Borders Turns the Page
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?
Separating from Amazon is a good thing…no doubt about it. Financially…questionable. The bigger issue is…is there faith and trust in the senior management team to turn this around?
Pardon me while I yawn after reading about their new plans. Severing their ties with Amazon is a risky venture. I can’t find myself getting too excited about these proposals unfortunately. It’s hard to inject much excitement into a retail book store but striving for a Starbucks-type experience might be a good start. I have no idea what the numbers show but would expect that book readership is down based on today’s lifestyles. I really wish them the very best but wouldn’t bet any of my hard-earned money on their chances.
While the plans as stated may not be show-stoppers, Borders is making the right play here. The only way to really deliver the vision they have for the brand is to control the experience, soup to nuts, and online is an integral part of that. There is a role for bricks-and-mortar in the books business, particularly when people are looking for ideas on new areas of interest. But a strong online channel is a requirement for when shoppers seek to buy that bestseller a friend told them about or they read in the paper. They describe actions to embrace digital media in the stores as well, which makes an even stronger argument for ensuring an consistent brand experience on and off line. The more tactical adjustments also seem to make sense, such as closing underperforming stores to free up investment for stronger performers, and solidifying IT infrastructure. I like their chances.
Any change in strategy is a good one for Borders. I think they were probably hoping to be bought-out by Amazon but finally got tired of waiting for it to happen. Perhaps severing the ties to their distribution partnership will motivate Amazon to make an offer–but I doubt it.
Given a choice between Borders and BN, I’d choose Borders as the better bookstore–but BN has done a better job of appealing to the ‘third-space’ crowd, and their rewards program trumps Borders’ continual miss-the-target-attempts to make their own way down that path.
I wish them luck in making this big change and I’m genuinely rooting for them to succeed. I’m hoping they give me a compelling reason to return to their stores.
I don’t believe Borders severing its relationship with Amazon will benefit Borders much or hurt Amazon much. The deal basically helped Amazon enhance its reach slightly into the brick and mortar world and helped Borders outsource its online business. From a financial perspective, the deal basically split already razor thin margins between two players instead of one. A Borders continues to consolidate its stores, the most likely picture will be that it will lose a significant portion of its brick and mortar business (although these were mostly non-performing stores) and it will find it difficult to replace them with online business. They might still end up doing well on Wall Street as they lose revenues but improve earnings through cutting costs. From a growth perspective they need more innovation, especially by leveraging the entertainment and leisure aspect of their business (go big time into food and beverage service maybe?).
Remember the single most immutable law of marketing: It’s better to be first than to be better. Going head to head with Amazon after they have had the benefit of knowing your online business intimately is high risk at best. And yes, the Starbucks lifestyle-driven model looks good for a book store but how many consumers have the time?
Borders would probably do better if they merged with Amazon or Barnes & Noble. Unfortunately for their shareholders, the antitrust issues would probably prevent those alternatives. Borders’ e-commerce strategy will return suboptimal profits, if any. It’s hard to make money when you’re the several-years-late entrant into a price war category, dominated by well-capitalized giants and you have no sustainable competitive moat. Reducing Waldenbooks makes sense because the super stores took their bread and butter away years ago.
Capital allocation skills are among the key drivers of investor enthusiasm. When Borders started, it was a franchisor. Going back to its roots, franchising almost all its locations, would free up tremendous capital, and raise the return on investment. Individually owned and operated, the stores would have better customer service and they’d be a lot more interesting to shop in.
Yay Borders!
Amazon is a bully partner and has prevented Borders from building a true multi-channel presence. Borders is right to focus on the Borders experience in their core market and to make it great.
Clearly Borders is looking to find ways to take the higher ground and find new growth in face of rampant competition (from the likes of Starbucks no less!). Their key obstacle is how (they are planning) to own enlightenment and deliver their vision of “helping people live richer and more satisfying lives through knowledge and entertainment.”
Parting with Amazon is about distribution, not taking higher ground through knowledge and entertainment. So Borders needs to figure out how to take the higher ground and then make it real around the world. On the one hand you have a global brand needing global consistency. And on the other you have a local retailer needing local flexibility. Therefore, 4 things are required: the right brand idea (who are you), management buy-in (don’t forget about the staff and stores), impact on the system (what’s the goal for bricks and mortar) and how do they crystallize and memorialize the changes at the heart of the business, it’s people.
It’s only when you risk losing what you can least afford to lose that you learn to play the game. Good luck.
It appears that the opinions are strong–either one way or the other–with very little in between.
While Borders is absent from my market, Waldenbooks is not. If they were closed, I hardly think anyone would notice. My market is dominated by Barnes & Noble and a local chain that tops anyone in the marketplace–anyone. I have found none of the experiences I have had with Walden worthy of a return. There is no excitement, no experience, and no reason to return. Judging by the parking lots of Barnes & Noble and the local chain, most in the market seem to agree.
Amazon.com really amazes me. All of my experiences with them come with a little bit of disappointment. First, the disappointment of price. Sure, it could be said you are paying a price for convenience of the net. But the price differentials on products I have sought were well beyond enough to make the trip out worth it. There have also been problems with the availability of the product itself. Maybe it’s coincidence, but each time I have sought to give them a fair and honest try, what I was seeking was not available or out of stock. Certainly, on the surface they have this great reputation and continue to grow. But in reality, is anyone challenging them?
Borders’ plans appear to me to be solid and sound. Certainly, from my point of view, in relation to Amazon, it has to be possible to build a better mousetrap. I wish them well. Alternatives and better experiences are good for the marketplace. Borders’ current approach obviously hasn’t been serving them well. Their plan is clear. It appears to be well thought out. It takes into account current trends in the market and attempts to be forward thinking.
It will be interesting to see how well it works. Best of luck to them.
I’m fascinated by the number of people who think that the Amazon split is no big deal. There’s no way for Borders to control its own destiny when it only controls one of its channels. I think breaking off with Amazon is a big–and important–step for Borders, and gives them an opportunity to leap frog other retailers in creating a compelling multi-channel experience. If Borders is really trying to become “great,” I hope they experiment with some innovative things–ANY innovations–to see if they can differentiate based on this new approach. There’s such an experience to be had around books, and not just the “third space” experience, that it SHOULD be easy. It just somehow never turns out that way.
I disagree with many of my fellow BrainTrust panelists. This is the right thing to do. Anytime a major part of your business is being run by a 3rd party, you are losing contact with your customer, losing control of your business processes, and do not have the ability to manage customer expectations, customer service and customer involvement within your organization. This is a template for higher costs and lower customer service, all of these are the basis for an ultimate business failure. Borders is recognizing that they must control their own future and manage their own customers. This should be a swift and decisive action by the organization along with supporting shifts of MIS to support the new strategy as well as resource deployment and customer management focus strategies.
I knew there was trouble at Borders when I saw them spending money on peripherals instead of using the same money to lower prices. Borders had a perfectly fine way of paging announcements over their highly complex phone system. Recently they spent tons of money switching to headsets independent of the phone system. I have not seen an improved customer service experience based on the headsets. What was wrong with the phone system paging? Every Borders I have been to always had creative, classy ways of presenting announcements in the stores. Now the employees walk around talking to themselves…well that is how it appears to the consumer. They had a perfectly fine phone system paging system and they spent tons of money on these headsets, while they should have been focusing elsewhere in my opinion. Waste!
I’m hardly an expert on either Borders’ finances or its strategy(ies), and this release didn’t help me much to understand either. Apparently, they want to dump their old (partnered) web site and created their own…exactly why I’m not sure.
One thing I do know though: “Core business, refocus, seamless, reinvent, leveraging…” if they missed slipping in a cliche, it wasn’t for want of trying.
I agree that the severing of ties with Amazon is a big step, and probably a necessary step, but I am not convinced that it will be a positive step.
Borders clearly has a lot of work ahead of them. BN is ahead of them in terms of “customer experience” and both BN & Amazon are miles ahead in terms of “online experience,” so what is left for them to do? Taking over the lead in either one of those realms will be costly and difficult and then they would have to sell it to the customers.
There is a brand new Borders across the street from my office. It doesn’t serve as a “destination” for me to go and feel comfortable reading on my lunch break (which might lead to a purchase). They don’t offer any real variety of food at their Seattle’s Best, so I can’t get lunch there. They don’t offer 20-40 percent discounts on books like BN/Amazon, so I can only buy from them when they have a special. Their selection is good, but so is Amazon’s. I see a store without much in the way of positive differentiation and I have to wonder what they could even do to turn it around.
Borders (and Barnes and Noble) will continue to be stressed as the US market for book sales evolves. One factor adding to the problem–the declining rate of book reading among US adults. With that in mind, Borders’ actions are good but probably not enough. Borders should exit the Waldenbooks business. As much as it may seem like a good idea to have a small bookstore in a mall, that time has passed. Some of the stores will be profitable but that doesn’t mean that overall it is an idea worth pursuing.
The big box stores, however, offer the opportunity for entertainment, variety and a broader shopping experience. Focusing on those stores (including updating the store environments) will help.
If Borders wants to use the Internet to enhance the cross-channel experience, controlling its Internet site is important. But, the cost to do this channel right will be significant. The competition today is much stronger (Alibris, Abebooks, etc.), and Borders needs to have a hook. Amazon is so far ahead it is difficult to understand what that hook will be.