Consider Kinko's Footprint
Traffic World - February 2, 2004
By Satish Jindel

FedEx's decision to acquire Kinko's for $2.4 billion raised two main questions: First, what is the value of Kinko's stores and copying business to FedEx's core transportation/logistics business? Second, is the purchase price too high?

Let's address the second question first. To value Kinko's price using traditional methods, one needs detailed financials not available from a private company such as Kinko's. Furthermore, since Kinko's does not have a true competitor but competes against divisions of other companies, there are no good comparables.

Whether the price is right or too high will be determined by how FedEx leverages Kinko's capabilities, which go far beyond its copying business. Similar concerns were raised in 1997 when FedEx acquired Caliber System for $2.4 billion.

It is understandable that Kinko's is viewed primarily as providing two revenue-generating opportunities for FedEx: the document business -- the main stay of Kinko's current business model -- and parcel shipping for the SOHO (Small Office-Home Office) market by putting FedEx counters at all Kinko's locations.

However, it is unlikely that FedEx would make this acquisition without seeing other opportunities to capitalize on Kinko's network of strategically located and sized stores. A few of these strategic opportunities are:

Kinko's stores as HDS substations

There's no doubt that the first priority will be to add FedEx customer counters at over 1,000 Kinko's locations for parcel drop-off and pickup activity. However, FedEx can do lot more by establishing substations for its Home Delivery Service at Kinko's locations, which have a footprint about three to seven times larger than the UPS Stores. Some of these centers already handle pickup and delivery of copied documents. Leveraging these centers (as many as 2000 in five years) can reduce operating cost and provide a competitive advantage for faster and more profitable growth of FedEx HDS.

Most business-to-consumer parcel service providers such as Donnelley Direct and integrated carriers such as UPS use the U.S. Postal Service to offer low-cost delivery service to residential addresses. FedEx can use Kinko's large footprint stores with its HDS contractors to offer integrated B2C delivery to residential addresses in the urban/suburban areas at a cost very competitive with USPS delivery rates. For high cost rural deliveries, FedEx still can use the Postal Service.

Kinko's stores as logistics/service centers

American households now are purchasing more high value and sophisticated electronic office and entertainment systems and telecommunications devices, ranging from large screen flat panel plasma televisions to cell phones that operate as cameras and palm pilots. Consequently, there will be a growing need for technical assistance for installation at time of delivery and after-sale service support. While purchasing of electronic products has become very efficient, people still lack dependable and convenient options for after-sale service on such products.

FedEx can leverage its name and Kinko's network to be the retail store for electronic service/support needs for residential and small business customers. With specialized technical training required to service some items, FedEx can ship such items to a central service center where specialized technicians can service the items for overnight delivery. In addition, these centers also can serve as parts banks for service technicians and processing centers for returns service for SOHO market.

Using Kinko's to manage corporate mailrooms

While the document market for express carriers has been flat or declining, large businesses still spend millions of dollars on mailrooms and copying services. Xerox and Pitney Bowes have leveraged their copier equipment and postage meter businesses respectively to create multibillion dollar mailroom/copy center service business. FedEx's global transportation business in conjunction with Kinko's document reproduction capabilities offers an attractive value proposition to compete successfully for such business.

Kinko's as a remote office

The growth in the service sector is increasing the number of telecommuters, service technicians and sales people that operate from homes. Moreover, with additional security hassles at airports, business people are reluctant to travel and cannot easily meet at airports. With the large footprint, professional environment and convenient access, Kinko's stores can be the office away from office for such people to participate in videoconference calls, have a temporary workstation with all required equipment to conduct business. These facilities could even offer FedEx Café or Starbucks counter to support such business activities.

Kinko's as a storefront for ebay sellers

Technologically savvy people already are selling used or new items on ebay. However, many others including high-income families, elderly and even small businesses would rather let someone else handle all aspects of such transactions. Kinko's stores can offer a full suite of such services while ensuring a higher degree of transaction security on the quality and accuracy of the items sold by individuals.

A successfully executed strategy that leverages all the core competencies of Kinko's with those of FedEx's various operating entities can make the Kinko's purchase price look very attractive -- just like the Caliber System acquisition.

Jindel is President of SJ Consulting Group, Inc., a transportation strategy consulting firm based in Sewickley, Pa. SJ Consulting has worked with FedEx and other transportation companies.