Remodeling Franchise Showdown: Closets by Design vs Closet Factory (2024)
Explore the key metrics behind two leading home organization franchises, Closets by Design and Closet Factory. Dive into their financials, growth, and franchise costs to uncover which might be the better investment.
Table of Contents:
Introduction
The interior remodeling industry comprises establishments primarily responsible for the remodeling and renovation of single-family and multifamily residential buildings. Because both Closets by Design and Closet Factory are in the same industry, let’s take a closer look at both and analyze their key franchise metrics.
Executives
Closets by Design is led by CEO Gil Santos who was a partner at WMG, a boutique management consulting firm before taking on his current role. Jerry Enger is the President of the company he has been on the board of Home Organisers Inc. since 2009.
Closet Factory is led by CEO and President Steve Newman who was with AIG Interiors as President and CEO between 2008 and 2014 and in the same role at Neighborhood Painting Masters between 2018 and 2021 before he moved to Closet Factory.
Suffice to say, both businesses are led by executives which have considerable experience in the industry.
Initial Franchise Investment Costs
The following information has been collected from the 2022 FDDs (Franchise Disclosure Document) for the companies:
| Closets by Design | Closet Factory | |
|---|---|---|
| Initial Fee | $20,000 | $58,500 |
| Location/Territory | Greater of $18,000 or $1,000 for each increment or portion of 10,000 households in the Territory. | $16,000 - $36,000 |
| Furniture, Fictures and Equipment | $35,000 to $250,000 | $125,000 - $195,000 |
| Vehicles | $1,000 to $4,000 | $2,500 - $7,500 |
| Opening Marketing | $30,000 to $45,000 | $20,000 - $45,000 |
| Signage and Uniforms | $500 to $1,000 + Uniforms | $1,000 - $4,000 |
| Inventory | $10,000 to $25,000 | $10,000 - $20,000 |
| Property Improvements | $5,000 to $30,000 | $5,500 - $25,000 |
| Additional Costs | $25,000 to $75,000 | $35,000 - $75,000 |
| Total | $152,000 to $503,000 | $273,500 - $466,000 |
| Midpoint | $327,500 | $369,750 |
Clearly, both companies are in the range of $330,000 – $370,000 when it comes to the initial investment and cost of setting up a franchised location.
Ongoing Costs
The following are the ongoing costs compared side by side for both companies.
| Closets by Design | Closet Factory | |
|---|---|---|
| Royalty | The greater of 6.75% of your previous month's Gross Revenues, or $3,000 per month. | Equal to the greater 6.75% of Gross Receipts or $975 per week ($3,900 for 4 weeks) |
| Advertising | Can be anywhere from 14% to 40% of your Gross Revenues | Minimum of 15% of Gross Receipts |
| Renewal Fee | $5,000 | $7,000 |
While these are the major fees, there are other fees associated with running these businesses too. Closets by Designs’ agreement is very convoluted depending on the population living in your area.
Sales
According to the 2022 FDDs for both companies, the following are the sales figures:
| Closets by Design | Closet Factory | |
|---|---|---|
| Average annual sales | $7,947,014 | $5,685,942 |
| Median annual sales | $5,550,937 | $4,331,102 |
From the table above, it is clear that Closets by Design stores make slightly more money than do Closet Factory stores. As such, let’s look at how long it will take a potential investor to earn their money back. Using the figures above, we can calculate how long it will take for you to get your money back:
Closets by Design:
| Initial investment (midpoint) | %Profit margin of average franchise sales | Estimated Profits | Time to recoup investment |
|---|---|---|---|
| $327,500 | 5% | $277,546 | 3.75 years |
| $327,500 | 10% | $794,701 | 3 years |
| $327,500 | 15% | $1,192,052 | 2.75 years |
Closet Factory:
| Initial investment (midpoint) | %Profit margin of average franchise sales | Estimated Profits | Time to recoup investment |
|---|---|---|---|
| $369,750 | 5% | $216,555 | 3.75 years |
| $369,750 | 10% | $568,594 | 3.5 years |
| $369,750 | 15% | $852,891 | 3.25 years |
At a 10% profit margin, Closets by Design will recoup your investment in 3 years while Closet Factory will do so in 3.5 years. This includes the time it takes to scale up your business. However, depending on location, collection, and other factors, you might get different profits or profit margins making the time longer.
Legal
Closet Factory has no pending litigation against it.
CBD is engaged in litigation with one of its franchisees for breach of contract and of a non-competition covenant. It is engaged in litigation with another one of its franchisees for breach of its franchise agreement.
Growth
Closet Factory Unit Growth
| Outlet Type | Year | Outlets At The Start Of Year | Outlets At The End Of Year | Net Change |
|---|---|---|---|---|
| Franchised | ||||
| 2019 | 64 | 66 | +2 | |
| 2020 | 66 | 65 | -1 | |
| 2021 | 65 | 69 | +4 | |
| Company-Owned | ||||
| 2019 | 6 | 6 | 0 | |
| 2020 | 6 | 6 | 0 | |
| 2021 | 6 | 6 | 0 | |
| TOTAL OUTLETS | ||||
| 2019 | 70 | 72 | +2 | |
| 2020 | 72 | 71 | -1 | |
| 2021 | 71 | 75 | +4 | |
The figures above are for Closet Factory. They have opened only 5 new stores in the last three years. That’s a growth rate of only 7% as they expanded from 70 stores in 2019 to 75 in 2021. Closets by Design also has similar numbers as shown below. Between 2019 and 2021, they grew from 57 to 72 stores, a growth rate of 26% which is much higher than Closet Factory.
Closets by Design Unit Growth
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 51 | 57 | +6 |
| 2020 | 57 | 60 | +3 | |
| 2021 | 60 | 65 | +5 | |
| Owned By CBDI and CBDF | 2019 | 6 | 6 | 0 |
| 2020 | 6 | 6 | 0 | |
| 2021 | 6 | 7 | +1 | |
| Total Locations | 2019 | 57 | 63 | +6 |
| 2020 | 63 | 66 | +3 | |
| 2021 | 66 | 72 | +6 | |
Finances
The Closet Factory Franchise Corporation Statements Of Income (Loss)
| For the Year Ended December 31, 2021 | For the Year Ended December 31, 2020 | |
|---|---|---|
| Revenue | ||
| Franchise fees | $213,028 | $170,945 |
| Royalties | 13,652,766 | 9,187,903 |
| Other revenue | 368,122 | 224,227 |
| Total revenue | 14,233,916 | 9,583,075 |
| Operating expenses | ||
| Marketing and advertising | 5,115,150 | 3,083,362 |
| General and administrative | 9,019,830 | 6,458,497 |
| Total operating expenses | 14,134,980 | 9,541,859 |
| Net income (loss) from operations | 98,936 | 41,216 |
| Other income | 10,000 | - |
| SBA grant | 108,936 | 41,216 |
| Provision for income tax (expense) | (31,492) | (41,786) |
| Net Income (loss) | $77,444 | $(570) |
Closet Factory posted a profit of $77,444 in 2021 compared to a loss of $570 in 2020. It remains to be seen if they can sustain this growth. In comparison, CBD had a net income of $27 million in 2021. This is up 51.6% from $18 million in 2019. Their statement of income is below:
CBD Franchising, Inc. Statements Of Income
| For the Year Ended December 31, 2021 | For the Year Ended December 31, 2020 | |
|---|---|---|
| REVENUE | ||
| Royalty and related income | $67,456,469 | $44,716,864 |
| Advertising fund management income | 449,141 | 872,359 |
| Franchise fees | 664,332 | 731,466 |
| Total revenue | 68,569,942 | 46,320,689 |
| OPERATING EXPENSES | ||
| Selling | 37,220,021 | 24,865,442 |
| Administrative | 3,600,419 | 3,180,162 |
| Total operating expenses | 40,820,440 | 28,045,604 |
| INCOME FROM OPERATIONS | 27,749,502 | 18,275,085 |
| OTHER INCOME | - | 24,627 |
| INCOME BEFORE INCOME TAX EXPENSE | 27,749,502 | 18,299,712 |
| INCOME TAX EXPENSE | 416,243 | 274,496 |
| NET INCOME | $27,333,259 | $18,025,216 |
Conclusion
When compared, Closets by Design does recoup the initial investment first but only by half a year which does not count for a lot in the long run. Closets Factory also has a slightly higher initial cost of investment.
