In early August, FedEx Kinko's made two major announcements. First, the company announced an aggressive expansion plan to open 300 new office and print centers in the United States throughout fiscal 2008. The company also will redesign 110 existing centers and introduce 20 new locations internationally. A few days later, FedEx Kinko's announced plans to open five office and print centers in the McCormick Place convention center and historic Navy Pier in Chicago. So when you show up at Graph Expo in September, although the new FedEx Kinko's sites will not have been formally launched (scheduled for later in September), they will reflect the FedEx Kinko's brand.
WhatTheyThink spoke with Tom Leverton, Executive Vice President and Chief Development Officer at FedEx Kinko's, to learn more about the company's expansion plans. Leverton leads FedEx Kinko's domestic retail expansion operations and manages the company's digital networks and centralized production facilities. His responsibilities include strategy, network operations, national retail product businesses, supply chain and real estate. He joined FedEx Kinko's in 2001 as vice president, strategy and business development and later expanded his role to vice president, strategy and marketing. Leverton's professional experience also includes corporate strategy, finance, business development and consulting with TXU Energy, Bain and Company and Johnson & Johnson.
As you read this interview, consider what the actions the company is taking might mean for your business. While many print service providers consider themselves to be operating in a different class and serving a different customer base than FedEx Kinko's, it does appear that the FedEx influence is causing some important changes at the company. Let us know your thoughts!
WTT: Tom, thank you for speaking with us. It seems like a busy time for FedEx Kinko's. Before we dig into the expansion plans, I understand you were in the process of sourcing a Vice President of Digital Operations. Has that position been filled?
TL: Yes. We are delighted to have Manish Kapoor in that role. He started about two weeks ago as VP of Network Operations and is responsible for managing our digital document business. Manish is a fourth-generation printer and has a background in digital and web-to-print technologies. In fact, he was awarded the prestigious Electronic Document Professional (EDP) certification by Xplor International in 2001 and was recently recertified this year.
Manish was previously with Deluxe Corporation (formerly New England Business Service, Inc.) for 10 years where he was responsible for digital automation across all operations and successfully led a program for establishing a network of high volume automated document factories (ADFs) across North America. In his most recent position, he served as Relationship Leader for IT & Manufacturing, focused on digital solutions and manufacturing automation.
Manish has a master's degree from the Rochester Institute of Technology as well as an MBA from Babson College. We believe his leadership skills and in-depth understanding of printing and IT will be a tremendous asset.
WTT: Especially with Graph Expo coming up, I am sure many of our readers are interested in your convention center expansion plans. Can you update us on that?
TL: FedEx Kinko's currently has 28 convention center and hotel locations in the United States and operates in 11 top meeting facilities around the country including:
* Jacob K. Javits Convention Center in New York City
* Boston Convention and Exhibition Center
* San Diego Convention Center
* Georgia World Congress Center in Atlanta (two centers)
* Orange County Convention Center in Orlando, Fla. (four centers)
* Oregon Convention Center in Portland, Ore.
* Minneapolis Convention Center
* Hynes Convention Center in Boston
* Anaheim Convention Center
* Washington State Convention and Trade Center in Seattle
* George R. Brown Convention Center in Houston
Those sites are great for us and our customers, and in line with our strategy to get closer to our customers. Because all of our domestic locations are company-owned sites, we are a little unique as compared to the franchise model. Space is expensive at convention centers, and we are able to leverage our hub and spoke model to operate with optimum on-site space to meet immediate needs as well as to produce larger jobs off-site.
Because all of our domestic locations are company-owned sites, we are a little unique as compared to the franchise model.
WTT: Do you plan to continue to expand this aspect of your business into second-tier cities?
TL: With our dramatic expansion of retail sites, we are still examining the desired mix. Our focus right now is higher end, but as our model fleshes out and we get more efficiency in the network, it opens up the second tier and a lot of the other locations.
WTT: Speaking of which, your plan to open 300 new sites this fiscal year is a significant escalation over last year.
TL: Thank you; I keep telling my boss that. As you know, last year our plan was to open 200 new sites, and we actually opened 201. To go from 200 to 300 has forced us to pressure test all of our opening processes and our supply chain, but the team has done a terrific job and we are on track to meet that challenge. Our fiscal year starts on June 1, and we have already opened 74 new sites so far this year.
WTT: And these are the new smaller format, right?
TL: Yes. We call them our "compact car" format. They range between 1,600 and 2,200 square feet, and they leverage the hubs. We are building some of these in what we categorize as remote areas, meaning not near another FedEx Kinko's. They can and do operate as freestanding entities, but for those larger jobs they can leverage the rest of the network.
WTT: As I understand it, most of your stores are migrating to a mix of one-third print/copy, one-third shipping and one-third office products from a space perspective. What does that generally add up to in terms of revenue mix?
TL: I can't talk to the revenue mix, but our core copy/print business remains a very significant business for us. Shipping is also extremely important for our target market of mobile professional business people and small business customers.
WTT: In looking at your most recent quarterly earnings, I see that for the first quarter of your fiscal year, the FedEx Kinko's segment reported revenue of $504 million, down 3% from last year's $517 million; operating income of $10 million, down 38% from $16 million a year ago; and an operating margin of 2.0%, down from 3.1% the previous year. The rest of the FedEx business was up in the double digit range. Do you have any comment?
TL: Overall, I would say that FedEx Kinko's is investing heavily in expansion and in our team members, and this is part of the long-term design for the network. Expanding by 2,000 stores, which is our target, will require a large investment and creates a drag. In parallel, we are investing heavily in our team members, both in terms of wages and recognition to drive overall quality and to provide increased points of access to the overall FedEx network (Express, Ground, etc.). We are investing for the long term.
WTT: What is the timeframe for the addition of 2,000 new stores?
TL: We are still looking at the number of stores we want to roll out in the out years and locking down the timeframe, but considering that we have already announced a definitive timeframe for the first 500, we are confident it will be very fast.
WTT: Do you have other things on your plate besides the store expansions?
TL: I would be bored if that was all we were doing. There are two other things I would like to highlight. One is the increased focus we are placing on office supplies and services for mobile professionals and small businesses. In addition to our new "compact car" store model, we also have a large footprint model, our "SUV" concept, where we are remodeling existing sites. We have completed Boston, St. Louis, Minneapolis, San Diego and Orlando. In these stores, we have taken SKU counts for retail products from 400 to 2,500 and will be doing that in an additional 110 sites this fiscal year. If you walk into the SUV concept where you have aisles of office supplies and shopping carts, you will see that we really can be a one-stop shop for the small business and mobile professional.
The second thing we are particularly excited about is our ecommerce printing initiative. The role that Manish Kapoor is going to play is in smoothing our network to allow more rapid and easy flows for ecommerce jobs. And we just released a new ecommerce portal, Print Online, which I hope you agree is the best-in-class tool for online printing. We are getting great reception from our customers and it is driving increased volume to our stores. Although we are over six months into it, we are still seeing double digit month-over-month increases in utilization.
We just released a new ecommerce portal, Print Online, which I hope you agree is the best-in-class tool for online printing. We are getting great reception from our customers and it is driving increased volume to our stores.
WTT: What volume of your work is coming into the stores electronically?
TL: Over 20% is coming in electronically, and I would see that increasing. Some of it is an issue of customer education, letting them know that they don't have to make two trips into FedEx Kinko's when they print a large job. That's the easy part, saving customers a trip. But some of our customers recognize that they can save two trips. Print Online offers the ability to have same day delivery with our courier services or using Fed Ex for overnight or other delivery. That is a great time-saving resource. As customers become more aware, I cannot imagine that the mix wouldn't shift more to ecommerce.
WTT: Adobe was highly complimentary of FedEx Kinko's cooperation in resolving the recent issue with the "print to FedEx Kinko's" button in Acrobat and Reader that created such an industry stir. Do you have any comments on that?
TL: Nothing beyond our official statement.
WTT: Tom, thanks so much for speaking with us. Is there anything else that you would like to add?
TL: Just that we appreciate WhatTheyThink taking an interest in our business and giving us the opportunity to let your readers know what we are up to.