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Borders Dumps Amazon, Heads for Web

By Fred J. Aun E-Commerce Times ECT News Network
Mar 23, 2007 10:46 AM PT

Borders Group is severing its alignment with Amazon.com and will be unveiling its own book-selling Web site as part of a major company restructuring designed to "revitalize, refocus, and ultimately reinvent the company."

Borders Dumps Amazon, Heads for Web

Borders' arrangement with Amazon, initiated seven years ago as a seemingly good way for the company to add an Internet presence and revenue stream, is now seen as a roadblock to growth and profitability. In announcing the change, Borders said it will develop its own e-commerce site "to drive significant business improvements, enable technology deployment and cross-channel experiences."

The new site has been in development since the fall and should be launched early next year, the company said.

Partner Turned Competitor

That means Borders plans to compete head-to-head with the pioneer of online bookselling, a challenge that will be tough but not impossible, said Forrester Research Senior Analyst Sucharita Mulpuru.

"I think it's going to be hard because Amazon has already locked in so many people over time, particularly in the category of books, which is their sweet spot," Mulpuru told the E-Commerce Times. "They (Amazon) just have so much content on their site it makes them a destination."

However, she noted, Borders is not without some differentiators -- most obviously its chain of brick-and-mortar stores, that will give it a shot at success. "To their defense they have some interesting parts of their site such as the reserve-online capability," Mulpuru suggested. "I think they built that outside of Amazon. They'll be doing the best they can, given what they know now."

Borders posted a quarterly loss and plans to nearly halve the number of its Waldenbooks mall outlets. It said it is also considering "strategic alternatives" for most of its international outlets "and will look toward its successful franchise model for future international expansion in new markets."

Borders is the No. 2 bookstore chain, following Barnes & Noble, which is also struggling.

Embracing Technology

As part of its plan to cut ties with Amazon, Borders will focus on "technology deployment and cross-channel experiences." Plans call for extending to the new Web site some currently successful in-store programs, including "Borders Rewards," and offering customers "a live e-commerce solution using existing in-store Borders Search computer stations when they want to special-order items."

Although removing Amazon from the picture is likely to be a complex and expensive proposition, Borders believes it will be financially worthwhile.

"Going customer-direct means Borders will pick up more margin, and it's a form of cost-cutting without making cuts in that they're going to make more per transaction than they did by going through Amazon," Jooven8 Marketing and Consulting founder Eric Hughes told the E-Commerce Times. "The belief, for the Borders management team, must be, 'We feel, over a period of time, we can make up for the infrastructure and distribution costs ... by going direct."

Missed Opportunity?

However, Hughes wondered if an opportunity was lost for both companies.

Noting how Starbucks is turning its stores' popularity into a successful online music, movies and book venture, Hughes suggested Borders' alignment with Amazon might have allowed the bookstores to serve as places where goods purchased through Amazon could have been picked up by impatient consumers. This would have driven traffic to the stores and brought extra revenue to both sides, he said.

Though Mulpuru agreed some buyers shun online purchasing because they don't want to wait for delivery, she suggested Borders really had no choice but to go it alone on e-commerce.

It is foolish "for a retailer to basically ignore that channel or give a huge chunk of the revenue from that channel to some of its bigger competitors -- which is what Borders has been doing for some time," Mulpuru explained. It was "high time they brought it under their own purview," she added.


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