How Can FedEx Grow Without Amazon?

FedEx (FDX 0.12%) has stopped using Amazon.com (AMZN 3.43%) for express packages, and that may make it a more attractive partner for Walmart and Target. To help get that business, the shipping company has added Sunday delivery and late-night pickups. That should help those retail players compete with Amazon, and it will make FedEx an obvious choice for shipping. This may also have cleared the way for FedEx's just-announced deal to put kiosks in about 8,000 Dollar General locations over the next few years.

In this segment of Industry Focus: Energy, host Nick Sciple and Motley Fool contributor Dan Kline talk FedEx and more. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on June 20, 2019.

Nick Sciple: OK, Dan, now let's talk a little bit about what opportunities there might be for FedEx as they expand to offering services to other e-commerce sellers and retailers. They've expanded some of their offerings this year. They introduced their extra hours program to help retailers fulfill online late night orders. And as you mentioned, there are some bigger growth opportunities arguably outside of Amazon in e-commerce than there are within Amazon. Can you talk about what those opportunities are and how FedEx is moving to serve those businesses?

Dan Kline: Basically, FedEx has positioned itself as the un-Amazon. That's a smart place to be. As big as Amazon is, it isn't all of retail. Let's look at the major competitors, which in terms of most stuff would be Walmart and Target. If you're Walmart and Target, you don't want to use Amazon, certainly, even though you technically could. You also don't want to use any company that's cozied up to Amazon, partly because you'd be less of a priority in most cases, and you just don't know how that data is being shared, what's being used, what's being implicitly shared, and what's being accidentally shared. This is a way for FedEx to say, "Hey, we're not working with your competition. We're on your side. We're going to come in and help you do this the best way you can." For example, they're adding Sunday delivery. One of Amazon's Prime advantages is that they do two-day, and now one-day delivery, and Sundays are included. Well, Walmart doesn't have that. Target doesn't have that. They have it on a same-day basis, in some cases, in some markets. But now, through FedEx, they can roll out that service. They can add.

If you look at the sizes, Amazon is growing I think 13.5%, and it's like 30%, so about triple that, for Walmart and Target. There's more growth potential outside of Amazon than there is inside of Amazon because every retailer that isn't Amazon is probably going to look at FedEx as a first solution now.

Sciple: Yeah, that's a huge opportunity when you realize that outside of Amazon, there's faster growth for a company like FedEx to add services to them. As you mentioned, Walmart has been competing really back and forth with Amazon when it comes to this one-day shipping offering. Before that, they were competing for who could get to two-day shipping without a fee. FedEx has really expanded their relationship with Walmart. Last year, they announced they opened 500 offices inside of Walmart stores. They're also moving with other retailers as well. They announced a deal this week with Dollar General where they're going to install facilities in Dollar General stores to offer drop-off and pick-up services for FedEx packages. They plan to roll that out to 1,500 Dollar General stores in the late summer 2019. By the end of 2020, they plan to have that in 8,000 stores. Obviously, a huge opportunity there. When you look at the areas where Dollar General is located, these are markets that tend to be underserved. When you look at that opportunity, how significant do you think that could be for FedEx?

Kline: I think it's huge. You're an individual, do you have a favorite package delivery company?

Sciple: Whoever's the easiest and cheapest for me to get to.

Kline: Exactly. I feel the same way. I had to mail my brother his mail. I was his forwarding address for a few months while he was in between jobs. I went to a UPS Store. Is it because I have any loyalty to UPS? No, it's because the parking at the UPS store is easier than the parking at the FedEx location near me. If I could go to Dollar General, we have a Dollar General near our other home in the Orlando area, which is about a mile walking, if I could go there and drop off for FedEx, am I going to haunt down a UPS location because they might be a little cheaper or find a Post Office? No, I'm going to go to whatever the easiest place is. So, putting yourself at up to 8,000 Dollar Generals -- and I think that number's low because Dollar General opens 1,000 stores every year, so it seems very logical that any new store they open will have this -- it's a huge opportunity to collect business. And what are you adding? All you're adding is pickups on existing routes. This is almost no cost for FedEx, and it's probably a significant amount of incremental business, especially during the holiday season.