Massage Envy Owners Call for New Direction as Profits Halved | Franchise News
Over 100 arbitration actions have racked up against Massage Envy in the past year, from franchisees demanding an imminent doubling of fees for the national advertising fund, forced purchases of more expensive massage oils that only benefit the franchisor , and increased fees for applications and other technology that is âexcruciating, non-functional,â as operator Scott Loev put it. Now, the Envy Owners Association is making public its biggest demand yet: a call for new leadership.
âOn the board, frankly, we would like to see a change in leadership,â said Jim Mellon, president of the Envy Owners Association and Massage Envy franchisee in Kansas City. âWe don’t think the current team has what it takes to lead the organization. The actions they take definitely bring the brand down.
At a “high level,” Mellon offered this summary of franchisee complaints. “We’re a roughly $ 1 billion operation, and five years ago we were or knocked on the $ 1.5 billion door,” he said. At the end of 2015 / early 2016, when he entered the system, âthe average location was or approached $ 1.3 million across 1,200 locations. Now AUVs are in the low end of $ 900,000, and that changes from week to week, and no more than 1,100 locations. Massage Envy never had a nearby location until 2017, and now we’ve lost over 75/80 locations.
In terms of profitability, experienced franchisees had gross margins or EBITDA of 20% in 2016. Today, âEBITDA is around 8 or 9%,â said Loev, secretary of the board of administration of the Envy Owners Association and franchisee of Massage Envy.
New management in 2019
Beth Stiller is CEO of Massage Envy, appointed in November 2019 after well-known retail veteran Joe Magnacca resigned after an investigation into a “brief consensual relationship with an employee,” as a statement read. press at the time. He was CEO of Radio Shack from 2013 to 2015, and prior to that he held leadership roles at Walgreens and Duane Reade, among others.
Stiller was Commercial Director at Massage Envy before taking on the CEO role. She joined Massage Envy in 2016, hired by Magnacca, after spending six years at Walgreens and Duane Reade, where she led product development, brand management and sourcing activities, according to press releases from the company.
Kristin Paiva is General Counsel at Massage Envy, and Julie Cary was appointed in September 2020 as Director of Marketing and Innovation. Paiva did not respond to requests for interviews with executives at Massage Envy, nor did John Verhey of DLA Piper, who represents the franchisor in the arbitration actions.
Kate Thompson, chief executive of Massage Envy’s corporate communications firm Joele Frank, said executives declined to give an interview at this time, but sent written quotes attributable to CEO Stiller. They read in part:
“We are committed to managing our franchise relationships through open lines of communication with the goal of maintaining strong and collaborative relationships through our networks that help our franchisees grow their business and the Massage Envy brand,” t she declared.
âWe are currently in active arbitration with a small group of esteemed franchisees and hope to find a mutually agreed resolution. While there will inevitably be differences of opinion on certain aspects of the business from time to time, the overall goals of the franchisees and the franchisor remain aligned. As a franchisor, we understand that their success is our success, and we look forward to a prosperous future together.
Stiller continued, âThe reality is that this is a relatively small minority that challenges the franchisor in the legal system. Legal disputes represent less than 10 percent of locations in the system.
“Legal conversations around these complaints date back to the second quarter of 2019, when the franchisor took numerous steps to address franchisee concerns,” Stiller continued.
âFranchisee engagement is a clear priority for me, and I have spoken to hundreds of franchisees since taking office as CEO in 2019. Our leadership team continues to take action to address the concerns of franchisees. franchisees, and we are proud of the significant progress made. we did, especially during one of the most difficult times in modern history.
Decision to make complaints public
Mellon said the Envy Owners Association has about 212 franchisees as members, out of about 390 “non-aggregator franchisees.” So we are about 54 percent. This number of 390 excludes most franchisees “aggregators”, or large groups supported by private capital which regroup many studios, which join the system in increasing number in recent years.
Of current and former CEOs, Stiller and Magnacca, respectively, Mellon said, âShe’s more polite. Joe would flip the bird right in your face and tell you that you were going to get hosed down by the next step. She’ll lie to you in your face and smile politely, and frankly, she doesn’t have what it takes to run this organization. He said Roark Capital, the private equity firm that owns Massage Envy, has hired Cheryl Bachelder, former CEO of Popeyes, as a consultant to help work with the brand.
Mellon said the Envy Owners Association decided to go public with their complaints after finding they were stuck in their arbitration process, which he said began last October as a class action, but Lawyers for Massage Envy then requested that the actions be separated. âWe never wanted to sue the franchisor. Arbitration is meant to be private, as opposed to public, âhe said.
âBut the mismanagement continues, the reluctance to reach out and include the franchisee association, to continue to introduce things like that extra marketing fund – it’s just gotten to the point, where we can see if any. one is interested in drawing attention to this. It just might force Roark’s hand in terms of leadership.
Massage Envy did not respond to a specific question as to whether Bachelder was selected.
Robert Zarco of Zarco Einhorn Salkowski & Brito, the well-known law firm representing the Envy Owners Association, said on Monday evening that he would not comment “at this time, given that the franchise association has constructive conversations with the franchisor as to a potential resolution He said a draft deal could be worked out within a week.
Find out more about this story in an upcoming print edition of Franchise Times.