CD Warehouse CEO makes overture to franchisees

Journal Record, The (Oklahoma City), Sep 22, 2000 by Ray Carter The Journal Record

Avoiding a showdown between its corporate leaders and franchisees that could have delayed the opening of 40 stores, CD Warehouse has reached a tentative agreement with its franchisees to pay the entire cost for a new point-of-sale system.

The agreement, announced by members of the CD Warehouse Franchisee Association (CDWFA), comes after weeks of intense criticism from the company's franchisees.

Specifically, association members complained that CD Warehouse had allowed its point-of-sale system to deteriorate, resulting in serious financial damages for franchisees. Members of the association blamed those losses on the company's recent emphasis on acquisitions, CD Warehouse's Internet system and corporate reorganizations.

As a result, the franchisee association announced that its members had individually committed to defer any new store openings until an "equitable resolution" could be achieved. That action would have suspended the planned opening of more than 40 CD Warehouse franchise stores during the next two years, according to a release issued by the association.

In a release issued this week, CDWFA officials said that Christopher Salyer, chief executive of CD Warehouse, had indicated the company will pay the entire cost of software and installation for a new POS system for franchisees, reduce the royalties on sale of new product by 20 percent, provide incentives for franchisees opening new units, and issue stock options to all franchisees.

While no formal agreement has been reached, CDWFA officials were cautiously optimistic about the prospective deal.

"Since the formation of the association, we have been looking for recognition by CD Warehouse, Inc., that it failed to provide services and has pursued a business course of action which has been detrimental to its franchisees," said CDWFA President David Gott. "While this week's commitments are currently only promises of future action, the association looks forward to CD Warehouse taking these first steps. There are still many issues to be resolved but it now appears that the efforts of the association have created positive results for the CD Warehouse franchise community."

CDWFA Board member Doug Olson was more cautious.

"While this is an important first step, and may lead to positive opportunities, it's hard to get too excited about promises when the only concrete action that the new management has taken so far is to sue five of its more successful franchisees," he said. "Obviously, we will withhold final judgment, and any development of new units, until there is real evidence that CD Warehouse can and will fulfill its promises."

CD Warehouse officials also appeared cautiously optimistic. While Sayler said the final details of the agreement were still being worked out, he also said he was pleased with the progress made so.

"What I'm excited about is the opportunity to work successfully and in concert with the franchise community," he said. "And I think that spirit of that (CDWFA) press release recognizes the value of a close, personal working relationship that appears to be moving forward in a positive direction."