FedEx Kinko’s - One Year Later

By Cary Sherburne, Senior WTT Editor

February 7, 2005 -- It has been about a year since the high-profile acquisition of Kinko’s by FedEx Corp. The acquisition, which was completed in February of 2004, was greeted with mixed reviews. At the time of the announcement, Standard & Poor’s said “buy FedEx,” believing that FedEx could capture a significant portion of the shipping business from customers already using Kinko's for their copying needs. Moody's Investor Service placed FedEx's ratings on review for possible downgrade, reflecting Moody's concerns regarding increased risk to holders of rated debt as a result of the large additional debt burden created by the all cash purchase and the challenges of integrating Kinko’s business model into FedEx's core business and business strategies.

The market saw a drop in FedEx stock price, from a closing price of $69.94 on 12/29/03 to $67.50 on 12/31/03. By January 2, 2004, the share price had begun to move up slowly, reaching $67.89. A year and change later, FedEx was trading at nearly $95 per share. In hindsight, that S&P recommendation looks pretty good!

So what’s going on behind the scenes at the recently renamed FedEx Kinko’s Office and Print Services a year later? WhatTheyThink spoke with FedEx Kinko’s Chris Ahearn, Vice President of Marketing and Strategy, Commercial Document Solutions, to get an update.

WTT: Chris, thanks for taking the time to speak with us today. When the acquisition was announced, Gary Kusin indicated that the North American market offers adequate capacity to profitably double the number of Kinko's locations. What is the number of FedEx Kinko’s locations today?

CA: Actually about the same. We have just over 1,100 U.S. stores and 135 internationally in 10 countries. In terms of expansion, we are looking at different types of storefronts and locations, and you will see a lot of growth. One of the great things about FedEx is its license to operate in countries in which we haven’t operated in the past, so it makes it easier for us to open stores internationally. It is a matter of working out what those new locations will look like based on the type of customer traffic they each will have.

WTT: Executives also indicated that a key addition to the retail sites as a result of the acquisition would be staffed FedEx drop points at all FedEx Kinko’s stores. Has that transpired?

CA: Yes, it has. The volume of packages being shipped from our locations continues to grow tremendously. So it has been a huge success.

WTT: From your perspective, how is the integration going overall?

CA: The integration is going well. On the commercial sales side, we are not seeing as much change as on the retail side. As a company, we feel like we hit the jackpot in having a company like FedEx—consistently rated as one of the best companies to work for and one of the most ethical—acquire us. They bring us a lot of operational excellence and process.

WTT: The intent was to have the companies operate independently. Is that what has actually transpired?

CA: We like to say that we operate independently and compete collectively. The process of integration and change will be a forever thing; as time goes by, we are seeing more things that will be integrated over the next couple of years.

WTT: Any major changes in the management team?

CA: We are very lucky to have Ken May as our Executive Vice President of Operations and Administration. He was a former Senior Vice President at FedEx Express. He is bringing a lot of operational knowledge and expertise to FedEx Kinko’s, including the development of a Quality Department. A lot of things are going to happen because of the FedEx acquisition—changes in processes and operations. We are already seeing FedEx “purple passion” exploding within the FedEx Kinko’s network. One thing is for certain, FedEx is not going to allow its reputation to be spoiled by us not executing. So we are already seeing the impact of the FedEx culture, and our customers will be seeing it, too. Once we get it all right, we will be dangerous.

WTT: How is the business segmented between retail and commercial?

CA: As a company, 20% of our business is commercial and that segment is growing rapidly. About 50% of the business is local or small business—businesses that are within a certain mile radius of stores. The other 30% is consumer.

WTT: So tell us a little about what is going on in the commercial side of the business.

CA: We have been experiencing double digital year-over-year growth in this segment. We currently have 450 members on our sales team in Commercial Document Solutions, and 38 CPCs—Commercial Production Centers. These are large closed-door facilities located across the U.S. that are not retail branded. We will continue to grow them strategically based on the needs of our commercial customers. They are also used as part of our hub and spoke structure. For example, a FedEx Kinko’s location in a hotel is spoke that would be connected to a hub store, a 10,000-square-foot location, that would be connected to other spokes as well. And in 38 situations across the country, these hubs would also be connected to a CPC.

We have done a great job of rationalizing equipment across our network. When we have larger or more complex jobs that might require document security, special finishing or other advanced capabilities, we move them into a lower cost production facility.

WTT: Do the CPCs have offset equipment?

CA: We do have some legacy offset equipment, but we are not buying any more. We are a digital company—we will eat our own dog food.

WTT: What are you seeing in terms of customer requirements for distribute and print, where you could use these CPCs and hubs to your advantage?

CA: The market has been slow to respond to the distribute and print opportunity, but we are starting to do more international fulfillment where we will output training and other types of documents locally at point of need instead of shipping. We are doing more and more of this every day, closing deals with large international customers that want to take advantage of our network worldwide.

WTT: Part of the requirement for a distribute and print network, obviously, is electronic job submission. FedEx Kinko’s seems to have several tools out there. How is that going?

CA: Well, first of all, 23% of all the work coming into our network is submitted via the Web, so I would say it is going well. Traditionally, FedEx Kinko’s had developed tools focused on the SOHO and consumer markets. Customers can Print to FedEx Kinko’s via our Web site, send jobs to us via e-mail, and use File, Print FedEx Kinko’s—a brilliant tool that lets you submit print to any U.S. FedEx Kinko’s location from within your document creation package—Microsoft Word, PowerPoint, whatever you are using. We have seen double digital, month-over-month growth in the use of File, Print FedEx Kinko’s.

We also have FedEx Kinko’s DocStore, which was designed primarily for commercial customers, to allow companies to put marketing collateral online so employees and other authorized users could access materials and print to any FedEx Kinko’s location.

WTT: Are you looking at any changes in this area:

CA: We are always analyzing the needs of customers. We realize we need a next-generation FedEx Kinko’s DocStore or Web submission tool that will allow us to more adequately take the kind of work customers want to send our way.

WTT: What’s happening in the facilities management side of the business?

CA: That is a fast-growing part of our commercial product offering. The challenge for companies is, “How do you rationalize your hardware print infrastructure so it is appropriate?” We allow customers to really do that. We had a customer that had 80 printing devices. We went in, did studies, rationalized the base, and they went down to eight printing devices, with all other printing outsourced to us. We allow them to liberate their workers to print work where they need it. We also allow the business to expand and contract on a variable cost basis—you pay for what you buy with minimal fixed costs. And we have much more breadth in our services than an internal shop could usually afford to have, especially with signs and banners and other large format applications that a print center would probably have to outsource anyway.

WTT: Can you share some specific commercial success stories?

CA: We are having a lot of success in the healthcare industry. In the last 12 months, we have signed six of the eight group purchasing organizations that serve that industry. The group purchasing organizations control 80% of the acute clinical care purchasing in the U.S. We will definitely have a dominant offering in the healthcare world.

In another example, a large marketing company that is doing time sensitive marketing material going into Asia was having to produce materials two weeks in advance, vacuum pack them and ship them into the country for distribution. On one occasion, they had some last minute changes and didn’t know what to do. They gave us the digital content, we output it in Australia and put in on a FedEx plane, getting the materials into the market within a 24-hour timeframe. That company finds it very interesting that they can finalize time sensitive materials just 24 hours before it is needed on site. This kind of window ensures that they have more up-to-date information. And people are beginning to understand that it is not how perfect the printing looks, it is the message and the content that is important. They are emotionally letting go of the big press run, getting their glass out and making sure the flesh tones are perfect. We are seeing more work migrate from offset to digital as a result.

WTT: The office supply superstores are putting increasing emphasis on print/copy. Do you see much competition from that quarter?

CA: I think the office supply superstores have a good offering, and we have known they were going to wake up some day. Our advantage is our 24x7 operation, our core competency in printing, and that fact that we are networked and offer a greater breadth of products and services. It is hard to do what we have done. There is a lot of process that needs to be built and a lot of skill level that needs to be developed. They may win on local small things, but we have had customers come back because they stand in line too long in the office supply superstores. Let’s face it, if someone wants to buy a Palm Pilot or burn five copies, where do you think the store will place the priority? That said, they are a formidable competitor and they are going to eventually figure it out. We have a window where we can reposition our offering to become more sophisticated and they will have trouble catching up. Our sales force is ahead of the game in terms of really understanding how commercial employees are using our services, and we are good at explaining the value proposition. We still have a long way to go, but customers are starting to get it.

WTT: Chris, thanks for taking the time to update us on the latest from FedEx Kinko’s. We will look forward to seeing more developments in the future!

This Interview was conducted by Cary Sherburne. She can be reached via email at cary@sherburneassociates.com, online at www.sherburneassociates.com and by telephone at 603-430-5463.

-- Click here to tell us what you think about this premium feature
-- Click here to read recent comments from our readers