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Trouble brewing at Borders

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

Online consumer spending in the "books and magazine" category dropped 1 percent year over year; the "music, movies and videos" category crashed 32 percent, according to the comScore data.

The lone bright spot among the e-commerce wreckage was Borders' former partner, Amazon.com. The day after Christmas, Amazon executives called the season its "best ever." Compared with 2007 results, spending per customer was up 17 percent, as was customer spending per visit (up 4 percent), according to Geezeo's Main Street Spending Index data.

In the second half of 2008, Amazon.com estimated that its earnings would be around $20 billion for the entire year. During the 2008 holiday period, Borders.com delivered $20.3 million of the $869 million in overall sales, which is roughly 2.4 percent of the total, according to Borders' SEC filings and press releases. Other pieces of financial data, however, show that the e-commerce site is delivering, as a percentage of sales, even smaller amounts to the bottom line.

In the third-quarter, for instance, online delivered just 1.7 percent of sales to the total of $682 million. In looking at the previous 39 weeks that ended on Nov. 1, 2008, Borders.com delivered less than 1 percent of the company's $2.1 billion in sales.

"Progress has been made by Borders Group over recent quarters within the challenging economy to reduce debt, improve cash flow, cut expenses, enhance inventory productivity and improve margins," said Borders Group Board of Directors Chairman Larry Pollock, announcing the management moves in January, "but it is imperative that the company more aggressively attack these initiatives to address its long-term future."

On the day of the management shake up, serious questions hung over the company regarding more layoffs, more store closings, or another attempt to sell the company, noted The Ann Arbor News's Stefanie Murray. Cutting costs and streamlining operations were top of mind for the new Borders' executives. Noticeably absent from their latest "transformation" rhetoric was the Borders.com e-commerce strategy.

David Schick, an analyst with Stifel, Nicolaus & Co., told The Ann Arbor News that his company had decided to end coverage of the Borders Group stock. "I just think it's sort of like when there is a football team out on the field and there is the biggest blizzard it's been in the past 50 years, do you change the coach at half-time?" Schick said. "That is kind of what it feels like to me." (CIO.com)

 

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