Closets by Design Franchise
Audited FinancialsRisk Score
Pending analysis
Investment Range
$154,000 - $511,000
Franchise Fee
$18,000
Total US Locations
85
Business Summary
Closets By Design operates a business focused on the retail sales, manufacturing, and installation of various home organizer systems. This includes custom closets, garage cabinets, and other home or office organizers, serving homeowners and small businesses who wish to remodel their spaces within a specific designated territory.
Corporate History
Closets By Design Franchising, Inc. (CBDF) was organized in California on March 31, 2001. On the same date, CBDF acquired the assets of its predecessor, Closets By Design Franchising, LLC (CBD-LLC), which had been selling Closets By Design franchises since January 1998. Since June 2001, CBDF has been offering franchises for retail outlets specializing in the sale, manufacturing, and installation of custom closets, home/office organizers, and related products. CBDF's parent company is Home Organizers, Inc. (HOI), which also owns Closet World, Inc. (CWI), operating similar businesses under the 'Closet World' brand.
Financial Overview
Investment Range
$154,000 - $511,000
Franchise Fee (Low)
$18,000
Franchise Fee (High)
$20,000
Royalty %
7.25%
Marketing %
2.25%
Equipment Costs (Low)
$37,000
Equipment Costs (High)
$254,000
Working Capital
$50,000
Audited Financials
Yes
Offers Financing
Yes
Audit Opinion
Unqualified opinion
Financial Health Notes
Closets By Design's financial statements indicate a significant amount due from its parent company, Home Organizers, Inc. (HOI), totaling over $221 million by the end of 2024. This amount is classified as contra-equity and is not expected to be collected in the foreseeable future, which management notes can impact Closets By Design's liquidity, working capital, and equity. Additionally, Closets By Design guarantees a $45 million credit agreement for HOI, which is collateralized by Closets By Design's assets and stock. Although management believes the risk of default on this guarantee is remote, it represents a substantial contingent liability.
Financing Details
Closets By Design may offer financing for a portion of the Territory Fee for franchisees who meet specific criteria, including having a Territory with 300,000 to 350,000 households and meeting Closets By Design's credit standards. The financing can cover up to $40,000 of the amount by which the Territory Fee exceeds $40,000. This financing has a 12-month term, requires a 10% down payment, and accrues interest at the greater of 9.50% or 3 points above Citibank's prime rate. The Market Development Fee may also be financed on a case-by-case basis at the same interest rate. Closets By Design does not provide financing for any other fees or amounts and does not guarantee franchisee loans or obligations.
Performance Metrics
Total US Locations
85
Franchised Units
79
Corporate Units
6
Franchising Since
1998
Legal & Compliance Analysis
Recent Litigation
Yes
Bankruptcy
No
Litigation Count
5
Litigation Summary
Closets By Design has been involved in five legal disputes. Two active cases, both filed in 2023, include a class action by a customer alleging consumer protection and contract violations, and a lawsuit by an affiliate of a former franchisee claiming false advertising and RICO Act violations. In the latter, Closets By Design has filed a counterclaim. An older case, originally from 2017 and refiled in California in 2022, involves Closets By Design suing former franchisees for breach of contract and non-competition. An appeal is pending against a third-party defendant, and a default judgment is being sought against the former franchisees. Two other cases against former franchisees, filed in 2020 and 2022 respectively for breach and non-payment, have been concluded. One resulted in a partial recovery through bankruptcy proceedings, and the other in a settlement payment to Closets By Design.
Bankruptcy History
Closets By Design has no bankruptcy history to report.
Agreement Terms
Initial Term
5 years
Renewal Term
5 years
Renewal Conditions
To renew their Closets By Design franchise, franchisees must be in full compliance with their agreement and all related agreements, and not be in default. They must also have refurbished and remodeled their location and updated equipment and supplies to meet current brand standards. All monetary obligations to Closets By Design and its affiliates must be satisfied and largely met on time throughout the previous term. Franchisees are also required to sign a General Release form and pay a renewal fee of $5,000. The new renewal agreement may have materially different terms and conditions. If Closets By Design determines a franchisee breached advertising obligations, it may redefine and reduce the franchisee's territory as an alternative to refusing renewal.
Training & Support Program
Franchisor Assistance
Closets By Design offers comprehensive support to its franchisees, beginning with pre-opening assistance. This includes initial training for the General Manager and one other person on various business aspects (administration, marketing, operations, sales, design, production), typically held in Garden Grove, California, or virtually. Franchisees also receive a confidential operations manual and 1 to 2 weeks of on-site training at their location. Closets By Design consults on location setup and helps install its proprietary CBD Manager software. For ongoing support, Closets By Design provides access to proprietary materials and continuously develops new products. It manages a National Promotion and Protection Fund for system-wide advertising, public relations, and brand protection (including legal expenses). Franchisees receive free phone and email guidance during business hours and can request additional on-site assistance for a fee. Mandatory annual conferences or regional meetings are held to discuss operations and other system matters, with a potential attendance fee. The franchisor also provides merchandising materials at cost and supports its proprietary software and sales management portal, including periodic upgrades, bug fixes, and the right to remotely access business data.
Initial Training Hours
120
Training Location
Garden Grove, California, other designated training center or virtually
Ongoing Support
After opening, Closets By Design provides access to an adequate supply of proprietary closet and home/office organizational materials and continues to develop new organizers. It administers the National Promotion and Protection Fund (2.25% of monthly Gross Revenues) for national promotion, enhancement, and protection of the Closets By Design system and trademarks, covering advertising production, distribution, public relations, and legal defense of the marks. Franchisees receive phone and email guidance during normal business hours at no additional charge. Optional on-site training and assistance can be requested or determined necessary by Closets By Design, costing $750 for the first day and $500 for each additional day, plus travel and living expenses. Franchisees must attend mandatory annual conferences or regional meetings, with a potential fee up to $1,500 per attendee plus travel and living expenses. Closets By Design may also provide merchandising materials at cost and supports its proprietary CBD Manager software and AIM Sales Management Portal, including periodic upgrades and bug fixes, and has the right to retrieve data from franchisee computer systems.
Franchise Requirements
Ideal Candidate Profile
Closets By Design is looking for franchisees, or their equity owners (Principals), who are committed to personally and directly participating in the business's operation. The franchise is not suitable for individuals seeking a passive investment. Principals must dedicate significant time and effort to ensure the proper and effective operation of the business. Additionally, each location must have at least one full-time General Manager, who can be the franchisee if an individual, and this manager must devote their entire business time to managing the franchise. Even with a General Manager, Principals are still expected to personally participate in the direct operation of the franchise on a full-time basis.
Industry Experience Required
No
Management Experience Required
No
Sales Experience Required
No
Technical Skills Required
No
Operational Details
Location Type
retail
Owner Participation
full-time
Territory Type
limited
Territory Size Requirements
Closets By Design territories are defined by population and typically contain between 200,000 and 250,000 households. The exact boundaries are detailed in Exhibit 1 of the Franchise Agreement.
Staffing Notes
Each Closets By Design location must employ at least one full-time General Manager who is approved by Closets By Design, completes initial training, and dedicates all their business time to the franchise. This General Manager must be on duty during all operating hours. If a General Manager needs replacement, a successor must be designated within ten days, approved by Closets By Design, and complete required training at the franchisee's expense. All Principals, General Managers, and other managerial and non-managerial staff, along with independent contractors, must sign confidentiality and non-competition agreements.