Borders` online traffic is borderline disastrous, but Rick Vanzura aims to capture his fair share

When Borders Group Inc. promoted Cedric J. “Rick” Vanzura to the newly created position of president of its online subsidiary in April, the company for the first time put
e-commerce front and center in its overall operation. Ann Arbor, Mich.-based Borders, a trend-setting book-selling giant in the real world, has never been aggressive in the online arena. The company, which has annual revenues of more than $2.5 billion, dragged its feet getting onto the Internet, launching an e-commerce site in May 1998—a full three years after Amazon.com convinced people to buy books online. Borders’ chief bricks-and-mortar competitor, Barnes & Noble Inc., also beat the company to the Web, opening its online store in 1997.

Today Borders.com is more than a year old and ranks among the top three bookselling sites on the Internet. But it ranks a distant No. 3—badly trailing Amazon and barnesandnoble.com in sales—and Borders’ Web operation lost more than $10 million in 1998. Borders, however, is determined to make Internet commerce a viable part of its business. And Vanzura is in for the biggest challenge of his management career.

Vanzura, who formerly led
e-commerce as senior vice president of Internet and fulfillment services, reports to Robert DiRomualdo, chairman, interim president and CEO at Borders Group, the chain’s parent company. That puts the e-commerce position on par with the presidents of the 245-superstore Borders division and 1,000-store Waldenbooks chain. “It’s a sign of the strategic importance we place on the Internet,” Vanzura says.

From kiosks to coffee

But the company’s e-commerce strategy isn’t simply to figure out how to get more people to buy books from Borders.com. Borders instead will attempt to create a dynamic relationship between its Web site and its stores, leveraging the strengths of both businesses to make each more successful.

That strategy has several components:

— Borders will provide store personnel and customers access to Internet technologies. Employees already can access the Internet database and distribution center to place special orders from the stores—a business that is several times larger than online sales and growing, Vanzura says. Later this year, Borders will roll out kiosks at its stores that will allow customers to search the company’s Internet database and order books, CDs and movies that may be out of stock or unavailable at the stores. The distribution center has more than 700,000 items ready to ship.

— Borders.com and Borders stores will participate in promotions that help drive traffic from one to the other. People who register at Borders.com, for example, can get a coupon for a free cup of coffee at a Borders store. Borders stores will sell gift certificates and hand out coupons that are redeemable online.

— Borders.com will attempt to appeal more to the company’s traditional Borders clientele and win back the many Borders customers who buy books elsewhere online. The Web site will enhance its content and serve as a direct communication vehicle to customers who shop at Borders stores.

“A lot of cross-promoting and cross-pollination can go on between Borders.com and the in-store experience,” Vanzura says. “That’s where we can start getting the payback for all of the effort we’ve put into the Internet.”

Right now, Borders.com is winning just a tiny percentage of overall Internet sales. Consumers will purchase $1.1 billion in books online this year, which is less than 4% of the overall U.S. book market, says Jupiter Communications, a New York-based research and consulting firm. Borders.com, however, is predicting revenues of a relatively paltry $25 million for 1999.

But Borders has the potential to create synergies between the Internet and its bricks-and-mortar business. “Customers could order a book online and then pick it up at a store, already processed on their credit card, if they want their goods right away,” suggests Robert J. Staff, chief economist at Zona Research Inc., an Internet consulting firm based in Redwood City, Calif. “Or a Borders store employee could say to a customer, ‘If you don’t see something here, go to the kiosk and order it. We’ll have it delivered to the store or to your home.’ ”

That kind of strategy is an obvious application of Internet technologies and one many retailers should consider, says Derek Brown, senior analyst with Volpe, Brown, Whelan & Co., a San Francisco investment banking firm. “It will be very interesting to see how Borders leverages their real-world assets into success on the Internet and how they integrate their traditional business with the Internet.”

Part of Vanzura’s new job is to integrate the company’s Internet resources into existing Borders and Waldenbooks stores and to use those synergies to bolster the Web site. “The position of Borders Online president required someone who has a broad strategic perspective yet understands our bricks-and-mortar retail business and how our two businesses will best work together in the future,” says his boss, Robert DiRomualdo. Before taking charge of e-commerce, Vanzura held top financing jobs at Borders, including serving as treasurer. “Rick knows our strategic planning process, what makes the stores profitable and all of the details of the business,” DiRomualdo adds. “So this was a logical step.”

Back in April, Borders endured a management shakeup that saw Philip Pfeffer depart as president and CEO after just five months and brought his predecessor, DiRomualdo, out of retirement. Borders made other changes at the time, including Vanzura’s promotion.

In many ways, it was a self-made opportunity for Vanzura. A big Internet user, Vanzura began to push hard for Borders to get involved in the Internet as far back as 1996. So when Borders started down the e-commerce road in 1997, Vanzura spent a large amount of time helping plan the launch of Borders.com. In February 1998, DiRomualdo placed him in charge of the e-commerce initiative, saying his part-time position had become full-time. Vanzura reorganized the Internet effort and launched Borders.com just four months later.

Playing catch-up

Still, many people wondered what had taken the company so long. “We underestimated what it was going to take to be fully competitive in this area,” Vanzura says. “Our approach was to really focus on the back end first—the fulfillment operation. We invested a lot of time and effort in getting that right.”

Borders was overly cautious when it came to investing money in the Internet as a sales channel, analysts say. “Shareholders have been disappointed that the company hasn’t embraced the Internet more aggressively, but the company is moving quickly to rectify that,” says Chris Vroom, retail analyst with Thomas Weisel Partners LLC, San Francisco. “Borders has approached online sales in an intelligent way and already has leveraged cross-selling opportunities with its retail stores. They have built a very efficient warehouse operation. They are doing things right.”

Now, Vanzura is excited to move forward and to be on the leading edge of retailers’ integration of their traditional businesses with their Internet operations. The company plans to begin rolling out the consumer kiosks in Borders stores later this year. The kiosks will give store shoppers access to all of the products available online. Borders will expand the project to its mall-based Waldenbooks chain next year.

Both the traditional stores and the online store have attributes that are worth sharing with each other, according to Vanzura. The physical stores give consumers immediate gratification, direct interaction with the product and ambience, while the Internet offers the ability to quickly browse through all of the titles and is ideal for maintaining a one-to-one connection.

On the e-commerce side of things, Vanzura plans to grow Internet sales by making the Web site more like the stores, which have a loyal and somewhat unique customer base of serious readers and music enthusiasts. “We did research that indicated more than 80% of Borders customers are online on a regular basis,” DiRomualdo says. “We’re a tiny percentage of online book and music sales, so the competition is getting online sales from many of our customers. Our goal is to gradually gain back some of that share.”

To lure customers back, Borders.com plans to add more content and begin to communicate with customers with the likes of electronic newsletters. Still, analysts believe it’ll be a challenge to differentiate the site from the competition. “The Borders.com site has obvious similarities to its competitors,” Brown says. “I wonder how much of what they are doing is a ‘me too’ type of strategy vs. a leading edge strategy.”

That strategy includes deals with the Go Network and About.com to develop co-branded, topic-specific bookstores. Borders.com is the exclusive bookseller for Infoseek Corp.’s Go portal, with placement on 70% of the network’s pages. And Borders.com recently signed a deal for significant ad placement throughout the About.com network of 650 topic-specific sites.

Borders also will continue to refine its online recommendation process, which now is fueled only by human recommendations. The company relies on its buyers and others throughout the company to say, “If someone buys this book, they also will like this book.”

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Joined at the hip

That’s been successful, but Vanzura also hopes to implement an electronic recommendation tool such as collaborative filtering—which makes recommendations based on a consumer’s purchase history. By merging human recommendations with technology, “we believe we can come up with a more powerful recommendation technique than is out there right now,” he says.

Borders’ investment toward upgrading its Web site runs into eight figures, Vanzura says, noting that every technological advance-ment also will be leveraged by Borders and Waldenbooks stores.

It’s this technical side of e-commerce that Vanzura had to learn the most about when he agreed to take on the Borders.com assignment. “Technology and Internet marketing have been the two biggest developmental areas for me,” he explains. “In both cases, learning has been a combination of on-the-job learning, experimentation and a lot of free consulting advice from people in the field whom I know and respect.”

Evidently Vanzura has learned quickly. “Rick and I are joined at the hip,” DiRomualdo says. “He keeps me and the rest of the team totally informed of where we are in the Internet business. It requires a lot of integration of resources, particularly in the systems arena, to keep this thing growing.”

Being an e-commerce executive leverages much of his previous work, which includes consulting posts with Deloitte & Touche Management Consulting in Detroit and a business development position with Kmart Corp., Troy, Mich.

“My experience as a consultant demonstrated that most operational problems really stem from organizational problems,” Vanzura says. “Because of that, I have spent a great deal of time at Borders Online focusing on building the right organization to compete. My experience in all of my previous positions also has reinforced how much companies can struggle when they stray outside of their core business. Therefore, I have worked to develop a structure that, although complementary with our core operations, has a distinctiveness that recognizes the differences inherent in an Internet operation vs. a traditional retail structure.”

The online market for book selling is growing, with analysts suggesting it could reach 15% of overall book sales in the next few years. But Vanzura won’t look too far into the future to predict growth in Borders’ e-commerce effort. “This market is just too hard to predict,” he says. What’s easier to get a handle on is integration.

“In specialty retail, there have been two revolutions in the 1990s,” Vanzura says. “The first was the emergence of the superstore, the category killer. The second was the emergence of the Internet. We definitely led in the first. In the second, we are in the ballgame now. But what excites me is having the potential to lead the third, which I believe is going to be marrying the best of the physical store experience with the Internet experience. I think that doing a great job at that is not only going to make Borders a more successful book and media retailer, but it will also make us more compelling as a lifestyle and entertainment choice.”

MargaretAnn Cross is a business writer in Allentown, Pa.

Cedric J. “Rick” Vanzura

— Experience

April 1999-present: President, Borders Online Inc., a subsidiary of Borders Group Inc.

— Education MBA, Harvard Graduate School of Business. B.S. in commerce, Santa Clara University.