Lately, some of our clients started asking about the DirectBuy franchise, trying to decide if it’s a promising investment for them to make. If you are a reader of my blogs and have gotten the chance to talk to me, you know my thoughts on buying the right franchise to have as a long-term asset. Deciding to become a franchise owner is a very big step as an Entrepreneur and your business financial health, asset accumulation, and overall success depends on you doing all your homework. With such a big commitment ahead, you want to ensure that you are making every effort to get involved in the best opportunity that fits your long-term business goals and, in some cases, personal plans.
Therefore, the homework you do and the people that you talk to have to be trusted agents, willing to give you the best advice based on facts, not emotions. In years past, I learned the hard way that there are several franchises out there that you should steer clear. Many of these very bad opportunities can be found on the Forbes Worst Franchise List, and one of those is the DirectBuy franchise. (Scroll to the middle of the page on the Forbes Worst Franchise list to see the listed franchises.)
Let’s look at the cold, hard facts – after shelling out an average initial investment of around half million dollars ($500,500), the 5-year growth rate of the franchises’ total 38 units is -12%. With such a bad growth rate and requiring such a high investment, DirectBuy makes Forbes Worst Franchise list. My questions to you is simple: If you are willing to invest that much money, why not look for a franchise opportunity that can provide a higher rate of growth and returns?
The DirectBuy franchise is a membership buying service. Through DirectBuy, members pay a fee and are then eligible to buy products at a discounted rate; these products can be purchased directly from the manufacturer and its authorized suppliers. The products eligible for purchase include home furnishings, entertainment, flooring, outdoor accessories, and home improvement items. While it might sound like something customers are looking for, that major investment could leave you struggling to get up and running. And in this new global market with so many suppliers providing a larger selection, lower prices and almost zero delivery cost options to their customers, the profits for you are just not there as a DirectBuy Franchise owner.
In addition to the major investment in the franchise, the overall business does not seem to be doing so well with its own financials. In 2007, the company was acquired for $550 million by a private equity firm. But, in the coming years, things took a turn for the worst – in 2016, with approximately $185 million in debt, the company filed for Chapter 11 bankruptcy and had actually closed all 160 of its franchised showrooms. Then, in 2017, the company was acquired in a bankruptcy deal by another private equity firm.
With such a rough financial history in its recent background, it is safe to say that DirectBuy is not the best place for a new franchise owner – or any franchise owner – to make such a substantial investment. Carefully consider the franchise you are about to make your career before making an investment. There are plenty of successful franchise opportunities out there that would be much better suited for you.
La Mancha Sims is Managing Director and Founding Partner of Triton Business Group, Inc., a business funding consulting firm located in Decatur, Georgia. La Mancha is a former Naval Officer who has over fifteen years of experience in franchise and commercial finance, specializing in assisting entrepreneurs who want to enter the franchise industry as owners or consultants/advisors. You can reach La Mancha at 770-249-2357.
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