April 30, 2001, 12:00 AM

Amazon crosses the border into rival territory

Borders.com gives up and hires Amazon to run its web store.


Less than two months ago, Borders Group announced it would not be investing in Borders.com this year. Last month, Borders revealed why: It is turning over operation of the site to Amazon.


The site will become co-branded Borders/Amazon in August. Amazon will provide inventory, fulfillment, customer service, editorial reviews, personalization features, product recommendations and 1-Click ordering. The site will continue to provide Borders’ store location and in-store event information.


Borders has long struggled as the number three bookselling web site, after Amazon and Barnes & Noble. Total sales last year were $27.4 million, which generated a loss of $18.4 million. Those numbers are a tiny fraction of Borders’ companywide sales, which includes Waldenbooks stores as well as Borders stores, of $3.3 billion, growth of 10.2% over the year earlier.


Borders also expected to take a one-time write-down in the fourth quarter of $21 million to $24 million on Borders.com. “We recognize that the current direct to consumer web business will not produce profits for many years,” Greg Josefowicz, Borders Group CEO, said when the company reported fourth quarter results.


Borders problems extended to its technology as well, notes Gomez Advisors Scorecard, a ranking of web selling sites. “Borders scored poorly in site performance alienating experienced users and consumers with slower Internet access,” Gomez says. “Border`s home page load times are among the slowest in the industry and the site has a higher than average failure rate.”


While some analysts believe there’s little value in buying customer lists or operations of faltering dot-com retailers, arguing the customers will flow to the remaining sellers, this arrangement makes sense because Barnes & Noble’s site could benefit as easily as could Amazon from a Borders’ demise. “This is a calculated gamble that they can capture a greater share of the lost customers by acquiring the operation rather than letting it go under,” says James Okamura, senior partner with retail consultants J.C. Williams Group.


In fact, Okamura says the Borders deal could be a good move in Amazon’s quest for profitability. “Amazon is at a critical mass point as they approach profitability. Tipping the scales slightly can make a big difference.”

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