U-Ship refocuses strategy locally

Computer kiosks still figure in company's plans

Henry Breimhurst Staff Reporter

When it absolutely, positively had to get there, most people did not use U-Ship.

In fact, Edina-based U-Ship Inc., which drew revenue from people who would drop packages into strategically placed intelligent shipping kiosks, was bleeding money and trading at pennies per share as recently as February.

Today, things may be shaping up at U-Ship. A new management team brought in this spring has totally revamped the business' strategy. The company is even on the acquisition trail: In September, U-Ship announced that it had signed a letter of intent to acquire Champlin-based Jel Trucking, a courier and dock-truck company, and that it intended to acquire a number of Twin Cities couriers.

The move marks a significant departure from the U-Ship of old. "Since 1991, the company has been involved in the development and testing of technology ... used to manage shipping product both interstate and internationally," said Peter Lytle, the company's chairman and CEO.

This technology is in the form of a computerized kiosk. "These are probably the most sophisticated kiosks in the marketplace today."

The company developed the kiosks, which had sensors, scales and a computer, and placed them in business areas and copy centers. When people needed to send packages, they could go to the kiosk, weigh the goods, and order the service through a series of prompts on the computer screen.

The kiosk would then call a central computer and tell it what needed to be picked up. The package would be collected and delivered by United Parcel Service, and U-Ship would collect a little bit of the shipping cost.

The system never caught on. Revenues never cracked $1 million, and losses spiraled to $2.5 million in fiscal 1997. The situation improved marginally in the fiscal year ended June 30: U-Ship lost $1.9 million on revenues of $953,000.

The stock price has improved to about $1 per share in recent months as investors have slowly gained confidence in Lytle's new plan.

"I was not at all interested [in the company] for quite a while," said Ernie Andberg, an analyst with Minneapolis-based R.J. Steichen & Co. who has spent some time examining the new plan but has not picked up coverage of the stock.

"I was not optimistic if they meant to come in and try to make money with the kiosks. Since I have spent more time listening and their plans have become more explicit, I see ... the kiosk is an element of the plan, but the success of the company is not dependent on that. That's encouraging to me," he said.

Lytle has divided the company into two divisions. The first, called the Intelligent Kiosk Co. or IQk, hopes to sell kiosks to businesses. Customers initially may include shipping companies such as UPS, Federal Express or DHL.

Lytle said that the product may be useful in such situations as retailers, who could useintelligent kiosks (which are multilingual, can sense when a person approaches and can be loaded with vast amounts of information) as a first point of contact for customers seeking help.

It could have maps showing the location of any product or print out instructions on how to install a piece of hardware. "Kiosks could start replacing people," said Lytle. "They are robots, informational robots. Our goal is to get to [the level of] artificial intelligence with them."

Lytle is counting on growing acceptance of the kiosk concept. "The Internet has trained people how to use them in a much different way," he said. "People used to go to the teller before an ATM."

A second division of the company, Advanced Courier Systems, will be buying other courier companies in town. Lytle said U-Ship is in talks with a number of firms and hopes to acquire four or five in the next several months to gain market share. Once U-Ship has established itself in a market, it will select another city and do the same thing. "We don't want to spend more than six months per community," he said.

What Lytle hopes will distinguish U-Ship as a courier in the Twin Cities is the very kiosk system that the old U-Ship wasn't able to capitalize on.

"One of the critical failures was [the former management] spread 300-plus kiosks over 40 states," said Lytle. "You need to advertise. Our partners would say they would advertise the unit, but they never would. We are bringing these units back, as many as possible."

U-Ship hopes to have some 200 kiosks in place in the Twin Cities in the near future, and probably more by the time U-Ship considers the market saturated and moves on to the next urban area.

"They still have work to do, but they have the foundations of a good plan," said Andberg. The biggest challenge will clearly be capital, Andberg said. The company has only about $1.9 million in cash and short-term investments, not enough for multiple acquisitions. Debt is hard to come by with the company's track record, and with the stock trading at $1 and at risk of delisting from the Nasdaq exchange, secondary offerings could be dilutive.

Still, Lytle hopes to make the most of what he can get, and hopes to prove the strategy in the Twin Cities area to lure further investment. "We want to build a strong brand identity and then franchise the concept," he said.

Lytle's other asset is his reputation, Andberg said. Lytle's organization, the Business Development Group, has turned around a number of companies, including Primo Pasta and Faribault Woolen Mills. "I think that Lytle's group has a solid reputation and access to capital that is willing to bet on his plan," said Andberg. "But I'm not making the case that it won't be hard or expensive.

"If this was just a bet on shipping kiosks, I wouldn't be talking to you," Andberg continued. "We'll see how this works."

© 1998, Minneapolis/St. Paul CityBusiness

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