa.
• Music Go Round is looking to continue their growth in Austin, Dallas, Nashville, Phoenix, and San Antonio.

Company History

19.  Style Encore was launched by its parent company, the Winmark Corporation, in 2013, with the first store opening in Texas. Since Winmark has one brand that focuses on children’s goods (Once Upon A Child), and another that specializes in teens and young adults (Plato’s Closet), it was only natural for the company to create a brand that sells used women’s clothing.

20.  Style Encore immediately pays cash to people looking to sell used women’s attire, footwear, handbags, and jewelry. To keep up with current fashion trends, Style Encore locations primarily try to buy modern and popular brands and styles. Today, there are Style Encore locations across North America.

Entrepreneur’s Franchise 500

21.  Style Encore did not rank on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Style Encore franchise costs, based on Item 7 of the company’s 2021 FDD.

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

• Please click here for detailed information on Style Encore’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  61
• Outlets at the End of the Year:  67
• Net Change:  +6

2019

• Outlets at the Start of the Year:  67
• Outlets at the End of the Year:  68
• Net Change:  +1

2020

• Outlets at the Start of the Year:  68
• Outlets at the End of the Year:  69
• Net Change:  +1

Company-Owned

2018

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

2019

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

2020

• 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, 2021 FDD) and Analysis

• This Item 19 contains financial performance representations based on information from franchised Style Encore Stores entitled “2020 Style Encore Unaudited Statement of Average Annual Sales and Gross Profit.”

• The gross profit figures in this Item 19 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 profits includes annual gross sales and gross profits as reported by 64 franchised Style Encore Stores located in the United States and Canada that commenced operations during the years 2013 through 2019.

• This statement includes information from only those franchised Style Encore Stores located in the United States and Canada that had been in operation for the 12-month period ended December 26, 2020, with the understanding that some of these Stores had temporary closures as a result of COVID-19, as further described below.

• There are no material financial and operational characteristics of the U.S. Stores that differ materially from the Canadian Stores included in this financial performance representation.

• No other franchised Style Encore Stores are included in this statement due to insufficient history of operations (not in operation by the same franchisee or owners for the 12-month period ended December 26, 2020 or transferred during this period).

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

• There were 64 franchised Style Encore Stores which had been in operation by the same franchisee or owners for the 12-month period ended December 26, 2020. All 64 franchised Style Encore Stores are reflected in the average.

• This financial performance representation does not include information for the 5 Style Encore Stores that opened or transferred in 2020. No Stores closed in 2020 after being opened for less than 12 months.

• Due to governmental regulations and other restrictions related to COVID-19 in many jurisdictions during 2020, many Style Encore Stores were forced to temporarily close for extended periods of time during the year. The temporary closures and COVID-19 regulations and restrictions negatively impacted the Stores’ sales, as reflected below.

• During the temporary in-store closures, some Stores continued to operate by offering curbside and/or online sales.

• Despite these temporary closures, as of the date of the 2021 Disclosure Document, Style Encore does not anticipate that COVID-19 has or will significantly change its business model or the way its Business System operates.

• For purposes of clarification, the 64 Stores includes all Stores that were temporarily closed as a result of COVID-19.

Part 1 – Statement of Average Gross Sales and Gross Profit of the 64 Franchised Style Encore Stores for the Fiscal Year Ended December 26, 2020

Year Opened – 2019