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Shopping Centers Today -> May 2004
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SHIPPING CENTERS
UPS, FedEx battle it out with competing stores in strips
BY GLEN A. BERES
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“Research shows us that the UPS shield is as powerful on the storefront as it is on our package cars,” Rocky Romanella, vice president of retail services, said in a news release. He was not available for comment.
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That’s why the Atlanta-based shipping giant launched a major rebranding effort in the spring of 2003, converting some 3,300 domestic Mail Boxes Etc. franchise stores to The UPS Store moniker. Mail Boxes now operates the stores as a subsidiary of UPS.
“The franchising sector has never seen rebranding on this scale,” said Don DeBolt, president of the International Franchise Association. “To see one of the world’s largest companies working alongside a leading franchiser is historic on its own.”
UPS says it expects its strong brand name to drive additional traffic and generate increased sales to the stores. The company made the decision to rebrand the stores following some branding and pricing tests it ran in six markets in the fall of 2002. During those tests, Mail Boxes franchisees that converted to the UPS Store name raised their overall shipping volume by 70 percent, in addition to increasing customer traffic.
For Mail Boxes, the partnership works because the two sides bring complementary products and services to the table.
“Since UPS acquired Mail Boxes in 2001, we have been working to carve out a strategy that would maximize the combination of these two best-in-class businesses,” Stuart Mathis, president of Mail Boxes, said in a news release. He was not available for comment. “By pooling Mail Boxes’ expertise in retail business services with UPS’s expertise in shipping and other expanded capabilities, the UPS Store offers an extensive portfolio of products to our franchisees and their customers.”
UPS, which acquired San Diego-based Mail Boxes for a reported $190 million to $200 million, operates more than 3,300 U.S. stores and more than 1,200 stores in 39 other countries; UPS also operates some 70,000 full-service shipping centers and drop-box locations worldwide. According to company spokeswoman Jessica Moore, UPS plans to expand its U.S. retail store network to about 5,000 stores by 2007 — roughly 500 new locations in each of the next three years.
UPS posted $33.5 billion in sales for fiscal 2003, of which $1.5 billion was retail-store-generated, analysts say. At 4,500 stores, that comes to about $330,000 per store. And with most of the units measuring between 1,200 and 1,800 square feet, this means the stores typically generate sales of between $180 and $275 per square foot.
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| Switching the Mail Boxes brand to UPS increased shipping volume by 70 percent. |
According to UPS, its “traditional” retail centers are typically located in grocery- and drugstore-anchored shopping centers, strip centers, highly visible retail corridors or stand-alone stores such as supermarkets, pharmacies and mass merchandisers. The company also has units in financial and business districts. Meanwhile, UPS has seen steady growth in its special-venue division, which includes airports, convenience marts and gas stations, convention centers, hotels, military bases, self-storage facilities and universities.
Most UPS retail centers are full-size, traditional stores, but the company also operates kiosks in malls and convention centers.
The typical UPS unit generally employs two or more full-time workers and is open Monday through Saturday; some are open Sundays as well. It could be located in or adjacent to market areas with commercial business and professional office parks, medical centers, tourist areas or other high-traffic venues.
UPS is a desirable tenant because of the volume of traffic the stores draw and the services they provide, says Walter C. Smith, vice president of the retail division of commercial real estate firm Pearson Realty, Fresno, Calif., which has represented at least 10 UPS stores on lease negotiations.
“UPS provides needed services to the neighboring tenants within the center and to the neighborhood itself,” Smith said. “Landlords recognize that UPS, somewhat like a grocery store, draws customers to their center two to three times a week — which indirectly benefits other tenants in the center through increased foot traffic and exposure.”
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But a retail center considering a UPS Store tenant needs to know that this ultracompetitive company insists on exclusivity.
“UPS is very transaction-oriented,” said Smith. “One of the deal points we do negotiate hard for are our exclusive uses — primarily for mailbox rentals and printing services, as well as a tenant improvement allowance.”
Although UPS is the largest player right now in terms of retail business center locations, its main competitor, FedEx, is nipping at its heels.
FedEx
FedEx closed on the purchase of copy and document service chain
Kinko’s for $2.4 billion in February. The deal has put FedEx
in Kinko’s 1,000-plus stores across the United States and the
110 units it has abroad and allows it to tap into Kinko’s substantial
small and midsize customer base.
Atlanta-based FedEx was already manning counters in 134 Kinko’s stores at the time of the acquisition. The company says it is studying whether to rebrand the Kinko’s stores under the FedEx name, though a spokeswoman did acknowledge that Kinko’s is a powerful brand in its own right. FedEx also says it plans to “dramatically expand” Kinko’s international store base. In fiscal 2003 FedEx posted revenues of $22.5 billion. Kinko’s annual revenues total about $2 billion.
Frederick W. Smith, FedEx chairman and president, says the Kinko’s acquisition will benefit FedEx’s fastest-growing business segment: ground shipments, which compete directly with UPS.
“Kinko’s 1,200 locations will provide a lot of access for people who want to pack and ship,” he said. “It’s particularly important to FedEx Ground.”
Analysts say the acquisition was an important move for FedEx, enabling it to get closer to retail customers and stay competitive with UPS.
“This is a very significant entry into the small office/home office market,” said Jeffrey Kauffman, a transportation industry analyst at New York City-based Fulcrum Global Partners, “which is a market FedEx has been trying to grow into for many years.”
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