FedEx and Amazon Take Pointers from One Another
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More intense competition that is increasingly attacking from multiple angles is making some of the world’s leading product and service providers expand their operations beyond their traditional core businesses. Google (NASDAQ: GOOG), which has historically controlled the lion’s share of the online search market, has continually expanded into the world of social media, tablet hardware retailing, and digital content distribution to boost the relevancy of its multi-faceted advertising platform and fend off the increasing competition in the display advertising space.
Traditional PC and other computer hardware manufacturers including IBM, Dell, and Hewlett-Packard have increasingly pushed their commoditized PC offerings aside and have embraced higher margin and more diversifying business solutions services – IBM has obviously made the most successful shift.
Lastly, and in most recent news, Amazon.com (NASDAQ: AMZN), which once touted itself as the “World’s Largest Bookstore,” and FedEx (NYSE: FDX), which has traditionally generated ~$35+ billion per year with its catchall shipping business, have started to expand their offerings to become more things to more people. What is most intriguing is the fact that their new offerings are almost pages ripped out of the others’ playbooks.
- FedEx Shoots for the Clouds
FedEx’s $2.4 billion acquisition of Kinko’s printing chain in 2004 was probably not the best use of the firm’s capital. The corporation, in integrating the 1,200 print shops into its business-services offerings, had plans of creating a one-stop shop for customers to make, print, pack, and ship anything. More than 70% of the purchase price was stashed in FedEx’s goodwill account at the time of acquisition, and nearly 50% of that value, as well as the Kinko’s brand name, was erased with the corporation’s $810 impairment charge and division restructuring plan in 2008.
The newly renamed FedEx Office division has since experienced slowly dwindling revenues – running on a -5.8% CAGR between the May 2009 and February 2011 quarters – and its contribution in terms of the corporation’s total revenues has dropped from 6.4% to a mere 3.9%. The division’s increasingly unimpressive results are not an extreme surprise; cost-cutting efforts from smaller businesses over the past several years has reduced their propensity to spend on superfluous point-of-purchase or company logo-laden handouts, and larger enterprises are finding ways, through digital imaging and cloud computing, around having to print excessive amounts of reports and customer files.
FedEx’s new (relatively) initiative to boost the relevancy of this ailing division is to increase the service’s convenience for large and small enterprises alike. In a very Amazon Cloud Drive-esque fashion, FedEx Office’s Print Online tool partners with Google’s Google Docs tool to allow users to upload, store, and print documents from their online interface for pick-up anywhere, any time. The division is very much attempting to become the one-stop-shop destination as was originally intended upon its acquisition in the mid-2000s, and will utilize FedEx’s worldwide shipping capabilities to allow users to send printed documents, reports, etc. to any location worldwide, or simply elect to have them delivered by ground to a nearby home or office.
Both corporations’ initiatives, although aimed at slightly different consumer types, do have some crossover points. Amazon Cloud Drive users could theoretically upload the same files to the corporation’s servers and access those documents via any FedEx Office’s Wi-Fi. Although the push into the cloud will not pose a threat to Amazon’s own service (it has yet to even show a positive financial impact on FedEx’s division), it does offer an intriguing case of how important cloud computing will continue to become over the next several years and how many different businesses in diverse industries can use the technology to create innovative services for consumers.
- Amazon Delivery Locker
As the recent performance of Amazon's stock indicates, those investors seeking consistent quarter-to-quarter earnings gains have become increasingly impatient with the corporation’s willingness to forego short-term profitability for longer-term reinvestment into the business’ growth. Although different investors can desire different capital allocation strategies for a given enterprise, there is no doubt that Amazon does indeed know how to spend.
Over the past several quarters, the retailer has invested in the growth of nearly all of its retailing capabilities – the loss-leader Kindle Fire initiative, the digital content stores with a growing library of songs, books, music, and videos, the funding of original content with its Amazon Studios division, the expansion of its shipping capabilities with the Kiva Systems acquisition…the list goes on. Some of the most intriguing growth taking place within the corporation is not in its actual products it sells through its online portal (groceries in the Seattle area, digital content for the Kindle e-reader, etc.), but is instead in the efficient shipping capabilities that holds together its entire retailing house of cards.
The efficient storage and shipping of goods, much like FedEx, is really one of the primary drivers behind Amazon’s success. The retailer has the advanced “pick-and-pack” technology – having the ability to pick individual items from a large warehouse and ship them to unique addresses, as opposed to picking up and shipping large palettes like a general merchandise retailer does for its nationwide footprint of stores – and essentially operates “virtually” through the commanding of large accounts payable balances that more than cover both of its inventory and accounts receivable requirements.
These efficient behind-the-scenes activities allow Amazon to grow unique businesses like Fulfillment by Amazon (FBA) and its locker-box venture with 7-11 stores that is increasingly blurring the lines between its retailing and shipping competencies. The FBA platform enables smaller merchants to store inventory and fulfill orders from Amazon.com fulfillment centers; Amazon essentially sells its extremely efficient ability to store, market, and ship goods on a worldwide basis.
Likewise, the 7-11 initiative has given Amazon customers the choice to pick up packages at lockers housed within select 7-11 locations. Amazon’s motivation in providing such a service is to offer consumers a convenient and safe (instead of leaving packages at doorsteps) avenue towards connecting them with their ordered products. Although it has already been reported that the project is off to a rocky start, with very few Amazon consumers utilizing the service, the pairing with a large nationwide retailer (it doesn’t have to be 7-11) is an excellent long-term plan in expanding Amazon’s overall shipping footprint. Especially because the retailers would provide the real estate and protection for the lock-boxes – they get residual foot traffic so there is an incentive for them to participate – Amazon will not only be able to offer a more convenient route for some customers to pick up and return merchandise, but will also establish a more attractive platform for smaller merchants using the FBA platform to use Amazon’s services.
It is unlikely that Amazon and FedEx will ever become direct competitors, but each of the corporations’ latest ventures show that in this age of increased product and service diversification, the once thick lines separating individual industries are rapidly blurring. An increased level of cross-industry competition will undoubtedly become more prevalent as cloud computing and just-in-time inventory (or other expedited shipping) services become more demanded.
gibbstom13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Google. Motley Fool newsletter services recommend Amazon.com, FedEx, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.