Sylvan is selling tutoring centers

Involved in plan are most corporate-owned facilities

September 12, 2007|By Hanah Cho | Hanah Cho,Sun reporter

Sylvan Learning Inc. said yesterday that it is selling most of its corporate-owned tutoring centers that were beset with financial problems last year as the Baltimore-based company hopes to expand its franchise business by persuading others to open its classrooms nationwide.

The company also announced that it is piloting a program that sends tutors to children's homes, a departure from its 27-year model of teaching students at its centers. And, it is expanding its live, online tutoring program.

Sylvan's new operating strategy is the latest change to emerge since its parent company, Educate Inc., went private under a management-led buyout in June. Business units split into separate, independently operated companies, including Sylvan. Educate's products business, which includes Hooked on Phonics and Reading Rainbow, became Smarterville Inc.

The moves come as the private tutoring business that Sylvan once dominated is saturated with competitors. And it follows a year in which a Sylvan strategy to buy back centers from franchise operators faltered as costs rose and sales fell at some of those locations.

Peter Cohen, Sylvan's president and chief operating officer, said the company will focus on franchising the tutoring and after-school learning programs. The new focus will direct "all of management's future attention to providing the support services to franchisees we have been known for in the past when we were recognized as the top franchiser in the country in 1999 and 2000," he said.

And with parents demanding more convenience in a tutoring-center location, Sylvan executives decided they could add classrooms through franchise agreements as opposed to the company running its own centers.

Sylvan plans to sell more than 200 corporate-owned tutoring centers, keeping 10 locations, Cohen said. Prices will range from $250,000 to more than $1 million, depending on revenue and profit.

The remaining centers - the company has 1,140 tutoring centers across the U.S. and in Canada - are owned and operated by individuals who pay Sylvan franchising fees. Costs to open a new franchise typically cost about $168,000, Cohen said. Total tutoring center revenue is $500 million, the company said.

Cohen said local ownership is more effective in decision-making and staff retention because franchise operators have a personal stake in the business. Local owners also can better meet demands of their customers and community, he said.

One industry analyst said the move makes sense for Sylvan.

"It's smart if you recognize what you were doing is not the most effective use of corporate talent and to move on and get back to your core business: That is growing a franchise-delivered education experience that educational entrepreneurs could invest in," said Steve Pines, executive director of the Education Industry Association, a trade group for education companies.

"It may be just a mature recognition that it's a better growth strategy than doing it on your own," Pines said.

Cohen outlined other trends to explain a shift in Sylvan's strategy, including population increases in tutoring-center territories. As a result, Sylvan created 150 more territories, where opening franchise centers could provide closer access for parents, many of whom are unwilling to drive more than 20 minutes in after-school traffic, Cohen said.

Markets such as Los Angeles, San Diego, Chicago, Dallas, Philadelphia, Atlanta and Washington could handle many more tutoring centers than initially thought with the growing population and demand for tutoring services, Cohen said.

The private, consumer-based tutoring business was one of the largest education markets in the 2005-2006 school year with $2.2 billion in spending, according to Eduventures, a Boston-based education information company. Growth in the tutoring market in the past several years has ranged between 4 percent and 9 percent a year, Eduventures said.

All the while, competition has been growing, Pines said.

"So, you've got Sylvan, a traditional market leader, but you've got Kumon, Huntington, Kaplan and Princeton Review," Pines said. "They are other companies that haven't had the brand recognition in the past but now have gained more traction through advertising and franchise development."

Cohen said Sylvan has size and brand recognition to compete in the market.

hanah.cho@baltsun.com

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