Q4 Loss Leads Borders Back to the Web
A substantial fourth-quarter loss led retail bookseller Borders Group yesterday to announce a major strategic shift, including a new concept store and a comprehensive e-commerce Web site.
The Web initiative will replace Borders’ current online relationship with Amazon.com, which has managed online orders and customer service for the Ann Arbor MI-based bookseller since 2001 in exchange for a sales percentage. Meanwhile, customers looking to check inventory at a specific Borders store are sent to another Web site.
The Amazon deal was meant to give Borders a strong Web presence quickly while letting company management concentrate on retail operations in its physical stores. But the inability to integrate its e-commerce site with in-store offerings such as the Borders Rewards loyalty program led the company to opt for more direct control over its Web presence.
Borders reported a loss of $73.6 million for the three months ending Feb. 3, compared with a net profit of $119.1 million in the same period last year. Total sales were up slightly for the quarter to $1.52 billion from $1.48 billion in Q4 2005. Rival Barnes & Noble also reported quarterly results yesterday, posting net income of $127 million on sales of $1.88 billion.
The new Borders.com Web site will be launched in early 2008 and will provide one key element in the transformation of the company, CEO George Jones said in a conference following yesterday’s financial release. “Full Internet commerce is absolutely critical for achieving our reinvention goals,” he said. “With our own site, we will be able to run programs like Borders Rewards both in our stores and on the Web, which is not possible with the current arrangement.”
Jones said in-store kiosks with Web access will also let customers use the planned Borders site to special order book and music titles, with the option of two-day home delivery.
Having a full-featured e-commerce site will also let Borders strike more deals such as the one announced last January with Gather.com, a social networking site for adults. Under that partnership, Borders promotes Gather.com membership in e-mail to Rewards registrants.
The Borders Rewards loyalty program has been outstandingly successful at signing up members and is now at the 17-million-member mark after more than a year in operation. The free program, which offers users a 10%-discounted “shopping day” once they’ve spent a certain amount at a Borders store, has given the company a database that permit e-mailings targeted to members’ reading interests.
But Jones admitted in the conference that the Rewards program in its current format may have contributed to the company’s poor showing in Q4 2006 and will probably be revised. Last year, Borders set the redemption period to open on Nov. 15 and take in the entire holiday shopping season. That plan discouraged some of Borders’ best and most loyal customers from making incremental visits; instead they saved their in-store shopping until they could use their accrued loyalty credits.
Without giving specific details, Jones said the Rewards program will be revamped to pay out more frequently, encouraging more frequent store visits and online purchases by the most valuable customer segments.
Jones said the company is also working on a prototype concept store that will let shoppers buy audio books, e-books and MP3 content along with services such as downloads and self-publishing. The stores, which have been in development since Jones joined the company as CEO last year, should begin to appear in 2008.
