FedEx Kinko’s Makes ‘Purple Promise’ To Transform Itself;
COO Brian Philips Reports the Process is Well Under Way

By Cary Sherburne, Senior WTT Editor

November 15, 2006 -- Amidst a wave of news related to FedEx Kinko’s and its ongoing business transformation subsequent to the acquisition of Kinko’s by FedEx in 2004, WhatTheyThink spoke with Brian Philips, executive vice president and chief operating officer for FedEx Kinko’s Office and Print Services, to get the inside scoop on what is happening at FedEx Kinko’s these days. Mr. Philips oversees the company’s worldwide business performance. He is responsible for operations, sales, marketing and strategy functions for more than 1,500 FedEx Kinko’s locations and 20,000 team members.

WTT:  Brian, thank you for speaking with us today. I have noticed that FedEx Kinko’s has received a lot press lately. Perhaps you could share with us the overarching strategy FedEx Kinko’s is now pursuing and how that is different from the Kinko’s strategy in the past.

BP:  There is no question that a shift is occurring on both business and cultural fronts.  As we continue the integration effort, we are working to maintain the best pieces of the old Kinko’s culture and combining them with the best of the ongoing FedEx operation.  FedEx achieved its best-in-class status through its employees, who are all living what we call the Purple Promise: to provide exceptional service on each and every transaction. That is part of what FedEx is introducing into FedEx Kinko’s.  We are investing in systems that allow us to provide exceptional service wherever you interact with us.  At the same time, Kinko’s has a wonderful history of retail expertise and a whatever-it-takes type approach to saying yes to the customer. We don’t want to lose that as we bring the two cultures together. 

For both companies, our people are key to our success. Much of what you will see us spending our money on is taking care of our people so that our people can take care of our customers. We are investing more in training than we ever have, and we are also making career development plans available for our 20,000 employees. We are also putting into place leadership programs for assistant managers and managers.

WTT:  Can you give us some background into the reasoning behind establishment of the smaller retail sites you are deploying?

BP:  We actually have three footprints out there, soon to be four. 

We have our traditional centers that had been part of the Kinko’s network and now the FedEx Kinko’s network.  Those average 6,000 to 10,000 sq. ft. and have an average of 300 to 400 different SKUs of office products. Their primary focus has been mostly core copy/print.

We also have FedEx Kinko’s Ship Centers that are almost completely dedicated to package acceptance. Those were FedEx stores prior to the acquisition, and we are not building any new ones in that format, but over time migrating them into our smaller format retail store.  These average 1,000 sq. ft., and select locations have about 50 SKUs in office products.

Our smaller format retail stores offer all of the same products and services that a full-size FedEx Kinko’s offers. These average 1,800 to 2,200 sq. ft. in size and have more than 700 different office product SKUs. Some production is done on site, and some we feed into a hub location or our Closed Production Center (CPC) network of 35 CPCs, and there are also points of access for FedEx shipping.  We will launch 2,000 of these in a five-year window. We have already launched 50 of these, and by the end of our fiscal year in May 2007, there will be 200 new locations of this type domestically. 

And the fourth category, now in test in 22 sites, is a conversion of our large footprint locations into a different format that carries a much heavier assortment of retail office supplies. In that model, about one-third of the space is devoted to about 2,500 office supply SKUs, one-third or more to core copy/print, and then there is space set aside for shipping and some logistics. 

WTT:  In one story I read, you described these smaller stores as “compact cars” and indicated that you would also be launching an “SUV” store format.  So the conversions now in test that you referenced would be the “SUVs”?

BP:  Those were internal code names for the projects and we are not quite sure how that ended up in print, but yes, the SUV’s are the conversions of our traditional format. At the end of five years, we expect that there will be over 3,500 FedEx Kinko’s locations in the U.S., and we will continue to expand internationally as well.

WTT:  How do you determine where you will locate new stores?

BP:  We are filling in the network, looking at populations of small businesses we don’t serve today and cross-hatching that with gaps in our retail shipping network. That is how we determine the best place to put a new store.

WTT:  Will all of these stores be open 24 hours a day?

BP:  All of them are not open 24 hours a day today—we have over 400 that are, and those act as hubs in each market.  All of our centers are open extended hours, late into the evening; and in the third shift, work can be transferred into 24-hour locations. We are just transitioning to a new model to make our centers more of a destination for small business and mobile professionals.  Our goal is to become the back office for small business and the branch office for mid- to large-sized businesses, and there is lots of opportunity to create added value for these audiences.

WTT:  How has your sales strategy changed?  There is a perception out there that you are abandoning corporate customers in favor of small business.

BP:  Corporate customers are still part of our focus, and in fact account for 20% to 25% of our revenue.  FedEx Kinko’s advantage is its physical and digital networks, coupled with the FedEx transportation network.  We are just repositioning our sales force to sell into what we see as a competitive advantage.  For corporate accounts, we are targeting production agreements, overflow contracts and an emphasis on mobile professionals who need a place to do business.

This is a group of people that USA Today referred to as the “Kinko’s generation,” a growing number of employees who spend significant hours each month working outside of a traditional office that frequently depend on the Kinko’s network for some of their infrastructure. At the same time, we are positioning part of our sales force to address the local, small business market because we know that small businesses and local customers need additional focus in terms of understanding and using the power of our network, coupling distributed print with transportation.

WTT:  I had read that you are pulling out of your on-site facilities management operations.

BP:  We are not pulling out, but we are not rolling out new ones.  We believe the best way to compete is to use the network we are building, supported by our CPCs, online tools and the FedEx transportation network.  We will continue the relationships we have, but I believe this new approach puts forth a better solution bundle than we have put forth in the past.

WTT:  You must have a significant amount of underutilized equipment in the existing network. Can you comment on that, and do you think that is contributing to the lackluster performance FedEx Kinko’s has had since FedEx acquired Kinko’s?

BP:  Actually, no, we don’t.  In fact, we are going to invest in placing more equipment in our stores so that we can continue to improve our service, turn time and the variety of options we provide customers.  We have a sales force that is selling the network as an advantage, and we want to make sure that network is ready.  In different stores and regions, we peak at different times of the day, week, and month, and each center plays a different role.  We are also now getting into using centers as forward stocking locations, and we do move a lot of business around our network.

In terms of what you categorized as “lackluster performance,” our chairman and the board are pleased with the progress. FedEx Kinko’s makes a significant contribution to FedEx in terms of this broad, high touch network.  I have worked for FedEx for 15 years, and for seven of those years, I was involved in the FedEx Kinko’s partnership.  Kinko’s always was a good channel for FedEx. The acquisition made sense because it opened a book of business on the small business front to which FedEx didn’t have access before. 

A lot of the work I have talked about was designed not only to grow core copy/print, but also to improve points of access for retail shipping.  About one-third of all packages that come into a new “compact car” location, of which we now have 50 open, are new to FedEx.  These are net new customers that have switched brands and are using us now because we are more convenient than our competition.  The FedEx Kinko’s network is also providing a footprint for our forward stocking offering, in line with the mobile professional concept, to complement our FedEx logistics operations.  Parts can be stored in secured areas of FedEx Kinko’s stores, and those workers can also take advantage of our other services.

In a nutshell, we are making changes to accelerate our growth in core copy/print, reinvigorating certain product lines, taking advantage of FedEx’s depth and breadth from a marketing standpoint to compete, and moving down the path of completely bundling core copy/print with other FedEx services, so some day you will be able to transact business at any FedEx or FedEx Kinko’s location using your FedEx account number for everything.

WTT:  Can you give us any insight into the FEMA program you recently announced?

BP:  That is part of the GPO Express program, designed to serve government agencies including FEMA. It made sense for us to partner because we have this network that is unique in the industry and can be accessed on a quick turn regardless of need.  We proved ourselves with FEMA long before the GPO program came about because of the services we provided post-Katrina.  There were amazing employee feats that occurred after we got our network back online to support the Red Cross first, and then FEMA, just days after the hurricane hit.  GPO Express acts as the foundation, but FEMA’s trust in us goes back to the post-Katrina work we did.

WTT:  Tell us a little more about that.

BP:  As you can imagine, we had centers in New Orleans and other places that were hit heavily.  We immediately made sure all of our team members were safe and accounted for.  With help from FedEx, we moved emergency supplies into the region to take care of our employees and their families, and we immediately began to move equipment and employees into locations just outside of the stricken zone.  We also found jobs for every one of our team members in those centers so they would have jobs during the recovery.  We used nearby sites to work with the Red Cross, FEMA, and state departments to provide basic services. 

WTT:  I understand FedEx Kinko’s is in the process of an in-house redesign of its online interfaces due out next summer. Can you give us an update on that process and talk about why you chose to build it yourself rather than partner with an existing supplier?

BP:  Actually, we just launched FedEx Kinko’s Print Online, and already we have seen an outstanding response to it from our customers. It is Web based, and designed in the tradition of FedEx.com, providing access to our services from your desktop. We are migrating customers onto that tool as we speak.  We currently have a number of platforms, including DocStore and File Print FedEx Kinko’s, but we have an effort underway to consolidate it all into single customer experience, regardless of whether you need basic services or value add like maintaining your documents in DocStore. Print Online is meant to be the foundation as we rationalize these and turn it into one integrated tool.

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.

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