Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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.