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Trouble brewing at Borders

Thomas Wailgum | Jan. 12, 2009
Borders' new e-commerce strategy falls flat during holidays

FRAMINGHAM, 9 JANUARY 2009 - In 1971, Tom and Louis Borders opened an 800-square-foot used bookstore in the quintessential college town of Ann Arbor, Mich., and named it Borders Book Shop. Flash forward nearly 40 years, and their namesake book establishment, now expanded to 1,100 stores and 28,000 employees worldwide with a state-of-the-art e-commerce website, is in trouble on a Dickensian scale.

The 2008 holiday shopping season was the worst in several decades: Retail industry sales fell 2.2 percent, the biggest decline since at least 1970, according to the International Council of Shopping Centers.

Borders Group, in particular, found little joy in the season. It reported that during the nine-week holiday period that ended Jan. 3, 2009, total consolidated sales were US$869 million, which was an 11.7 percent decline compared to the same period last year. Comparable store sales at Borders superstores, a key retail metric, showed a decline of 14.4 percent compared to the same period in 2007.

Borders then announced a management reshuffling on Jan. 5: Out went CEO George Jones, who had been specifically hired in 2006 to turnaround the company; other high-level positions were shaken up. (Susan Harwood, who joined in 2007, remained as CIO.) And lastly, Borders heard from the New York Stock Exchange that it was closer to being delisted. In May 2007, its stock traded at over $20 per share. Just over a year later, in July 2008, the share price hovered around $4 to $5. In early January 2009, a share of Borders Group stock traded at about 50 cents.

A central piece of Borders' turnaround strategy has been its new e-commerce engine, which launched in May 2008 and CIO.com profiled in August. Since 2001, the Borders brand had used Amazon.com as its e-commerce vehicle, the same Amazon.com that had always been its most formidable competitor.

Borders' 2008 quarterly SEC filings show the new Borders.com as being at the center of the Borders in-store and online experience. "The proprietary e-commerce Web site will allow the company to engage in key partnerships that are expected to build incremental revenues and margins, connect e-commerce sales to the Company's Borders Rewards loyalty program and integrate Borders.com into the domestic Borders superstores," according to one such filing.

Senior VP of E-Business Kevin Ertell said this to CIO.com, in August, regarding the success of the new e-commerce site: "I don't think it could be any more important."

Season of Discontent Online

The 2008 holiday shopping season was, of course, abysmal for retailers. Book and music purveyors such as Borders and Barnes & Noble struggled. According to holiday e-commerce data from comScore, online retailers fared better than brick-and-mortar stores, though online still took its lumps, with overall sales falling 3 percent between November and Dec. 23rd, when compared with data from 2007.

 

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