Kinko’s, Inc.

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Kinko’s, Inc.

255 West Stanley Avenue
Ventura, California 93002-8000
U.S.A.
Telephone: (805) 652-4000
Toll Free: (800) 2-Kinkos
Fax: (805) 652-4142
Web site:http://www.kinkos.com

Private Company
Incorporated: 1970 as Kinko’s Copies Corp.
Employees: 25,000
Sales: $2,000 million (2000 est.)
NAIC: 514210 Data Processing Services; 561439 Other Business Services (including Copy Shops)

In 1995, Kinko’s, Inc. was the leading retail provider of document copying and business services in the world. Kinko’s had more than 830 outlets in early 1996, located in every state of the union and four foreign countries—Canada, Japan, South Korea, and the Netherlands. It was providing photocopies, quick printing and finishing services, electronic document distribution and production, mailing services, and time rentals on personal computers, usually at any hour of the day or night. About 145 locations had a special room for conducting video-conferences. A private company, Kinko’s does not release its sales figures.

Serving College Campuses in the 1970s

Kinko’s Copies Corporation was founded in 1970 by Paul Orfalea, who gave the company the nickname given to him for his curly red hair. Self-described as mechanically inept and dyslexic, he was a “C” student at the University of Southern California, from which he graduated in 1971 with a degree in finance. By then Orfalea had observed, “If you can’t fix things and can’t read things, then you can’t get a job.” He apparently never looked for one, later telling a Forbes interviewer, “I’m sort of unemployable. I’m basically a peddler.”

Seeking something to sell, Orfalea fixed his eye one day on the copy machine in the university library. Applying what he had learned from a marketing course that studied product life cycles, he decided, “This thing here is going to go for a long time.” With funds from a $5,000 loan in 1969 from the Bank of America, cosigned by his father, he leased an 80-square-foot former hamburger stand in Isla Vista, near the campus of the University of California at Santa Barbara, and rented a small Xerox copier, charging customers four cents a page. He and a few friends also sold about $2,000 a day worth of notebooks and pens out of the makeshift store, wheeling the copier out on the sidewalk when the premises became too crowded. He supplemented his income by going from one dormitory room to another in the evenings, hawking his wares from a knapsack.

When this business proved a success, Orfalea decided to open other stores on other college campuses. Since he did not have funds to finance them and did not want to franchise them, he formed partnerships with owner-operators, retaining a controlling interest in each. These partners were other students who scouted locations along the West Coast, sleeping in their Volkswagen buses or fraternity houses. Publicity consisted of flyers stuffed in mailboxes; orders were taken and delivered personally.

Some of these Kinko’s pioneers still were owner-operators many years later. Jim Warren was a surfer who met Orfalea at a keg party and was persuaded to take the enterprise to the Southeast. He and his wife rented a small storefront near the University of Georgia in 1978, where they kept a fire extinguisher handy because the copier they leased tended to burn paper. By 1995 Warren was president of Southeast Kinko’s Inc. and a part owner in about 120 Kinko’s branches from Delaware to Florida. Tim Stancliffe opened the first Midwest Kinko’s in a 175-square-foot space near the University of Colorado. In 1995 he was president of K-Graphics Inc., which owned and operated 90 Kinko’s outlets in Colorado, Iowa, Kansas, Michigan, Missouri, Nebraska, New Mexico, South Dakota, and Wisconsin.

By the mid-1970s, Kinko’s was providing custom publishing materials for colleges, an innovation extremely popular with college professors. By the end of the decade, the company had 80 stores, averaging 400 square feet in space, located primarily near colleges and universities.

Reaching Out to Small Businesses in the 1980s

By the early 1980s, Kinko’s Copies was no longer content simply to copy documents for students. “At the time, no one was offering a low-end alternative to typesetting in the document duplication market,” a marketing executive for Kinko’s Service Corp., the chain’s support arm, told a Computer World reporter in 1987. To exploit this emerging business opportunity, the company began to install typewriters in its shops.

This decision was soon rendered obsolete by the spread of personal computers. Kinko’s then considered buying IBM PC clones, but opted for Apple Computer’s Macintosh in 1985 because it was easier to use by customers who wanted to create documents without help from Kinko’s employees. Another Macintosh advantage was that the documents created could be reproduced on Apple’s high-quality LaserWriter printer. By mid-1987 almost one-third of Kinko’s roughly 300 outlets were offering desktop publishing services. Kinko’s also began selling university-developed educational software for the Macintosh and Apple II computers in 1986.

In 1989 Kinko’s Graphics Corporation, operator of about 100 of the chain’s copy shops, was slapped with a copyright-infringement lawsuit by eight textbook publishers for copying book segments of as long as 110 pages without permission. A federal judge found the company guilty in 1991 and assessed $1.9 million in damages and court fees. Kinko’s Service Corporation then agreed that none of the stores would photocopy textbook anthologies in the future without permission for all copyrighted material.

Kinko’s opened its first 24-hours-a-day, seven-days-a-week, outlet in Chicago in 1985. According to the president of Kinko’s of Illinois, the company made this decision when people “started knocking on the glass after hours, begging us to let them in.” Soon more of Kinko’s stores—which numbered 420 at the end of the decade—were operating around the clock to accommodate people who had to produce documents such as manuscripts, screenplays, opera librettos, resumes, posters, fliers, and wedding invitations. A 24-hour Kinko’s was installed in the lobby of Chicago’s Stouffer Renaissance because foreign executives staying at the hotel wanted to communicate across time zones with headquarters at home.

By mid-1994 almost all Kinko’s outlets were open all the time. Manhattan’s five stores filled at night with students and business people who rubbed shoulders with punk rockers and anarchists designing, copying, and faxing posters. Each of the five had its own cat as a mascot and dispensed coffee from a machine at no charge.

”Your Branch Office” in the 1990s

The Kinko’s of the 1990s had graduated beyond a low-tech service for college students. The company began opening stores averaging 7,000 square feet in size in suburbs and business areas. These stores aimed to attract small-business owners seeking more advanced document copies, which were sometimes oversized, in color, or bearing sophisticated graphics. In a nationally advertised television campaign begun in 1992, small-business people were urged to use Kinko’s as “your branch office.”

By 1994 Kinko’s had added sophisticated color copiers, high-speed, high-volume laser printers, and facsimile machines, leasing rather than buying in order to conserve cash and avoid commitment to equipment that rapidly became outdated. Kinko’s shops also began leasing conference rooms. In 1995 only 15 percent of Kinko’s sales were still believed to be college-oriented, with large corporations accounting for another 15 percent, miscellaneous community retail use for 10 percent, and small or home-based businesses for 60 percent. The number of Americans estimated to be working from home in 1995 was 40 million, up from about 28 million in 1989. The number of businesses employing between five and 100 persons grew by almost 40 percent between 1980 and 1994. Typically, such customers prepared documents in their offices, then brought them to Kinko’s for the professional look made possible only by using quality printing equipment.

In 1993 Kinko’s introduced videoconference rooms to 100 of its 725 outlets. Bidding for trade from entrepreneurs, telecommuters, traveling business people, and local representatives of corporations based elsewhere, the company made a huge investment in this new technology. For $150 an hour, customers were offered a room with a large-screen television monitor, a videocassette recorder, a camera with wide-angle and zoom capabilities for focusing on a group or individual, and a device resembling an oversized television remote control. U.S. Sprint provided the equipment and high-speed telephone lines for the voice-picture-data network. Kinko Service Corporation’s president said he believed that families might take advantage of a half-price holiday promotion to use such facilities for “video reunions.”

By 1995 new Kinko’s stores were, on average, four times larger than the ones they replaced. This was due in part to the space needed for an ever-increasing inventory of high-end service equipment. (The Xerox 5090 high-speed color-printing machine, for example, nearly filled an entire room.). The company also installed Kinkonet, a system enabling companies to send in orders by computer, with Kinko’s distributing the finished product, such as a training manual, to points all over the United States.

Company Perspectives:

Our primary objective is to take care of our customer. We are proud of our ability to serve him or her in a timely and helpful manner and to provide consistency and high quality at a reasonable price. We develop long-term relationships that promote mutual growth and prosperity. We value initiative, productivity, and loyalty, and we encourage independent thinking and teamwork.

A Kinko’s outlet typically offered the following services in 1996: full and self-service copying, including four-color copies; desktop publishing, including laser typesetting and printing; onsite Macintosh and IBM computer rentals; office supplies and stationery; finishing services such as folding, binding, collating, and stapling; custom printing services; facsimile transmission; and mailing, pick-up, and delivery service. FedEx drop boxes were installed in all Kinko’s locations. Some outlets also offered one-hour photo service and videoconferencing. Kinko’s considered customer service of such importance that each location was being “mystery shopped” on a regular basis, with anonymous shoppers grading the store on 29 different points of customer service and store atmosphere.

A New Direction for Kinko’s

Even while Kinko’s retail niche as a full-service copy shop was secure, new marketplaces were needed if the company wanted to continue to grow and prosper, and especially if Orfalea was to take his company public. During the latter half of the 1990s, Orfalea began shifting Kinko’s marketing strategies and re-organizing its corporate structure.

His new business plan called for actively soliciting business from Fortune 500 companies. A newly created outside sales force hit the ground running, knocking on company doors across the county in an effort to bring in new corporate accounts.

In order to raise capital for this expanded growth and to keep outlets outfitted with the latest office technology, Orfalea took a radical step in 1996: selling a one-third stake in the company to Clayton, Dubilier & Rice (CD&R), a New York City-leveraged buyout firm, for $220 million. Up until this time, Orfalea had sole ownership in approximately 110 outlets and a stake in all others, which in essence were joint ventures held in partnership with 130 owner-operators.

The investment by CD&R served as the catalyst for Orfalea to restructure the company. The process began by rolling up what was often described as a “hodgepodge” of vastly different partnerships into a single corporate entity and centralizing all management functions at Kinko’s headquarters in Ventura, California. Corporate conformity quickly took hold as all Kinko’s retail outlets were made to look like each other. The different, sometimes funky, decor of individual outlets was replaced with a uniform appearance; moreover, all Kinko’s would offer the same menu of services.

Other changes were less visible, but no less significant. For the first time since its inception in 1970, a board of directors oversaw Kinko’s. In mid-1997, Orfalea was replaced as CEO by Joseph Hardin Jr., former president and chief executive of Wal-Mart’s Sam’s Club. Orfalea remained involved with the company’s management, quickly embracing his new duties as the chairman of the board. It required changing his focus from the day-to-day operations to what he describes as “company ambassador” responsibilities as Kinko’s continued to expand overseas. In a rare interview with Your Company magazine, Orfalea reflected on the change as a positive one. “Now that I’m not as wrapped up inside the business, I can go outside and see the bigger picture. I can observe how Kinko’s fits into society and the global economy. Besides trying to figure out what foreign markets we should tap, I can constantly strategize and worry about how viable the organization will be in five years. That’s the important stuff.”

Into the Next Century: Sixteen Billion Copies a Year and Counting

As the 1990s came to a close, Kinko’s held its own as the world’s leading provider of visual communications services, document creation, and copying. In 1999 Fortune magazine selected Kinko’s as one of the “100 Best Companies to Work for in America,” an honor Kinko’s would also earn in 2000 and 2001. One of the chief reasons for making the list, according to Fortune, was Kinko’s philosophy of equality for its employees, such as the fact that each of the 1,000-plus branches shares its profits monthly among its co-workers. The company also received accolades for its efforts to conserve. In addition to using energy-efficient lighting in accordance with the EPA’s Green Lights program in nearly all of its U.S. branches, 90 outlets in 10 states are also powered by renewable resources. For example, in the year 2000, six percent of Kinko’s energy demand came from renewable energy sources such as solar arrays, windmill farms and geothermal plants.

In order to boost its Internet presence, Kinko’s bought a majority stake in Liveprint.com, a small Web company based near Washington D.C., in early 2000. It invested an undisclosed amount in the 65-person Liveprint.com so it could “bring the power of the Internet to small business and home offices,” creating what the company likes to call its new “clicks and mortar business center solution.” The result is Kinkos.com, the virtual Kinko’s, which is hoped to coexist nicely with its physical brethren.

Key Dates:

1970:: Paul Orfalea opens the first Kinko’s in Isla Vista, California.
1975:: Kinko’s opens its 24^th branch.
1979:: Kinko’s has 80 branches in 28 states.
1985:: The first 24-hour Kinko’s outlet opens in Chicago.
1989:: Kinko’s has 420 branches across the country and in Canada.
1991:: A Federal judge finds the Kinko’s company guilty of copyright infringement in a lawsuit filed by eight textbook publishers.
1992:: Kinko’s opens international branches in Japan and the Netherlands.
1996:: Over 850 Kinko’s branches are in operation worldwide.
1999:: Kinko’s is selected by Fortune magazine as one of the 100 best companies to work for in America.
2000:: The Internet site, www.Kinkos.com, is launched, creating a new “clicks-and-mortar” business division for the company.

With annual revenues estimated at about $1 billion and 1,100 locations across the United States and worldwide, including branches in Australia, Canada, Japan, the Netherlands, South Korea, and the U.K, many speculate that Kinko’s is ready for its next big step: an initial public stock offering. As of May 2001, Kinko’s was still a privately held company, but things can change quickly, especially since dot.com IPOs have fallen out of favor with investors. Plans also continue for further branch expansion. CEO Hardin reports that Kinko’s is opening about 100 new branches a year. Currently, it is estimated that Kinko’s produces 16 billion photocopies a year. That number will surely continue to rise as more of the world becomes hooked on Kinko’s 24-hour office services.