By Tom Ryan
Borders Group, facing sluggish sales and measly margins, unveiled a comprehensive plan to revitalize its U.S. superstore business.
The most strategic part of the plan involves severing its arrangement with Amazon.com in order to launch its own e-commerce site. Under an agreement reached in 2001, Amazon.com handles Borders' online inventory, customer service and order fulfillment.
Borders said having its own proprietary e-commerce site will enable store shoppers to create a "seamless cross-channel experience" between the website and the store. In particular, the roll out of new "Digital Centers" in stores will enable customers to learn about, interact and purchase new digital products--such as audio books, e-books, MP3 players--and services such as downloading and personal publishing.
"We need to reinvent our business to exploit the rapid changes taking place in how consumers access information and entertainment," said Borders Group chief executive officer George Jones, in a statement. "Our ultimate goal is to make Borders a vital community gathering place where people come together to see, touch, interact, and learn--online and in-store."
Other pertinent details of the plan include:
- Leveraging its Borders Rewards program to form partnerships with organizations and use customer data to tailor promotions to meet the needs of the program's 17 million members;
- Launching "Destination Businesses" in lifestyle and other categories in order for Borders to become more of a destination for customers;
- Localizing title offerings to reflect demographic and regional trends on a store-by-store basis;
- Publishing exclusive and proprietary books from celebrities, undiscovered talents, and others to distinguish Borders and drive margins;
- Hiring a new chief information officer as part of a "refocus on its investment" in merchandising systems.
Many of these ideas will be brought together under a new prototype being refined this year and expected to make its debut in early 2008.
"The new concept store will bring together destination businesses, technology and experiential elements that will dramatically enhance the shopping experience and set Borders apart from the competition," said Mr. Jones.
Borders called 2007 "a year of transforming and stabilizing--but not significantly improving--financial performance," and cautioned investors not to expect any progress until 2008. By 2009, Borders' goal is to increase EBIT margins to 5 percent to 6 percent from 1.8 percent in 2006, and inventory turns to 2 times from 1.6 times.
The most painful part of the restructuring calls for Borders to close nearly half of its Waldenbooks stores and explore the possible sale of its international units. Management feels these moves are necessary to keep its full focus on the U.S. superstore business.
"Our energy and resources are focused on this core business segment because the superstore is the foundation of our brand," said Mr. Jones. "It's how we grew into the respected name we are today and we believe it is the key to our future."
Discussion Questions: What do you think of Borders turnaround strategy? What impact will terminating its deal with Amazon have on its online business? What do you see as the main challenges and potential opportunities for the business moving forward?