FedEx Kinkos – Looked Good On Paper…
In the early 2000s, FedEx was faced with a difficult proposition. The delivery business was finding it challenging to compete with its changing rivals. FedEx’ first strategy was to differentiate it’s service and focused on overnight services and air delivery. However, this important niche advantage disappeared relatively quickly when UPS created a network of 4,500 retail shipping locations through an acquisition of Mail Boxes Etc. and increasing relevance of its strength on the ground.
FedEx was finding challenges in catching up with its chief rival, seeing business stagnate for five years. In the biggest move in the company’s 32-year history, FedEx purchased Kinko’s copy and print business from private equity firm Clayton, Dubilier & Rice in 2003 to counter.
Getting Physical – Operating Model
Fedex employed technologies to become the leader in fast guaranteed delivery and had been known for their slogan “When it absolutely, positively needs to be there overnight.” FedEx was a pioneer in many ways: focusing and investing in air delivery, launching the overnight service and offering tracking capabilities for consumers to track their orders. Previously, much of FedEx’ business was handled through drop-off boxes and already owned space within 134 larger Kinko’s ecosystem.
In acquiring Kinko’s, FedEx sought to counter UPS move into the physical space. Through their 1,200 Kinko’s locations, FedEx would be positioned to open shipping kiosks at all locations while maintaining the paper copy business that Kinko’s had developed. While the natural synergy between the companies produces a one-stop shop for individuals and businesses sending documents needed overnight, Kinko’s also offered an established customer base of small businesses that FedEx could cater to.
In integrating the two businesses, FedEx was hoping for synergies to take place and to steal ground revenues from UPS. However, there were critical issues at play during the integration process.
An additional flaw with the purchase was the lack of foresight in a need for a change with FedEx’ operating model. Business needs were rapidly shifting away from mailed and faxed documents, moving more into the digital space. 40% of FedEx’ business in 2001 was manuscripts, legal briefs, contracts and other urgent business documents, but the transfer of these documents was increasingly made possible through digital delivery and e-mail. The acquisition of Kinkos did not take this into account, and occurred at precisely the wrong time – nearly immediately, FedEx Kinkos needed to invest in new products and services to keep current with technology change.
Getting down to business
A deeper look reveals FedEx’ main revenue source from sending documents and small packages. However, revenues from these sources had been flat from 1998 to 2003. In fact, revenues from express shipping following the merger were less than that of 1998. The shift in businesses shows a further weakness for FedEx – in 2001, UPS had 55% of the e-commerce delivery market, compared to 10% of FedEx. Additionally, FedEx had avoided investing in ground transport with the hopes that the majority of its business to remain in air shipping, but the ground transportation business increased due to shoppers preferring low-c ost options at checkout.
Kinkos had the possibility to diversify this revenue, but ultimately the macroeconomic decline in copy and physical paper business needs slowed this growth as well and caused Kinkos to become a liability, struggling financially. Profit margins for Kinkos businesses have fallen and employee turnover was consistently in the double digits for the years following the merger. Availability for copy services abound, as well – customers easily could obtain these services from competition with very little consumer loyalty.
Ultimately, the marriage between FedEx and Kinkos was intended to be a match between the operating and business models of the two companies, but in reality served to detract from the original. In offering both shipping and copy/print services, the businesses could be quite complimentary on paper. FedEx saw dropping revenues due to its operating model decisions, and sought a change – but acquiring Kinkos’ storefronts did very little to address the issues. Operating storefronts and attempting to handle culture change and employee turnover was an ongoing distraction for the business, which should have been refocusing on the growing e-commerce and digital delivery areas. Not only was the operating model not well coupled to create sustained revenues, but the competitive advantage was nonexistent due to the easy replication of Kinkos’ key strengths by competitors.
Ultimately, what was intended to be a union in operating models became a negative distraction for FedEx’ business model issues, and the company made the costly decision to drop the brand name entirely in 2008. Moving forward, FedEx should refocus on its shipping business and invest further into technologies to improve the user experience.
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Deutsch, Claudia H. “Paper Jam at FedEx Kinko’s.” The New York Times. The New York Times, 04 May 2007. Web. 09 Dec. 2015.
Beck, Ernest. “FedEx Ditches Kinko’s.” Bloomberg.com. Bloomberg, 09 June 2008. Web. 09 Dec. 2015.