January 28, 2011, 12:56 PM

Time isn’t a luxury Borders can afford

Mark Brohan

Research Director

When I was growing up in Michigan and later making trips to see friends and family in Ann Arbor, it was always a treat to go visit the flagship Borders store downtown and near the University of Michigan campus.

The store was every inch a book store with thousands of tomes of every size and a quiet place to browse a few chapters before making a decision to make a purchase—or not. These days the store is still there, but I wonder how much longer Borders will be—at least the brand I grew up with.

If you’ve been reading the news online at InternetRetailer.com (or anywhere else for that matter) you are probably aware that Borders, No. 194 in the Internet Retailer Top 500 Guide, is fighting for its very life. This morning Borders announced it has secured $625 million in new financing from GE Capital Restructuring and will use the money to streamline costs and refocus its business model, mostly online.

I am sorry to say it’s probably too little and too late. There will likely be a Borders brand around for a while and it will include a nice-looking e-commerce site resplendent with author interviews, staff book recommendations, and plenty of electronic book reader devices and electronic books to choose from.

But let’s be clear: Borders is not going to catch Amazon (it lost that battle more than a decade ago) and it’s going to be hard pressed to even catch Barnes & Noble, which Borders actually mulled over acquiring last fall.

Here are some facts to consider:

  • Amazon’s annual worldwide revenue for books, music and videos is $14.9 billion. That’s about 250 times bigger than Borders’ $60 million in annual e-commerce revenue.
  • Annual web sales at Barnes & Noble are $573 million, which makes BN.com nearly 10 times bigger online than Borders.

There used to be room in the economy for a nice number three player—being from the automotive state I grew up hearing General Motors, Ford and Chrysler referred to as the “Big Three.”

But not anymore, and especially in online retailing. Borders is making every effort to become a serious web player and has been for years. In 2008 Borders finally launched its own e-commerce site with sophisticated guided navigation and other slick features and functions. Prior to that Borders.com served only as a corporate information site and Borders conducted e-commerce through a site hosted by Amazon.com Inc.

More recently Borders rolled out a new electronic books store with 1.5 million titles, including what the retailer says are thousands of free titles. The books come in a variety of formats, including digital and PDF files, the retailer says.

Borders also offered its loyalty program members multiple incentives to shop at the e-books store, including gift cards, free shipping on certain items, double loyalty club dollars, also known as Borders Bucks, and exclusive offers on select digital titles.

But let’s face it: Borders is struggling and it probably won’t be as successful as Amazon and Barnes & Noble in the transition to the brave new digital world of electronic book readers and e-books. Nobody, it seems to me, is going to catch Amazon, and Barnes & Noble, under the leadership of CEO William Lynch—the only top executive at a retail chain that came directly to the job from running e-commerce—is betting its entire future on morphing from a conventional books retailer into a truly digital brand.

The lesson Borders is painfully learning now is that it didn’t take e-commerce seriously enough all those years ago. Borders does have a few big things going for it online—its loyalty program has 38 million members and is very innovative in digital marketing strategies. In 2009, Borders also invested in Kobo Inc., a device development company and e-books store for smartphones, tablets, netbooks, laptops and e-readers.

Borders has a new lease on life—at least for now thanks to new financing. But it’s likely game over for gaining any big jumps in serious online retailing market share. There’s a lesson for Borders and other chain retailers to learn from this: Take the web even more seriously now or settle for being just one more niche retailer or a footnote in the history of failed retail brands.

I hope I don’t read about the demise of Borders.com on my Kindle or Nook.


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