International sales increased an even faster 30%. The company also reported a record profit of $857 million during the second quarter and accelerated expansions ...
(Page 2 of 3)
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.”
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.”