It's common knowledge that not all marriages end up to be happy ones. In the corporate world, the same holds true. When express mail delivery service FedEx reached a union with copy center Kinko's for $2.4 billion in 2004, many thought the merger would never work. Some feared the combination of a 24-hour copying service and an express shipping service would never mesh.
Three years later the executives of the merged company are shaking their heads admitting that the original concept of the merger hasn't panned out as expected. The numbers, so far, show that. In its latest fiscal quarter, FedEx Kinko's reported revenue of $519 million, down 2%. Operating income fell 50% to $8 million, and margins fell to 1.5% from 3%. The declines were attributed to reduced demand for copies, network expansion costs and a sales-force reorganization. But FedEx Kinko's says it's found a new strategy that they hope would turn around this unit.
The original strategy with Kinko's was to concentrate on high-end commercial print business by providing copy services to sell machines competing against Xerox and Ikon, FedEx Kinko's chief operating officer Ken May said in a recent Fortune magazine interview. May admitted FedEx made some bad investments to compete in the high-end commercial print-business sector.
Fast forward to today, May says FedEx Kinko's is now focusing on getting the business of three audiences: small- and medium-size business, mobile professionals, and convention centers and hotels. FedEx Kinko's is also planning to open smaller, intimate stores probably around 2,000 square feet, almost one-third smaller than a traditional location. It also plans to open 200 stores this year followed by 300 in 2008 and 400 in 2009. With all these changes, May admits that FedEx Kinko's needs more time to show the benefits of this new strategy. Luckily, overall, FedEx has showed strong numbers in its other divisions to offset FedEx Kinko's. But parent company FedEx, which prides itself on speedy delivery, may soon not have the patience to wait for strong profitability from FedEx Kinko's ... — Gerald Magpily
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