Key Items to Watch out for in the DECORATING DEN SYSTEMS, INC. 2020 FDD
Certain states require that the following risk(s) be highlighted: 1. Out-of-State Dispute Resolution.The franchise agreement requires you to resolve disputes with the franchisor by mediation, arbitration and/or litigation only in Maryland. Out-of-state mediation, arbitration or litigation may force you to accept a less favorable settlement for disputes. I(t may also cost you more to mediate, arbitrate or litigate with the franchisor in Maryland than inyour own state.
Certain states may require other risks to be highlighted. Check the “State Specific Addenda” (if any) to see whether your state requires other risks to be highlighted.
Item 5: Initial Fees
The Initial Franchise Fee for a DDI franchise is $39,900 unless you qualify for and participate in one of our discounted programs that we describe below. You pay the Initial Franchise Fee at the time you sign the Franchise Agreement. In certain circumstances, as described in Item 10, we may offer financing of a portion of the Initial Franchise Fee to qualified franchisees. DDSI is a member of the International Franchise Association (“IFA”) and participates in the IFA’s VetFran Program. We offer a reduced Initial Franchise Fee of $35,900 for DDI Franchisees who are veterans of the United States armed forces and who meet the requirements of the VetFran Program.
Under our To The Trade Program, a converting windowcovering or interior decorating/design business owner that generated over $100,000 or morein gross sales during the previous 12 months, or any interior decorator/designer that generated over $100,000 or more in gross sales during the previous 12 months, and, in either case will continue to do so in our estimation, and otherwise meets our requirements, or any Professional Member of ASID (American Society of Interior Designers) may qualify for a reduced Initial Franchise Fee of $29,900. Under our Educational Credit Program, we offer applicants with a 2- or 4- year degree in interior design or a related field from an accredited institution of higher learning a reduced Initial Franchise Fee of $34,900. For this purpose, “accredited institution” means an institution of post-secondary education listed on the U.S. Department of Education’s Database of PostSecondary Institutions and Programs. We may discontinue the To The Trade Program and the Educational Credit Program at any time.
You may participate in only one of these Programs. Details about applicant qualifications for these programs are available on request. We earn the Initial Franchise Fee in full when youand we both sign the Franchise Agreement. The Initial Franchise Fee is not refundable. The Initial Franchise Fee is uniform as to all new franchises now being offered by DDSI. However, the amount of the Initial Franchise Fee has changed over time, and, therefore, not all Franchisees currently in the system have paid the same Initial Franchise Fee.
Item 8: Restrictions on Sources of Products and Services
We do not require that you purchase or lease from us or any specific manufacturer or supplier the Franchised Products and Services or any other goods, services, supplies, fixtures, equipment, inventory or real estate you will need in connection with the establishment or operation of your franchised business, with one exception. If you decide to place our logo on your business vehicle, you must order the decals for your vehicle from our approved supplier, Designer Decal. To the extent that franchisees purchase or lease any goods or services from DDSI, we will derive income from those purchases or leases. During our latest fiscal year, which ended December 31, 2019, we derived approximately $2,305 in revenue from franchisees’ purchases or leases from us. This represented about 0.08% of our total revenue of $2,838.743.
We estimate that your purchases or leases from us, from Preferred Suppliers or approved suppliers, or otherwise in accordance with our specifications will represent, collectively, 5% to 50% of your total purchases in establishing the franchisedbusiness (depending primarily on whether you leaseor purchase your vehicle, or already have a suitable vehicle), and approximately 10% to 50% in the continuing operation of your franchised business. Neither DDSI nor any officer, director or affiliate receives compensation from any Preferred Supplier or other recommended supplier, owns any interest in any of our Preferred Suppliers or other recommended supplier, derives any revenue from yourpurchases or leases of Franchised Products and Services, or derives any revenue from your purchases or leases of any other goods and services meeting our specifications from any suppliers and manufacturers, except for payments that we receive under our Preferred Supplier Program.
Preferred Supplier Program Under our preferred supplier program (the “Preferred Supplier Program”), we have negotiated and entered into agreements with various manufacturers, suppliers and service providers (“Preferred Suppliers”) that provide for rebates to be paid to us based upon the volume of sales from the System. Generally, these Preferred Suppliers have agreed to pay the Merchandising Incentive Fund Trust (the “MIF Trust”) a rebate ranging from 3% to 8% of sales of their products made to Franchise Owners. The MIF Trust was established under Maryland law, and is administered by a single Trustee, Lawson Sharp, who is appointed by DDSI and who also provides certain accounting services to DDSI and acts as our Chief Financial Officer under a consulting agreement. DDSI created the MIF Trust to collect, manage, and spend the funds generated by the merchandising programs for the benefit of the System and franchisees. At the present time, the Franchised Products and Services sold by our Preferred Suppliers include accessories, lighting; lighting shades; mirrors; wall art; bathroom accessories, furniture and lighting; custom and ready-made bed coverings; fabrics; flooring (area rugs, wall-to-wall carpeting and hard flooring); furniture (bar service, bar stools, and wine service; bedroom furniture; bookcase/entertainment; contract/commercial furniture; dining furniture; home office; leather furniture; mattresses; metal furniture; occasional/accent furniture; outdoor/accent furniture; upholstered furniture; youth-infant furniture; sustainability; wall coverings (commercial – residential; murals/photomurals/scenics); customized closets, garage storage and other storage systems; and window treatments (custom; hard window coverings; hardware; motorized window coverings; ready-made; and trim). We encourage DDI franchise owners to participate inthe Preferred Supplier Program through the offer of product discounts and guarantees; contestsand incentive awards; and assistance in the returnof products. If you purchase products or services from sources who do not participate in our Preferred Supplier Program, we may not be able to offer you the same level of support and services that are available to you when you purchase Preferred Suppliers. When you become a franchisee, we will provide you with online access to the Supplier Handbook, which includes the current list of Preferred Suppliers. We stay in close communication with Preferred Suppliers to negotiate product discounts and guarantees; contests and incentive awards; and assistance in the return of products, which will enable franchisees to offer special promotions to their customers. We may revoke the “Preferred” status ofany supplier at any time in our sole discretion, if that supplier fails to meet our standards for service, financial status, and quality of products or operations. DDI Franchisees may order the Franchised Products and Services from any source of their choosing. If you order products and services from suppliers who are not Preferred Suppliers, the products and services must be of good quality and appropriate for the purpose to be used. DDSI may restrict DDI franchise owners from selling products and servicesthat in DDSI’s reasonable opinion are not of good quality. Neither DDSI nor its affiliates are currently a Preferred Supplier to the System. However, DDSI or an affiliate may, in the future, become a Preferred Supplier or acquire an interest, in either equity or debt, in a Preferred Supplier.
Merchandising Incentive Fund Trust The MIF Trust uses its funds (i) to develop technology, online applications and software for the System, (ii) to sponsor seminars, conventions, trips, meetings, and conferences for the education and training of franchisees, (iii) to cure defaults by Preferred Suppliers to assure that our franchisees receive refunds for deposits made for products ordered by customers, (iv) to fund merchandising services and promotions, and (v) to promote in general the System. The rules applicable to incentive programs or reward promotions are set out in the Franchise Owner Policy and Procedure Manual or in applicable contest flyers or brochures. All expenditures fromthe Trust are subject to the approval of the Trustee. The MIF Trust also uses its funds to pay for administrative and management services for the Trust, including payment to DDSI for these services, or hiring employees of the MIF Trust to provide administrative and management services. The MIF Trust pays the salaries and benefits of the DDSI personnel in the Merchandising Department, who are responsible for negotiating and managing the Preferred Supplier Program, and in the IT Department, who provide computer and information technology services for the benefit of the System.
B.O.S.S. DDSI operates and makes available to franchisees aproprietary, cloud-based technology system, which we call “B.O.S.S. TM .” B.O.S.S. provides tools for accounting, marketing, communications between franchisees and corporate staff, and the cost of providing support. You must have an appropriate computer and access tothe Internet to use B.O.S.S. You must have a computer system, including hardware and software,meeting or exceeding our minimum specifications as set forth in the Policy and Procedure Manual, toreport sales and other information that we may require, to operate the franchised business and to access the Internet. We may require you to acquire computer hardware or software from us or from approved suppliers in the future.
Vehicle You must use a vehicle in connection with the operation of your business that meets our specifications and you must provide us with a photograph and pertinent specifications of your vehicle within 90 days of signing the Franchise Agreement. The vehicle must be a late model vehicle in good condition. We recommend that you use a minivan or SUV with at least 60 cubic feet of cargo space behind the driver’s seat, and has a rear window large enough to accommodate a decal that is 16.9 inches wide by 9.7 inches high. We do not require a particular make or model of vehicle, nor do we have a Preferred Supplier or approved supplier for the vehicle. The Franchise Owner Policy and Procedure Manual includes our minimum specifications for the business vehicle andthe use and placement of our Marks, if you choose to apply the Marks to your vehicle. We may modify these requirements at any time.If you live in an area that restricts overnight parking of vehicles with commercial markings, you will need to store your logo’d vehicle in a garage or some other storage facility. If you choose to apply our Marks to your vehicle, you must obtain the decals for the business vehicle from our approved supplier, Designer Decal,1120 E, First Ave., Spokane, WA 99202 (telephone 800-622-6333). You must arrange for a local installer to apply the decals to your vehicle at your cost. DDSI specifies in the Franchise Owner Policy and Procedure Manual minimum requirements for design, appearance and quality of the business vehicle, and for placement of decals, business cards, letterhead, stationery, envelopes, promotional brochures and necessary business forms you will use in your business. These same items will comprise a portion of the total cost of operating your business; however, the marketing and other operating expensesof our franchisees vary widely and are not reported to us. As a result, we cannot estimate a percentage of total expenses they may represent in your business. During your operation of the business, you need notpurchase any other products or services subject toour specifications. You typically place orders for Franchised Products and Services on behalf of your customers, and make payment to suppliers after you collect the down payment from your customers.
Insurance You must purchase, within 10 days after signing theFranchise Agreement, the following types of insurance: (1) Comprehensive General Liability Insurance, including premises, products, completed operations, personal injury, and contractual liability coverage in amounts not less than $1,000,000 for each occurrence with a general annual aggregate of not less than $2,000,000, and a products and completed operations annual aggregate of not less than $2,000,000; (2) if you have employees, then you must have Employer’s liability insurance providing for coverage in amounts not less than $250,000 for each accident, for each employee, and in the aggregate, and Worker’s Compensation insurance in amounts provided by applicable law in your state; (3) automobile liability coverage, for vehicles used in the course of conducting your business and the business vehicle, including coverage of owned, non-owned, and hired vehicles, with coverage in amounts not less than $1,000,000 combined single limit; and (4) any insurance that may be required by statute or rule of the state or locality in which the franchised business will be operated. You must name DDSI as an additional insured to these insurance policies, and you must maintain these types of insurance policies throughout the term of your franchise.
Computer System You must obtain computer equipment and software meeting or exceeding our specifications. The computer must be connected via a high-speed connection at all times, and must be capable of accessing the internet and of running specified software programs, including upgrades. Your hardware must meet the following minimum specifications: ? Windows 10.0 or newer (if you have an Apple computer, the operating system must be MAC OS 10.11 or newer) ? 500 GB or more Hard Drive ? CD or DVD drive ? Broadband Internet connection with minimum 768 kbpsdownload speed ? 2.0 MHz Dual core Intel Processor or better ? 4 GB RAM or greater ? Color printer Your computer must also have the following software: ? Microsoft Office (Small Business Edition) 2013 or newer ? Microsoft Internet Explorer (version 6.0 or newer) or similar browser ? Antivirus program ? Adobe Reader, version 16 or newer
Supplier Approval If you wish to obtain approval for a supplier not currently approved by us or on our Preferred Supplier list, you must first notify us in writing.We require, among other things, submission of sufficient samples, specifications, photographs, drawings and other related information to determine whether the items and the supplier meet our requirements. We donot currently charge to process the submission, but may charge for reimbursement of reasonable expensesincurred in processing the request. We apply the following general criteria, among others, in considering whether to designate a supplier as an approved supplier or as a Preferred Supplier: 1. Ability to provide the goods or services; 2. Ability to meet our standards and specifications for quality; 3. Production and delivery capabilities and ability tomeet supply commitments; 4. Integrity and general reputation of ownership; and 5. Financial stability. In addition, Preferred Supplier candidates must be willing to sign our Preferred Supplier Agreement which requires them, among other things, to provide certain product guarantees, to attend our conferences, and to pay a rebate to the MIF Trust. We will process your request to approve a supplier within 30 days. We may revoke approval of a supplier that no longer meets our criteria for approval.
Benefits Provided We do not provide material benefits to you based onyour use of Preferred Suppliers or of other approved suppliers, except as we describe in this Item 8.
Purchasing and Distribution Cooperatives We do not have any purchasing or distribution cooperatives.
Item 10: Financing
We do not offer direct or indirect financing exceptas we describe below in this Item 10. Neither DDSI, the Field Managers, nor any affiliatecurrently receives payment from any person for the placement of financing with you. However, we and the Field Manager may offer arrangements for financing and receive payment from a third party for the placement of this financing in the future. Under our financing program, if you ask us, we will consider financing up to $20,000 of the Initial Franchise Fee. We will base our decision onyour demonstrated need for financial assistance, our evaluation of your ability to pay the financing obligations, our availability of funds, and other factors that we deem pertinent.
We make our decisions on a case-by-case basis, andwe offer no assurance that we will offer you financing. Availability of financing is subject to approval of the Regional Director, if any, for yourregion. The amount of financing that we will offer, if any,will depend on your financial qualifications. We may suspend this financing program at any time.
At the highest level of financing, you pay $19,900 of the Initial Franchise Fee and sign a Promissory Note for the balance of $20,000 when yousign your Franchise Agreement. If you participate in our financing program, you must sign a Promissory Note, the form of which you will find at Exhibit E to this Disclosure Document. The loan agreement does not require you waive defenses or other legal rights, nor does it bar youfrom asserting a defense against any lender, the lender’s assignee or against DDSI. The loan agreement does require that you waive any objection to jurisdiction and venue in Maryland, that you waive the right to raise counterclaims in an action on the Promissory Note, and that you waive any right to jury trial (subject to state law).
The following chart summarizes the terms of our financing program. Other Default Consequences (Note 3) Termination of Franchise Agreement (subject to state law) Note 1: The maximum amount of financing we make available to DDI Franchisees under this disclosure document is $20,000. If you qualify for and participate in one of our reduced Initial Franchisee programs that we describe in Item 5, the maximum amount of financing we make available is as follows: Vet Fran Program $16,000 To The Trade Program $10,000 Educational Credit Program $15,000
A lower amount of financing will mean a higher downpayment portion of the Initial Franchise Fee. We will calculate note payments for lower amounts of financing on the basis of a 60 month fully amortized loan, with interest at 8%. Note 2: The term of the Promissory Note commences when you sign it and the Franchise Agreement. You will pay the Note in up to 60 equal amortized monthly installments of principal and interest with the first payment due on the first day of the second full calendar month after the date you complete PDSS,or the first day of the seventh full calendar month after you sign the Franchise Agreement, which first occurs. If you finance the maximum amount of $20,000, the monthly payment will be $405.63, with the repayment of principal and interest over 60 months totaling $24,331.62. The monthly payment will be proportionately lower if you borrow less than $20,000, but will not be less than $200. The Promissory Note accrues interest beginning the first day of the first full calendar month following the date you complete PDSS.
If you qualify for and participate in one of our reduced Initial Franchise Fee programs that we describe in Item 5, the following table set forth certain information about your loan: Program Maximum Amount of Loan Monthly Payment Term Total payments (including principal and interest) VetFran $16,000 $324.42 60 months $19,465.36 To The Trade $10,000 $202.76 60 months $12,165.92 Educational Credit $15,000 $304.15 60 months $18,248.69 Under each of these programs, the Promissory Note accrues interest beginning the first day of the first full calendar month calendar month following the date you complete PDSS, or the first day of the sixth full calendar month after you sign the Franchise Agreement, which first occurs. The interest rate will not change over the life of the Promissory Note. You may prepay the Promissory Note at any time without penalty.
You must make installment payments on the Promissory Note by a direct debit of your bank account for each installment due on its due date, using the Automated Clearing House (ACH) or another automatic bank payment function. You must pay for all bank charges for this electronic direct debit. At the time you sign the Franchise Agreement, and at later dates on our request, you must sign an appropriate authorization agreement for automatic payment to permit our bank to draw funds from the bank account you designate. Note 3: We may terminate the Franchise Agreement with no opportunity to cure the default if you fail to make any payment due under the Promissory Note within 10 days of its due date and we may also declare the entire remaining balance of the principal and interest immediately due and payable (subject to state law).We do not have any past or present practice or intent to sell, assign, or discount to a third party, all or part of the financing arrangement, but we may do so in the future. We do not guarantee your note, lease or obligation.
Item 12: Territory
You will operate your business from the Designated Location, which we will identify in the Franchise Agreement. In most cases, the Designated Location is the home of the franchisee. We do not grant exclusive territorial rights. The Franchise Agreement gives you non-exclusive promotional and developmental rights to sell Franchised Products and Services anywhere in the United States of America from your Designated Location, except in certain limited areas as we describe below. Promotional rights include all forms of advertising and promotion for new customers. Developmental rights are the rightsto develop the franchised business by allowing independently contracted or employed decorators to operate on your behalf. You will not receive an exclusive territory.
Prior to March 2010, we granted exclusive promotional and developmental rights (the “Existing Promotional and Developmental Rights”) to DDI Franchisees. Most of the franchisees that were in the System at that time have voluntarily relinquished their exclusive promotional and developmental rights, and only 22 franchisees retained their exclusive promotional and developmental rights as of December 31, 2019. You must observe the Existing Promotional and Developmental Rights. DDSI imposes no limitations with respect to the customers to whom you may sell. You may sell to anyone who contacts you so long as you do not market or promote your business in an existing exclusive territory so long as you observe these Existing Promotional and Developmental Rights. You may face competition from other franchisees, from outlets that we own, or from other outlets that we franchise or own, or from other channels ofdistribution or competitive brands we control.
At this time, there are no other outlets or other channels of distribution or other competitive brands that we control. We and our affiliates may sell Franchised Products and Services under the Marks within or outside your territory through any method of distribution, including channels of distribution such as the Internet, catalog sales, telemarketing or other dir ect marketing sales (together, “alternative distribution channels”). You may not use alternative distribution channels to sell Franchised Products and Services.
If we engage in electronic commerce through any Internet, World Wide Web or other computer network site or sell through any alternative distribution channel, and we receive a request from a potential customer located in your region relating to Franchised Products or Services that you offer, then we will forward the request to you according to the lead rotation policy in the Franchise Owner Policy and Procedure Manual. If you do not respond to the request within the time frame that we require, then we may re-assign the lead to another franchisee, and you will not receive any compensation in connection with the sale of Franchised Products or Services resulting from this request. We own the rights to all inquiries or requests placed through our Web site. We may establish other franchised or company ownedbusinesses that sell Franchised Products and Services under a different trade name or trademark without first obtaining your consent. We also may market on the Internet, including all use of web sites, domain names, URL’s, linking, meta-tags, advertising, auction sites, e-commerce, and co-branding arrangements.
When you apply to purchase your franchise, we will review the Designated Location that you propose to determine whether it meets our standards. The factors that we consider when approving your proposed new location include the population and number of “qualified households” within the county of the proposed new location and whether the site is located within an existing exclusive territory. We do not allow franchisees to own or have any interest in more than 1 Decorating Den Interiors franchise. Accordingly, you do not receive any options, rights of first refusal or similar rights to acquire additional franchises.
If you are in good standing and in compliance withyour Franchise Agreement, upon approval by DDSI, you may elect to place your franchise on a “non-operating” status. This allows you to take a leave of absence from operating the franchise business for up to 3 years. While in this status, your Franchise Agreement remains intact. You cannot sell your business while you are in this status. During the 3-year period, you may work as a decorator for another DDSI franchisee. While on non-operating status, we do not require you to make NBF contributions. You mayreturn to your business at any time within the 3-year period. If you do return to your business andif a franchise in the area of the Designated Location is still available, it may be re-assigned to you by DDSI. If it is not available, you must provide another Designated Location, which we must approve. If youdo not return to your business by the end of the 3-year period, your Franchise Agreement automaticallyterminates. We may discontinue this non-operating status program at any time. If we do, we will allow those persons in the program to continue in the program until their status changes or their 3-year period expires.
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
We do not require you to be directly and personallyinvolved in or to provide direct supervision of the franchise business, unless you qualify under our VetFran program for the reduced initial franchisefee. If you do qualify under the VetFran program, you must be directly and personally involved in the actual operation of the franchised business. When we enter into the Franchise Agreement with you, we rely on your personal qualifications, financial ability, and representations, and on youractive and substantial participation in the ownership and operation of your franchised business.
If you cannot be directly active in the business, you must advise us as to the person primarily responsible for the operation of the franchised business. We will then expect to conduct all business, training, and supervision with that person as if he or she were, in fact, you. The person designated primarily responsible for the success of the franchised business must participate in and successfully complete the initial training, including Ready-Set-Go and PDSS. We also recommend but do not require that the responsible person complete the Directionscourse as well. If the franchisee is a legal entity, such as a corporation or limited liability company, we do not require the responsible person to own any interest in the entity. There are no other limitations regarding the person you hire as the person responsiblefor the operation of your franchise.
If you organize your business so that a corporation, limited liability company, or partnership will hold the franchise rights under the Franchise Agreement then all of the owners of that entity must personally guarantee the entity’s performance under the terms of the Franchise Agreement and must promise to perform all of the covenants, representations and agreements of the franchisee under the Franchise Agreement. All of the stockholders, limited liability company members or partners of the franchisee entity must sign the Certification and Guaranty attached to this Disclosure Document as part of Exhibit E.
Item 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
Under the Franchise Agreement, you must offer for sale in your business only those products and services that we consider consistent with and beneficial to the proper operation of a Decorating Den Interiors franchised business. You may not sell or offer for sale Franchised Products or Services for which you lack sufficient skill and knowledge to provide the high level of service associated with the Marks. We encourage you to participate in our Preferred Supplier Program through the offer of product discounts and guarantees; contests and incentive awards; and assistance in the return of products. Any productsor services you order from other suppliers must complywith standards in the Franchise Owner Policy and Procedure Manual and bulletins published by the DDSI Merchandising Department. We do not require you to sell or provide the entire line of goods andservices offered in the System. We may change the types of authorized goods and services in our sole discretion.
You will not receive the right to develop, market, and advertise your services in a specified geographic area. Your rights will be subject to theExisting Promotional and Developmental Rights. We do not impose any other restrictions or conditions that limit your access to customers.
To view the full Franchise Disclosure Document, please click here