World Mail Center’s Plans for Private, For-Profit Post Offices Go Awry

Getting mail delivered hasn’t been the problem for World Mail Center. Delivering on its promises is another story.

Four years ago, the Camarillo-based company was started with an ambitious plan: it would compete against the U. S. Postal Service with a computerized chain of private, for-profit post offices.

Through World Mail, customers in hundreds of cities across the nation would be able to send packages using courier services such as Federal Express, rent post office boxes and even buy stamps, all in an environment its founder once said was “more like Saks Fifth Avenue” than a standard post office.

The outlook for World Mail seemed so promising that former President Gerald R. Ford invested in the company at the urging of a neighbor who served on the company’s board of directors. Former U. S. Postmaster General Winton M. Blount, has been one of World Mail’s largest investors and still serves as a director.

A Chaotic Company

But World Mail has proved to be a chaotic company long on promises and short on money, according to current and former director. There are only 14 World Mail stores in four states and it has yet to report a profit, losing about $3 million since it was founded. At one point last year, the company was so short of cash it came within hours of failing to meet its payroll, according to company officials.

Eight different men have been in charge of the company over the past two years, including a Navy administrator of missile tests, the president of a casket company and a Toronto trucking executive. One chief executive walked out without notice last year after only two months on the job. The man brought in to replace him is now suing the company for $35,000 he claims World Mail owes him.

“I don’t think I have ever run into anything as unstable as this company has been,” said Thomas Murphy, a World Mail director who has been a franchise consultant for 30 years.

But the idea of a chain of private post offices continues to draw investors and inspire grand visions.

In August, control of the company changed hands when it was bought by Louis G. Reese III, a wealthy Dallas real estate developer. Reese is buying out the Farkas Group of Denver, which gained control last December. He has agreed to pay World Mail’s operating costs through next September, and is moving the company’s headquarters this month from Camarillo to Dallas.

1,000 Stores Is Goal

Reese could not be reached for comment. However, Robert Hawkins, the man Reese appointed as president of World Mail, said Reese has a goal of opening 1,000 stores in five years.

The company was founded in September, 1981, when Scott Adler, then an administrator of missile test systems at the Navy base at Point Mugu, became convinced that people would pay to use sophisticated post offices equipped with computers, electronic postal scales and electronic cash registers.

Under Adler’s system, a postal clerk would be able to quickly determine the fastest and cheapest way a customer could send a package. The company at first charged from $1 to $5 to send packages and $1 for processing Express Mail or registered, certified or insured letters. There is a two-cents surcharge for 22-cents stamps.

Adler opened his first post office, then called the Paseo Mail Center, in November, 1981, in his hometown of Camarillo. He renamed the company World Mail Center the next year. The only major competitor was Mail Boxes Etc. USA, a Carlsbad-based chain of private postal box centers.

Unlike government post offices, World Mail’s are colorfully painted--in red, white and blue--and feature modern graphics, background music and double-doors leading directly to the customer counter. Many of the customers are small- and medium-sized firms that occasionally use large courier services.

The idea attracted some prominent investors. Blount, an Alabama industrialist who was postmaster general under President Nixon, became a major investor and was invited to join the board of directors. Kaiser Morcus, a Vail, Colo. developer, bought stock and also became a director, later moving into the chairman’s role.

It was Morcus who brought World Mail to the attention of Ford, his friend and neighbor in Vail, said Robert Barrett, a Rancho Mirage-based spokesman for the former president. Barrett said Ford owned shares in the company for less than a year and sold the stock for a small profit after it fell from its all-time high price of $2.25 a share in January of 1984.

Financial Situation Shaky

While World Mail was getting plenty of attention, its financial situation was shaky, as reflected in nearly $1.1 million in losses during its first two years of operation, according to financial data filed with the Securities and Exchange Commission.

The company devoted much of its energy in the early stages to trying to establish a computer system that would link its stores, but the equipment never worked properly, former directors said, and eventually the company was forced to buy an entirely new system.

Former directors and executives also said that the company spent too much money on research, mostly related to its computer system, when it should have spent a larger share of its resources on building stores that would have brought in revenue.

Poor Locations Selected

Consultant Murphy said that poor locations were often selected for stores. In Chicago, he said, one center was opened in a high-rise building occupied mostly by commodities traders who rarely needed World Mail’s services.

Financial statements in 1983 showed that, as of April 30 of that year, its total liabilities exceeded total assets by nearly $100,000. And, according to a prospectus filed in 1983 with the Securities and Exchange Commission, World Mail’s accountants issued an opinion saying that “the company may be unable to continue in existence.”

In September 1983, World Mail raised money by selling stock in Denver. Many high-risk companies with no history of earnings go there to sell stock because Colorado laws do not require them to submit a comprehensive business plan as California does.

World Mail sold 10 million shares in its initial public offering for 25 cents each. Like many speculative companies that have difficulty raising money, World Mail has been liberal when it comes to issuing common stock and warrants, which allow those who own them to buy the stock in the future at a specific price.

52 Million Shares Outstanding

But selling so much stock can substantially dilute the value of the stock held by the early investors. In World Mail’s case, the company now has nearly 52 million shares of common stock outstanding if all the warrants are included. In contrast, the average number of shares of common stock for companies listed on the New York Stock Exchange is only 33 million.

Even as World Mail struggled financially, Adler continued to predict big things. In early 1984, Forbes magazine quoted Adler as saying that the company would be profitable by the end of that year and that he hoped to have 600 post offices nationwide by the end of 1986.

Adler last week defended those predictions, saying that World Mail still looked promising when he made them. He said, however, that he may have underestimated how difficult it would be to build a nationwide chain of post offices.

“World Mail was a good concept, and everybody who had come into contact with it agrees,” Adler said. “But it is a difficult one to do on a mass scale.”

Investment Fell Through

In the spring of 1984, the company thought it had found a way to raise money. Directors recruited Jerry Record, a former executive with the Petro-Lewis Corp. in Denver and a former executive with Columbia Savings & Loan, also in Denver. Record was going to bring with him a $10-million investment from Columbia Savings, Murphy said, but that fell through when the savings and loan determined that the investment would violate its charter.

Nevertheless, Record was hired as chief executive for $240,000 a year. He quit two months later in frustration because, he said, he was not allowed to run the company.

Another executive, Rene Brandon, owner of a Toronto trucking firm, was brought in for $100,000 a year to act as an interim chief executive. Later, directors of the company loaned the firm $350,000 to keep the company alive, according to documents filed with the SEC and directors.

By last December, the company needed an investor with deep pockets. Murphy contacted the Farkas Group, led by Denver financier Howard Farkas and his son, Robert. The group bought a 51% stake in the company, in part by agreeing to loan the company $350,000 and buying its most successful store, in Century City, for $350,000.

Collected on Bills

Robert Farkas said he quickly realized that the company had problems when he found the company had not collected substantial bills from customers. Murphy said most of that money, about $280,000, was eventually collected.

SEC documents and Murphy state that Adler’s resignation from the board of directors was also a condition of the Farkas offer, although Adler insists that he resigned voluntarily.

Brandon also left when the Farkas group bought control. He sued World Mail last month, alleging that he was paid only $15,000 of the $50,000 that he was owed for his work.

In August, the Farkas group sold control to Reese’s Douglas Mail Holdings subsidiary. In the elaborate transaction, Reese will pay slightly more than $2 million for 31% of World Mail’s common stock.

Reese could obtain 54% of the stock if he exercises various options, including one to buy four million shares for $1 million. He also promised to obtain $1.8 million in financing to expand World Mail. As part of the agreement, the Farkas Group would return the Century City store to World Mail.

‘Textbook’ Approach Planned

Hawkins, the new president, said future stores will be company-owned instead of franchised to allow more control. Locations will be selected using an approach that “will be very much textbook in its nature,” he said.

World Mail, which employs 35 people, has opened eight stores this year, but also closed stores in Ventura and Chicago. There are eight franchises in Texas, one in Illinois, two in Ohio and two company-owned stores in California, the one in Camarillo and another in Newport Beach, as well as the Century City store.

Reese inherits a company that continues to lose money. World Mail’s losses widened to $441,546 in the third quarter ended July 31, from a loss of $114,716 a year earlier. Company officials attributed the increased losses to costs related to starting its Newport Beach store. Revenue in the quarter fell 85% to $95,842, partly because it had sold the Century City store to the Farkas Group.

The company’s stock has fallen to about 10 cents a share.