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How Much Does It Cost to Open Plato’s Closet Franchise?

If you are looking towards opening a Plato’s Closet Franchise, it will be nice for you to have a preview of what the company represents before going ahead to enquire about the total cost of opening the franchise in your location.

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Plato’s Closet was founded in 1998 and they began franchising in 1999, about 21 years ago. Brett Heffes is the present CEO of the company and they have their corporate head office at 605 Hwy. 169 N., #400 Minneapolis, MN 55441, USA. In 2011, there were over 280 franchisees in the United States and Canada and a total of 479 franchise units.

Winmark Corporation is the franchisor. The franchisee will own and operate a Plato’s Closet retail store. Plato’s Closet purchases and sells used brand name children’s and teenagers’ clothes, shoes, accessories, books, CDs, games, picture frames and other items and paraphernalia. It focuses on clothes for people aged 12 to 24. Winmark purchased Plato’s Closet from Dennis and Lynn Blum, the founders of Once Upon a Child, in 1998.

Here are areas where you are expected to spend money and the cost associated with it;

  1. Initial Franchise Fee

    $15,000 to $25,000

Please note that if you are opening a single Store, you must pay an “Initial Franchise Fee” of $25,000 to Plato’s Closet. The Initial Franchise Fee is $15,000 if you are currently opening a second or subsequent Store or if you are an existing franchisee of one of the franchisor’s other franchised concepts.

You must sign a separate Franchise Agreement for each Store. You must pay the Initial Franchise Fee for your first Store in a lump sum to Plato’s Closet when you sign the Franchise Agreement. The Initial Franchise Fee is nonrefundable.

  1. Point-of-Sale (POS) System

    $20,700 to $26,600

You must use in your Store the point-of-sale system (the “POS System”) which Plato’s Closet has selected for your Business System, and you must enter into a Computer Software License Agreement with Plato’s Closet for use of its proprietary software program (the “Proprietary Software”).

The initial cost of the POS System and Proprietary Software will range from $20,700 to $26,600 for each Store, which includes the DRS Maintenance Fee. This amount is not refundable.

You will generally purchase the POS System and Proprietary Software immediately before you attend Plato’s Closet’s second week of training.

Please note that the franchisor, through its subsidiary Winmark Business Credit, Inc., may lease to you the POS System or other equipment necessary to operate your Business. The monthly payment and finance charges will vary based on the value of the leased equipment, type of leased equipment, your financial health, your credit history, the type of lease, and other factors.

  1. Continuing Fee

    5 percent of your “Gross Sales” and the Due Date for this fee is on or before Wednesday of each week for the previous week.

“Gross Sales” means the total revenues you receive from the sale of goods and services, whether by cash or by check, credit card or trade, in connection with the Store, less customer refunds and returns and sales or similar taxes. Gross Sales includes any sales permitted though the Internet.

Gross Sales do not include wholesale transactions from Plato’s Closet franchisees to other Plato’s Closet franchisees in good standing with the franchisor.

Please note that in certain situations, other franchisees may be paying a lower percentage rate for continuing fees than you are. All new franchisees are required to pay the percentage rate stated in the disclosure document. However, a franchisee with an earlier Franchise Agreement may have been required to pay a lower percentage rate than the stated amount or may be required to pay less upon renewal of their Franchise Agreement.

In the future, Plato’s Closet may change the continuing fees for new and renewing franchisees unless your Franchise Agreement specifically grants you the right to renew your Franchise Agreement at a lower rate.

Plato’s Closet requires you to allow it to withdraw continuing and other fees directly from your bank account.

  1. Marketing Fee

    $1,500 per year and the Due Date for this fee is Due January 1 of each year.

  2. Cooperative Advertising

    Maximum amount is 5 percent of your Gross Sales and the Due Date for this fee is Established by the franchisor or franchisees.

The franchisor or local Plato’s Closet franchisees may establish an advertising cooperative in your area. The local advertising cooperative will establish the amount of cooperative advertising fees.

Please note that if a company-owned store is a member of your cooperative, it will have voting power equal to that of franchised stores. Company-owned stores will not have controlling voting power in any local cooperative.

There are currently no company-owned Plato’s Closet stores.

  1. Local Marketing Expenses

    Minimum amount, when combined with cooperative advertising expenses, is 5 percent of your Gross Sales and the Minimum amount must be spent during each calendar year.

To the extent your annual contributions to cooperative advertising programs are less than 5 percent of the Gross Sales for your Store, you must conduct additional advertising and marketing activities in your local geographic area.

Your local advertising activities, however, will not eliminate your obligations to contribute to cooperative advertising programs.

Please note that if you do not spend at least 5 percent of Gross Sales for the calendar year for cooperative or local advertising, Plato’s Closet may require that you pay it the difference between what you should have spent for advertising during the calendar year and what you actually spent, with the money to be spent on advertising initiatives in your market in the subsequent year at Plato’s Closet’s discretion.

  1. Advertising Fee

    If Plato’s Closet imposes this fee, you will pay up to 2 percent of your Gross Sales

Due Date:  If Plato’s Closet imposes this fee, it will be due on or before Wednesday of each week for the previous week.

Please note that Plato’s Closet may, with 60 days’ notice, increase your minimum advertising expenditures up to a total of 6 percent of your Store’s Gross Sales. Of the 6 percent, up to one-third (or 2 percent of Gross Sales) will be paid in the form of an “Advertising Fee” to Plato’s Closet for deposit in an “Advertising Fund” to be managed by the franchisor. The balance of the 6 percent minimum advertising requirement must be used for cooperative advertising and local advertising.

  1. Transfer Fee

    $10,000 and the Due Date for this fee is Before completion of transfer.

Please note that this fee is payable when the Franchise Agreement or a substantial portion of the assets of the Store or any controlling interest in the franchisee is transferred.

  1. Audit Expenses

    Cost and expenses related to audit and the Due Date for this fee is After inspection or audit.

Please note that this fee is Payable only if understatement is greater than 2 percent.

  1. Renewal Fee

    $5,000 and the Due Date for this fee is 30 days before renewal of Franchise Agreement.

  2. DRS Maintenance Fee: The fee for the term of the current Franchise Agreement is $1,000. Upon renewal, the then-current rate for the fee will be applied.

The Due Date: The fee will be due upon placement of order of the POS System, and upon renewal of the Franchise Agreement.

Please note that this fee is for upgrades to the antivirus and database engine software that supports the DRS software and is payable when you initially order your POS System and upon renewal of your Franchise Agreement.

  1. Technology Fee: Currently, $0 and the Due Date for this fee is Periodically, if established.
  2. Remodeling Expenses: Will vary under circumstances but the Due Date for this fee  is When incurred.

Please note that you must modernize your Store upon notice from Plato’s Closet, although it cannot require you to do so more than once every 5 years. The modernization must conform to the standards that Plato’s Closet requires at that time for similarly situated new Plato’s Closet Stores.

The scope of modernization may range from simply repainting the Store to completely refurbishing the entire Store, including replacement of fixtures, exterior signage, sign supplies, equipment, and POS System.

Plato’s Closet cannot estimate the current costs for a modernization project because the scope and extent of the modernization will vary based on the then-current brand standards, the condition of the Store, and the cost of labor and materials at that time.

You may make these payments in whole or in part to Plato’s Closet’s approved third parties and/or preferred vendors. Before you modernize your Store, you must submit your modernization plans to Plato’s Closet for its approval.

  1. Insurance: Will vary under certain circumstances and the Due Date fee is When Plato’s Closet requests reimbursement.

Please note that is Payable to Plato’s Closet if you fail to pay insurance premium and Plato’s Closet pays it for you.

  1. Interest Expenses: Lesser of 18 percent per year or maximum rate permitted by law and the Due Date for this fee is When due.

Please note that this fee is Payable if Continuing Fee or other amounts due Plato’s Closet are not timely paid.

  1. Lease Payment: Will vary under certain circumstances and the Due Date for this fee is When due.

Please note that this fee is Payable if you sign a lease agreement for the equipment used in your store.

  1. Costs and Attorneys’ Fees: Will vary under circumstances and the Due Date for this fee is When incurred.

Please note that Plato’s Closet may recover costs and reasonable attorneys’ fees if you lose in a dispute with it..

  1. Veteran Incentives: This incentive is negotiable
  2. Term of Agreement and Renewal: The length of the initial franchise agreement is 10 years. If franchisees meet the renewal requirements set forth in the Franchise Agreement, they can renew the Franchise Agreement for additional 10 year period(s).
  3. Financial Assistance: If franchisees meet the franchisor’s credit standards, it may, through its Wirth Business Credit, Inc. subsidiary, lease franchisees equipment related to their Plato’s Closet store operations. The franchisor may design a leasing program for certain assets where the structure of the lease is set by it. The franchisor may sell, assign or discount to any third party any lease, note or other instrument executed by its franchisees, which third parties may be immune under law to any defenses to payment franchisees may have against the franchisor. The franchisor does not finance any part of the Initial Franchise Fee due under the Franchise Agreement nor guaranty the franchisee’s retail lease.

In Summary,

  • Initial investments: $255,000 – $400,900
  • Net-worth Requirement: $250,000
  • Liquid Cash Requirement: $75,000
  • Ongoing Initial Franchise Fee: $25,000
  • Ongoing Royalty Fee: 5 percent
  • Ad Royalty Fee: 3 percent