FedEx One Ups UPS; Buys Kinko's

December 30, 2003
FedEx is buying Kinko's Inc., the chain of copying centers, for $2.4 billion, apparently in response to United Parcel Service's purchase of Mailboxes Etc. a few years ago.

The goal is to provide one-stop shopping and shipping for small and medium-sized businesses. The deal may also help FedEx expand its ground delivery business, which has not achieved the blazing growth its founders predicted.

Consumers complain that FedEx Ground is plagued by lost shipments, misdelivered packages and inadequate insurance protection.

As FedEx's relatively high-priced overnight shipping business matures, the company has been seeking ways to muscle in on UPS' dominance of lower-priced ground delivery to small businesses and residential customers.

With his customary modesty, Frederick W. Smith, the chairman of FedEx, said the Kinko's acquisition was "supremely logical."

Some observers were skeptical, noting that FedEx already operates counters at 134 of Kinko's 1,200 stores, where customers can leave packages for either ground or air delivery.

"I understand why FedEx wants a bigger retail base, but we had expected it to buy operations in Europe or to acquire companies more in keeping with its existing logistics businesses,'' Kenneth Hexter, an analyst with Merrill Lynch, told the New York Times.

Unlike FedEx's high-flying overnight air express service, the ground-delivery business is much more labor intensive and returns a lower profit margin, putting downward pressure on wages and other costs, unhappy FedEx Ground employees note.

"Packages come down the conveyor belt at an unbelievable and probably unsafe rate. On several occasions, every day, we have many packages just falling off of the conveyor. Many times, the packages are already damaged and open when they get to the package loader," an employee of FedEx Ground's Houston terminal told ConsumerAffairs.com.

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