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FedEx, UPS Hope to Spark Chain Reactions in Battle for Customers

Times Staff Writer

Carting 31 jars of California cashews, market researcher Darren Capozzi walked into a UPS Store in Hollywood recently to have the 40-ounce containers packed and shipped east for consumer testing.

Over in Vernon, Kate Brubaker, a public relations specialist with jeans maker Blue Cult, chose a FedEx Kinko’s to print, bind and ship a color catalog to buyers in several states.

They said they made their choices based on the same thing: convenience. And that’s the lure being dangled in a battle for market share between FedEx Corp. and United Parcel Service Inc.

“It’s big,” said Nathan Lewis, an analyst with Jackson Securities in Atlanta. “Both companies are trying to attract retail customers. We look for exciting things to happen.”

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The two companies are each after bigger slices of the retail shipping, printing and packaging business, relying on their stores to funnel more and more documents and packages to their massive shipping operations.

In February, FedEx paid $2.2 billion to acquire copy store chain Kinko’s Inc., which was founded in Isla Vista, near Santa Barbara, in 1970; there are 1,200 FedEx Kinko’s stores, including about 200 in California.

As for UPS, it paid $190 million three years ago for San Diego-based Mail Boxes Etc., a chain with 5,000 franchise stores worldwide. Since then, UPS has converted most of the 3,800 domestic locations, including 500 in California, to UPS Stores; the 1,200 foreign stores continue to carry the Mail Boxes Etc. name, as does the UPS subsidiary that oversees the franchise.

A key battleground is Southern California, with its dense and growing population of small businesses, key clients for UPS Stores and FedEx Kinko’s.

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FedEx Kinko’s brags that its list of services, which include complex printing chores and video conferencing, far surpasses that of UPS Stores. FedEx Kinko’s stores also are much larger, averaging 6,000 square feet, compared with the typical 1,500-square-foot layout of a UPS Store. More than 400 FedEx Kinko’s locations are open 24 hours a day, and the chain is heavily advertising that its ground shipping rates are as much as 35% below those of UPS Stores.

“It’s really a mismatch,” said Gary Kusin, chief executive of FedEx Kinko’s. “There are little, if any, similarities.”

Nonsense, retorts UPS. The company claims that it has the edge on convenience, because there are three times as many domestic UPS Stores as there are FedEx Kinko’s stores. As part of UPS, the UPS Stores are integrated with the nation’s largest ground shipper. The UPS Stores also contend that although they may not always offer the lowest prices, they deliver superior service because they are a franchise operation.

“If you’re an owner-operator, you’re going to go the extra mile,” said Gary Williams, who with his wife, Cheryl, owns the UPS Store in Hollywood and oversees 250 others in Southern California. “People come to us not just because of price -- and a 5,000-square-foot store versus one that’s 1,500 square feet doesn’t mean it’s any more convenient.”

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The UPS Stores note that they also offer printing, binding and packaging services, along with the mailboxes and notary services that formed the early backbone of Mail Boxes Etc.

“We’re not just a copying shop or shipping location,” said Stuart Mathis, president of Mail Boxes Etc. “We offer a full range of business services.” And the UPS brand name “has worked well in driving customers to our locations,” he added.

For FedEx of Memphis, Tenn., the Kinko’s purchase was part of its evolution toward becoming a more formidable rival to Atlanta-based UPS on the ground. In recent years, average volumes of FedEx domestic airborne overnight parcels -- once the heart of FedEx with its “absolutely, positively has to be there” guarantee -- have increased only slightly as e-mail has supplanted much of the need for sending documents by air.

So FedEx is taking advantage of another aspect of the Internet, its burgeoning retail sales, to pick up speed on the ground. In FedEx’s fiscal first quarter ended Aug. 31, its ground segment’s revenue jumped 17% from a year earlier, to $1.1 billion, and the segment’s pretax operating earnings rose 27% to $147 million.

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FedEx Kinko’s alone kicked in $490 million, or 7%, of FedEx’s overall first-quarter revenue of $7 billion; that translated to $19 million, or 3%, of the company’s operating profit of $579 million. But FedEx spent heavily in the quarter melding Kinko’s into the rest of the company, and it expects the retail chain’s performance to improve in coming quarters.

“This is a transition year for FedEx Kinko’s,” CEO Kusin said. “This is a year of investment in our people, our infrastructure and in our technology.”

UPS, with revenue of $33.5 billion last year, doesn’t break out financial data for the UPS Stores, nor does it say how much it receives in royalties from the franchise. But Mail Boxes Etc.'s systemwide sales were $1.5 billion when UPS bought the franchise; sales are now believed to be closer to $2 billion.

UPS is still wrestling with branding issues at its stores. The company acknowledges that some consumers don’t realize UPS bought Mail Boxes Etc. and that they see a UPS Store as merely a place to drop off shipments.

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“Our challenge today is still getting the word out that we’ve done this conversion,” said Williams, the UPS Store franchisee.

Brand confusion is a challenge for FedEx too at times. Amid the furor last month over CBS News’ use of apparently forged documents concerning President Bush’s military record, news accounts kept saying the documents had been faxed from a Kinko’s in Abilene, Texas -- not from a FedEx Kinko’s.

Kusin isn’t complaining. When you are locked in a battle with UPS, he said, “there’s no such thing as bad publicity.”

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(BEGIN TEXT OF INFOBOX)

Packed with competitiveness

The FedEx and UPS retail store chains offer printing, packaging and other office services in addition to shipping.

*--* UPS Store/ FedEx Kinko’s Mail Boxes Etc. Original chain founded: 1970, in Santa Barbara 1980, in San Diego Purchased by shipper: February 2004 April 2001 Price: $2.2 billion $190 million New headquarters: Dallas San Diego No. of stores worldwide: 1,200 owned 5,000 franchised No. of Calif. stores: 200 500 Average store size: 6,000 square feet 1,500 square feet Operates in: 11 countries 41 countries

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Source: Company reports, Times research

Times staff writer Ronald D. White contributed to this report.


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