Franchise Group

Franchise Group, Inc is an American holding company that owns retail companies and companies that specialize in the preparation of tax returns. It is the third largest tax preparation franchise in the United States. The company began in Canada in 1997 when John Hewitt, co-founder of Jackson Hewitt, acquired a Canadian tax franchisor, U&R Tax Depot. In 1998, the company became Liberty Tax Service and opened five offices in the United States.[1] Liberty Tax Service is the company's primary subsidiary. On September 19, 2019, the company changed its name to Franchise Group, Inc.[2]

Franchise Group, Inc
TypePublic
NASDAQ: FRG
Genre
PredecessorLiberty Tax Service
Founded1997 (1997)
Virginia Beach, Virginia, U.S.
FounderJohn Hewitt
HeadquartersVirginia Beach, Virginia, U.S.
Key people
CEO Brent Turner
COO Ted Demarino
CFO Michael Piper
Products
Subsidiaries
Websitewww.franchisegrp.com

History

Liberty Tax Service appeared on Forbes "Top 20 Franchises for the Buck" in 2012.[3] Liberty Tax Service is well known for its wavers, people in Statue of Liberty costumes and Uncle Sam costumes, used as a form of guerrilla marketing.[4][5][6][7][8] On October 28, 2011, a flash mob of costumed Lady Libertys danced in Times Square to promote Liberty Tax Service and celebrate the anniversary of the Statue of Liberty.[9][10]

Diversification

On July 10, 2019, Liberty Tax completed the acquisition of Buddy’s Newco, LLC, the parent company of Buddy's Home Furnishings, a chain of 293 company-owned and franchisee rent-to-own stores with locations in the United States and Guam, 90% of which are operated by franchisees.[11][12]

In August 2019, the company announced the pending acquisition of The Vitamin Shoppe, a chain of vitamin supplement stores found in malls and shopping centers.[13] On September 19, 2019, the company changed its name to Franchise Group, Inc. to reflect the company's expansion into general retail.[2]

On October 23, 2019, Sears Hometown and Outlet Stores completed its sale of Sears Outlet to Franchise Group[14] while Transform Holdco completed the acquisition of the remainder of Sears Hometown at the end of the same business day.[15]

The acquisition of The Vitamin Shoppe was completed in December 2019.[16]

In December 2019, the company announced the pending acquisition of American Freight, a discount furniture and home furnishing retail chain, from an affiliate of the Jordan Company for approximately $450 million in cash. [17] The acquisition was completed in February 2020 after company received a $675 million loan to finance this acquisition and to restructure the debt incurred upon the previous acquisitions of Buddy’s Home Furnishings and Sears Outlet.[18] It was also announced that the company plans to merge Sears Outlet into America Freight with the store rebranding completed by April 2020.[19]

Founder
A typical location in a strip mall in Hillsboro, Oregon

John Hewitt began his career at H&R Block as a tax preparer in 1969 and was later promoted to regional director of 250 offices. In 1982, he went on to found Jackson Hewitt Tax Service, which he grew to over 1,300 offices until it was sold for $483 million in 1997.

Awards

Entrepreneur magazine has ranked Liberty Tax Service on its "Franchise 500" list of best franchise opportunities since 1998. Liberty Tax Service is the only tax franchise on the Forbes magazine's "Top 20 Franchises for the Buck." (2012) [20]

Liberty Tax has been the subject to criticism related to their business practices. Many of these have become the subject of legal actions by former franchise owners and some state attorneys general:

  • Liberty Tax makes use of "sign wavers", people dressed in costume actively advertising for nearby franchises. They have come under criticism for violating zoning regulations,[21] disrupting traffic [22][23]
  • Liberty Tax was sued by the State of California in 2009 for promising its customers speedy tax refunds while failing to disclose that they were actually taking out high-interest bank loans on their behalf subject to finance charges and debt collections, a state appeals court has ruled in upholding a $1.3 million judgment against the tax preparation firm.[24][25]
  • Liberty Tax franchises were the subject of a class action suit in South Carolina in 2011. The suit claims that the firm inflated business expenses and produced false information about charitable donations and that the Liberty Tax Service office they hired did not follow through with a guarantee to assist them during the audit process. The suit claims that Liberty Tax had a plan or a scheme to increase their profits by filing false, fraudulent or inappropriate forms.[26][27]
  • Liberty Tax has been accused of engaging in predatory lending targeted at low income and military families. The alleged abuses relate to what is known as refund anticipation loans (RAL). An RAL is a high interest rate short-term loan secured by a taxpayer's expected tax refund, and designed to offer customers quicker access to funds, rather than waiting for their tax refund from the IRS. The New York State Division of Human Rights in 2008 filed a complaint against Liberty Tax Service and others, seeking to limit the tax preparers' ability to market RALs. According to the DHR's court filings, military families and ethnic minority families have found themselves in deep debt having to use their tax-refund and savings just to keep up with interest payments that can balloon up to 700% annualized when they get RALs.[28]

Subsidiaries
  • JTH Tax, Inc. (doing business as Liberty Tax Service[29] ) – facilitates refund-based tax settlement financial products, including tax preparation, refund anticipation loans, electronic refund checks, and personal income tax refund discounting. Liberty Tax Service conducts its business in the United States.
  • American Freight – a chain of discount furniture and home furnishing stores that was acquired in February 2020[18]
  • Buddy's Newco LLC (doing business as Buddy's Home Furnishings) – offers home furniture including sofas, chairs, dining tables, as well as electronics, and appliances. Buddy's Home Furnishings serves clients in the United States.[30]
  • The Vitamin Shoppe – offers nutritional supplements in every 785 stores across the U.S., as well as online. Acquired by Franchise Group in December 2019 after Irving Place Capital sold the remaining shares of the company and its division, Super Supplements to Franchise Group in the same year.[16]

Former Subsidiaries
  • Sears Outlet Stores – outlet version of Sears department stores located in various retail locations across the U.S., as well as online. Sold to Franchise Group in October 2019 while Transform Holdco completed the acquisition of the remainder of Sears Hometown at the end of the same business day.[14][15] In April 2020, Sears Oulet was merged into American Freight and the stores were rebranded American Freight.

References
  1. Tax Service Franchise Reviews Archived October 28, 2011, at the Wayback Machine
  2. Piper, Michael S. (September 19, 2019). "Liberty Tax, Inc. Changes Name to Franchise Group, Inc". GlobeNewswire. Los Angeles: West Corporation. Retrieved November 12, 2019.
  3. https://www.forbes.com/sites/jjcolao/2012/02/08/top-20-franchises-for-the-buck/
  4. http://www.themorningsun.com/articles/2011/02/11/news/doc4d546a4f74704261795371.txt
  5. https://www.avclub.com/chicago/articles/liberty-tax-services-wavers-are-people-too,54410/
  6. http://www.kansan.com/news/2009/apr/16/life_liberty_tax_service_waver/%5B%5D
  7. http://www.dailyinterlake.com/news/local_montana/article_de41daa8-21ea-11e0-b184-001cc4c03286.html
  8. http://chronicle.augusta.com/news/crime-courts/2012-02-10/north-augusta-barring-tax-services-wavers
  9. http://www.paramuspost.com/article.php/20111026153220527
  10. http://www.businesswire.com/news/home/20111021005041/en/Liberty-Tax-Delegation-Celebrate-Anniversary-Statue-Liberty
  11. Pierceall, Kimberly (July 12, 2019). "Liberty Tax gets into the rent-to-own business, changes corporate name". Virginian Pilot.
  12. "Liberty Tax Announces a Series of Strategic Transactions". GlobeNewswire (Press release). July 10, 2019.
  13. "The Vitamin Shoppe to be Acquired by Liberty Tax". Business Wire. San Francisco: Berkshire Hathaway. August 8, 2019. Retrieved November 13, 2019.
  14. Kaminsky, Andrew F. (October 23, 2019). "Franchise Group, Inc. Closes on the Acquisition of the Sears Outlet Business from Sears Hometown and Outlet Stores, Inc". GlobeNewswire. Los Angeles: West Corporation. Retrieved November 12, 2019.
  15. Aycock, Jason (October 23, 2019). "Sears Hometown and Outlet +2.7% after merger transaction". Seeking Alpha. Ra'anana: Seeking Alpha Ltd. Retrieved November 12, 2019.
  16. Kaminsky, Andrew F. (December 16, 2019). "Franchise Group, Inc. Closes on the Acquisition of The Vitamin Shoppe". GlobeNewswire (Press release). Virginia Beach: West Corporation. Retrieved December 16, 2019.
  17. "Franchise Group, Inc. to Acquire American Freight Group, In". GlobeNewswire (Press release). December 30, 2019.
  18. "Franchise Group, Inc. Closes on the Acquisition of American Freight Group, Inc". GlobeNewswire (Press release). February 14, 2020.
  19. "Sears Outlet, American Freight Combine to Create One-Stop-Shop for Your Home". GlobeNewswire (Press release). February 27, 2020.
  21. Tax firm's 'wavers' not exempt from concern
  22. Arrest of Dancing Mascot Puts Liberty Tax Wavers In The Spotlight
  23. Case No. CV F 13-0547 LJO SMS
  24. Court rules against Liberty Tax Service
  25. "Attorney General Prevails In Lawsuit Against Income Tax Preparation Company". Archived from the original on February 16, 2015. Retrieved February 15, 2015.
  26. Five Signs You Might Have a Bad Tax Preparer
  27. The Ugly Truth about the Tax Preparation Chains
  28. Predatory Lenders Milking Consumers
  29. "JTH Tax Inc". Bloomberg News. New York City: Bloomberg L.P. Retrieved November 12, 2019.
  30. "Buddy's Newco LLC". Bloomberg News. New York City: Bloomberg L.P. Retrieved November 12, 2019.
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