FedEx Whites-Out the Kinko's Name

Poor customer service and fast-changing technology are still problems. Can the delivery giant redeem its troubled copy-chain unit by rebranding?

By Christopher Palmeri

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Asaf Hanuka

Kinko's is not what it once was, and many customers don't like that a bit.

"They are chronically understaffed and overpriced," Pamela Haber, a Los Angeles event planner, says of the printing giant. "I've done enlargements—I had to get behind the counter to show them what to do."

Gerald Bose, a Sewell (N.J.) management consultant, complains: "You go in there now, the average person, you're not sure what the place is. The first thing you see is the photo kiosk. You can mail stuff. There's the color copier. Way over in the far corner, computers [for word processing and other tasks]. They are getting away from their knitting."

FedEx (FDX) hoped for something very different when it bought the copy king for $2.4 billion in 2004. Combining FedEx's ubiquitous delivery system with 1,200 Kinko's would provide access to consumers at every step as they created documents and shipped them around the world. "FedEx and Kinko's share a similar heritage, culture, and commitment to superior service," Frederick W. Smith, FedEx's chairman and CEO, said at the time.

Instead, the FedEx-Kinko's marriage has become a case study in the challenges of meshing disparate corporate cultures. Even as FedEx tries to capitalize on the demise of rival DHL's U.S. delivery business, management still has plenty of heavy lifting to do as it tries to boost profitability and improve customer service at the printing unit.

ERASING A BRAND

Since the delivery giant acquired Kinko's, the unit's profits have fallen from more than $100 million in 2004 to $45 million in 2007. Revenue has stagnated at $2 billion. In 2008, FedEx announced an $890 million write-off on the purchase and named the third CEO to head Kinko's in four years. The $38 billion-a-year combined company stopped reporting the printing unit's financial results separately in September 2007. And now FedEx is dropping the Kinko's brand. The chain will be called FedEx Office.

Some longtime customers are lamenting the imminent demise of the Kinko's sign, which FedEx will start removing from stores next year. Andy Sernovitz, an author and marketing consultant in Chicago, says he got more frustrated reader responses to a blog item he wrote about the name change than to any other. "It's not just a place you shop," he explains. "A Kinko's moment culminated in something big. It's the night before the term paper, and you've got to get to the frat party. It's your wedding invitation, your résumé, a big presentation."

Tom Vander Well, a call-center consultant in Pella, Iowa, fondly recalls stopping at Kinko's while on the road: "We'd go anytime, night or day. There was always someone there to help, free coffee; it was a good feeling." But his last visit was spent trying to get machines to work or catch an employee's eye for assistance. He left unhappy, "never to return," he says.

The latest CEO of FedEx Office Brian D. Philips faces the challenge of turning it around in what his boss, FedEx founder Smith, calls "the worst economic conditions in the company's 35-year operating history." On Dec. 18 FedEx announced that it was cutting employee salaries 5% to 10%—as well as cutting Smith's pay by 20%—and doing away with retirement plan matching contributions and pay raises for a year. The company hopes such measures will help it reduce costs by an additional $800 million over the next 18 months.

Philips says the company is still investing in the printing business, for example by buying printers that make large signs and offering new services such as direct mail for businesses. "There's a lot of potential here," he says. "FedEx and Kinko's are both networks, and what FedEx is very good at is running networks.