FedEx thinks small with $2.4 billion purchase of Kinko’s FedEx thinks small with $2 FedEx thinks small with $2

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At FedEx Corp. and United Parcel Service of America, the battle for small-business customers seems to get bigger every day. FedEx announced on Dec. 30 that it was acquiring privately held Kinko’s—which it called "a magnet for small- and medium-sized businesses"—for $2.4 billion in cash.

That deal mirrors the move made by UPS when it acquired Mail Boxes Etc. in March 2001 for $185 million. At the time, FedEx’s chief competitor said the deal would enable it to "develop new opportunities in such areas as small-business services,
e-commerce and financial services.

FedEx, with $22.5 billion in revenue in 2003, and UPS, with $31.3 billion in revenue in fiscal 2002, are among the world’s largest companies. Both say they have contractual relationships with most, if not all, of the Fortune 1000 companies.

While FedEx and UPS have growth opportunities with large companies, both say the real potential lies in serving smaller businesses.

"It’s very important, because the small- to medium-sized business market offers the higher opportunity for growth," said Jess Bunn, FedEx manager-media relations.

Small business is big business

Small business is clearly big business, accounting for about half of private-sector gross domestic product, according to the National Federation of Independent Businesses.

Small businesses are attractive to the shipping industry—provided their volume can be aggregated through retail outlets such as Kinko’s—because these customers provide higher margins. "Because small- to medium-sized businesses and consumers are not on a contract basis, the yield tends to be high," Bunn explained.

With its Kinko’s acquisition, which is expected to close this month, FedEx will gain 1,200 retail locations worldwide.

The pair already had a close relationship: FedEx has been the exclusive shipping provider for Kinko’s since 1988. FedEx expects to boost shipping services at Kinko’s stores currently without a full-time FedEx counter. "Locations that are staffed by a FedEx employee typically have about 10 times the volume of a location that only has a drop box," Bunn said.

FedEx is also bullish on growing Kinko’s internationally beyond its current 110 locations outside the U.S.

Kinko's name change?

At press time, FedEx said it was premature to discuss marketing programs surrounding the promotion of Kinko’s as part of the company. But FedEx did acknowledge that keeping the name Kinko’s for the long term was not a given. "We will certainly keep it for the time being, but I expect that will be something that we will study," Bunn said.

UPS has changed the name of many former Mail Boxes Etc. franchises to the UPS Store, rolling out the rebranding program in the first quarter of last year. Of about 3,500 Mail Boxes Etc. stores, about 3,100 are now UPS Stores, according to Steve Holmes, manager-public relations for UPS. He added that at stores that have adopted the UPS name, monthly shipping volume doubled between April and September of last year.

As at FedEx, UPS’ marketing efforts to small businesses go beyond its acquisition of a retail presence. UPS continues to operate shipping counters, which existed before the Mail Boxes Etc. deal, at Office Depot and Staples stores. "Our small-business presence was already enormous," Holmes said. "We have more than 2 million small-business customers."

Additionally, UPS Capital courts small businesses with loans and other forms of financing. The unit recently announced a $200,000 loan and a one-year, $50,000 secured line of credit to, a toy e-tailer.

"Small businesses represent a significant portion of UPS’ customer base, and we support them by providing working capital through government-guaranteed loans along with other services such as small-business credit cards," UPS Capital President Bob Bernabucci said in a statement. "Further, by combining financial services with UPS’ expertise in moving goods, we often can help small businesses improve their cash flow and streamline operations." M

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