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Tue, Sep 27, 2005 - Page 12 News List

Fedex's new venture ruffles rivals' feathers

E-COMMERCE The company started selling office supplies online last month, putting it in direct competition with customers such as Staples, Office Depot and OfficeMax

NY TIMES NEWS SERVICE , NEW YORK

Business competition on the Web just got more interesting.

As online sales of everything from TVs to cases of Chateauneuf-du-Pape have exploded in recent years, manufacturers and service providers have generally shown great restraint in going head to head against their own best customers. Nike's Internet store, for example, refrains from stocking some of the company's most popular items, and never undercuts the prices of its retailers, despite the fact that it is among the most powerful brands in the apparel market.

Likewise, when Procter & Gamble, another manufacturing behemoth, raised US$50 million in 1999 to build an online store to sell cosmetics directly to consumers, it chose to unveil Reflect.com, an entirely new brand, rather than sell its established brands and risk offending the big department stores that carried them. That effort, which revolved around customized cosmetics, shut down in June, with little explanation from the company.

Now, though, FedEx is plunging into the fray with a great deal less delicacy about ruffling the feathers of the big office supply companies that send so much business its way. Last year, it acquired the Kinko's chain of 1,200 stores for US$2.4 billion, a move that analysts said was a response to the acquisition of Mail Boxes Etc by United Parcel Service (UPS), though the stores carry very few office supplies and UPS does not sell office supplies online.

Then, last month, FedEx opened FedExKinkos.com to sell more than 25,000 products, including a wide variety of office supplies and furniture. And it is making no apologies about invading its customers' turf.

"We were cognizant of the fact that the superstores like Staples, Office Depot and OfficeMax would be concerned, because they're good customers and we're getting into that business," Kenneth May, chief operating officer of FedEx Kinko's, said. "At the same time, though, they're competitors who have also been marketing at the sweet spot of our space."

May noted that these superstores had offered copying, printing and shipping services in recent years, while Kinko's has been selling office supplies in its stores for 15 years.

"Customers have been asking us why they can't get both of those things in an online experience," he said. "Their requests were what drove us into this business."

Representatives of the three retailers he mentioned either could not be reached or declined to comment last week about FedEx Kinko's initiative.

But Stacks and Stacks, a midsize housewares and office supply company based in Richmond, California, was not so reticent. The company's president, Mel Ronick, said he paid FedEx millions of dollars annually to ship products and asked, "Why would I want to do business with a company that openly competes with me?"

He said he had not yet decided whether to drop FedEx as a shipper, but he predicted the FedEx initiative would "certainly backfire when the word gets out."

For all Ronick's fuming, though, May said FedEx has had clear sailing so far.

"We expected to hear from people, but it hasn't hit the Richter scale at this point," he said.

And analysts said they doubted a reaction would swell up that would hurt the FedEx bottom line.

One reason, according to Dan Stanek, executive vice president of Retail Forward, a consulting firm in Columbus, Ohio, is that consolidation in the retail industry has made retailers such formidable challengers to suppliers like FedEx that they have no choice but to fight back. The growth in private-label brands -- a category of products that retailers sell under their own brand names alongside similar or identical items from their suppliers -- is but one manifestation of the retailers' growing clout and independence.

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