Annex Brands, Inc. – Filling an expanding niche

Business View Magazine interviews Ryan Heine, VP of Franchising for Annex Brand, Inc., as part of our series on best American franchise companies.

Recognizing a need and filling a niche can sometimes take one to unexpected and profitable places. The growth of Annex Brands, Inc. has been nothing if not phenomenal over the past few decades, and it all began with one man’s quest for a better business solution.

“The company started as PostalAnnex+ about 33 years ago,” explains Ryan Heine, Vice President for Franchising. “The first locations were opened in 1985, and we started franchising in 1986. Jack Lentz, the founder, came from a printing background and spent a period of time ‘flunking retirement.’ He worked as a business consultant and was struggling to find a single point of service for the types of needs he had as a home-based business – a place to ship things, a professional address, small office and business-related services. As a result, he founded the PostalAnnex+ brand to try and meet those needs, not just for him but for other people who were in the same position. His initial plan was to run and operate multiple locations throughout San Diego County, California. I think he identified somewhere between 16 and 18 communities here that he planned on developing over time.”

Things went better than expected. PostalAnnex+ sold its first franchise in 1986, located in the Rancho Penasquitos community of San Diego. Since then PostalAnnex+ has grown to nearly 300 locations across the United States. Then, in 2006, PostalAnnex+ acquired the Florida-based Sunshine Pack & Ship retail and commercial shipping centers. The Sunshine acquisition provided new opportunities with the shipping of large, fragile, and valuable items through its logistics and van line operations.

In September 2007, the company acquired the Handle with Care Packaging Store brand. These locations strengthened the company’s vertical reach into the shipping and transportation business through its commercial logistics operations, including creating packing solutions via custom-built corrugated cartons and wooden crates. As a result of a growing number of brands beyond the flagship PostalAnnex+ brand, the company renamed itself Annex Brands, Inc. in late 2007.

“So, most of our early growth and development was organic,” explains Heine, “it was friends, family, neighbors, customers of the location, and much more regional in origin as a result. But then we began to grow our organization, not only through new unit licensing, but also through a chain of acquisitions, which have consolidated the industry. We’re not just PostalAnnex any longer. We’re PostalAnnex, Pak Mail, AIM Mail Centers, Navis Pack and Ship, the Handle with Care Packaging Store, Parcel Plus, Sunshine Pack and Ship, and our quick print option, which is Annex Copy.”

“All of that is now kind of folded under the Annex Brands umbrella,” Heine continues, “And so, combined, at this point in time, here in North America, from among all those various brands, we’re operating about 850 locations. And as our number one competitor is The UPS Store, more of a single platform carrier in terms of the shipping options today, we have the well-earned designation of being the largest multi-platform shipper within our industry.”

From the franchisee’s point of view, these acquisitions are wonderful news. It means a consolidation of resources, a much larger staff, a lot more support structure, and, because of its volume, the brand has leverage with the cost of goods.

“The PostalAnnex business model really geared toward two main consumer groups,” says Heine. “We have that retail-residential side, just for people who live in the neighborhood that have periodic needs like shipping a holiday gift, or getting a notary on an important document. Then, the other main consumer group that we’re targeting is the SOHO – Small Office, Home Office – generally organizations with 25 or fewer employees where there is a much greater demand for outsourcing business services.”

Another way in which Annex Brands maintains growth is through the quality of its franchisees. Heine recognizes three types of business owners all of which have different criteria for success. “First, we have multi-unit operators, who are generally seen as absentee managers,” he explains. “They are interested in building the equity for themselves in the business, taking the profit off the top, but not necessarily displacing any labor because they’re focused on other careers, activities, and business ventures. This is a fairly comfortable investment for a lot of those folks. If you look at the metrics within our business model, you can see how easy it is to continuing revenue streams. Our business model is what they consider a clean business model. We operate really close to normal hours of operation; there is limited business owner oversight; light staffing requirements; and a broad labor pool. Even though we are in a retail setting, we are principally service-oriented. So, while we do carry some product and inventory, the product and inventory we do carry is not really subject to any shrinkage or spoilage. Cardboard boxes don’t go bad if you don’t sell them every week. You don’t have to worry about people shoplifting bubble wrap and packaging peanuts, for the most part. So, when you take all those elements and add them together: light staffing, close to normal business hours, ease of inventory management – it tends to be fairly attractive for that investor group.

“Then there are the ones you could term ‘semi-absentee’. You know, sometimes it’s hard to hand the keys of the Ferrari over to someone else entirely, so they have a presence in the business and get to make sure that franchise best practices are being followed, and that customer service standards are being upheld by their staff.

“Finally, there are those who we term ‘owner-operators.’ These are the folks that perform the manager role in the business. They still get all the profits of the business, still build all the equity, and they get to displace the majority of the salary expense, which they get to keep as owners. So, from an individual location/cash flow basis, it can be quite substantial for those folks.”

Annex Brands likes to be proactive with their franchisees, giving a lot of upfront support. “When it comes to construction and build-out,” Heine offers, “we do have our own contractors, our own fixture providers, our own architects, everything to take you from ground zero to key in the door and open for business.” As a franchisor, Annex Brands tries to maintain profitable operations for their business owners, while also continuing to grow their market penetration.

“The trend lines in the industry drive our direction,” says Heine. “On the residential side of things, it’s online commerce. You know, I think at this point in time, Cyber Monday is starting to surpass Black Friday in terms of retail sales for the holiday period. And that’s indicative of that shift from brick-and-mortar retail to clicks and bricks, if you will. This does not have a negative impact on us; if anything it is a place where we can inject our business model into the middle of transactions that we didn’t used to be a part of.

“On that small office home office side of our consumer base, we have seen a kind of ongoing shift of culture and technology that’s really also being promoted in a lot of major, large organizations for the diversified workforce and distributed workforce. So, telecommuters, work flex time, stay-at-home operators, independent contractors, those types of folks – which is essentially creating a whole new consumer base for us. Now, they might be paying for these services on a corporate AMEX or being reimbursed on the expense account, but from our business owners’ point of view, it acts just as if it were a small home-based business.”

Having developed the market for 30 years, spreading well beyond Southern California into Mexico and Canada, as well as nearly all U.S. States, Annex Brands, Inc. has achieved some 55 percent market penetration. But that means there is still a lot of room for growth.

“Part of our strength comes from our tenure,” concludes Heine. “There are a lot of young businesses that are out there, but we do have an extensive experience base. I have the dubious honor of being probably the junior member of the executive team, and I’ve been with the organization going on 15 years. So, the stability, the culture of our organization -, those are important elements for any business investment as well as that ongoing relationship with the perspective franchisees that do join us.”

AT A GLANCE

WHO: Annex Brands, Inc.
WHAT: A franchisor in the shipping and transportation business
WHERE: San Diego, California
WEBSITE: www.annexbrands.com

PREFERRED VENDORS