Jeff Bezos, CEO and founder of Amazon.com, announced last week that the online retailer will take over all service operations of Borders.com, the online storefront for the Borders chain, in a deal that offers advantages for Borders, a distant third in online book sales, and uncertain benefits to Amazon.com, the leading online book retailer. The new cobranded site will still be called Borders.com,= and will be relaunched in August with an Amazon-like interface offering books, music, videos and DVDs. The change will result in the layoffs of 70 employees at Borders.com.
Bezos was joined by Borders Group CEO Greg Josefowicz at a press conference in New York City to announce the joint venture. The benefits for Borders. com seem clear. The site reported about $27 million in sales in fiscal year 2001 (with losses of more than $18 million) compared to $1.7 billion in sales by Amazon.com's books/movie/ video group in the same period.
Bezos noted that there was no exchange of equity in the deal. Borders will make a one-time payment to Amazon.com to develop the site. Borders will receive an undisclosed percentage of revenues from sales. Amazon.com's technology will power the site and Amazon.com will own the inventory and take over warehousing, fulfillment and customer service for Borders.com. The relaunched site will offer the complete Amazon.com experience along with Borders's Title Sleuth service, which provides online access to the inventories in specific Borders stores. The cobranded site will continue to list in-store events at Borders stores. Customer returns will be handled under Amazon.com's policy, and Bezos said the site will collect sales taxes in locales were there is a physical Borders store.
Bezos and Josefowicz said that they had "no idea" how much overlap there was between Amazon and Borders customers. "We're out to make Borders.com a great customer experience, which will grow the customer base," said Bezos. Amazon.com will have access to the e-mail addresses of all Borders.com consumers who join after the August relaunch. It will not have access to those customers who joined before the new deal.
The move marks the failure of Borders.com as an online book retailer. Borders was slow to begin selling books on the Web, and has said it did not expect its online business to be profitable in the foreseeable future. Josefowicz said Borders will now "give up the online operations to people who can do it better." He said the deal will allow Borders to concentrate on its bricks-and-mortar superstores. He said the deal would likely be expanded internationally and added that Borders is experimenting with new services, such as enabling customers to purchase a title online and pick it up at a Borders store.
The advantages for Amazon.com were less clear. Bezos said there was little risk ("book inventory is returnable") and he expected to help Borders test new services "that might really move the needle" in attracting new customers. Josefowicz said, "We still want to have our own Web site, to keep our relationship with our customers online, and to preserve the Borders identity."
Borders's exit from online retailing is another indication of the slowing growth of that distribution channel. Amazon reported that the gross profit in its U.S. books/movie/video division is expected to increase by 30% over last year's first period, but sales in the group had a "very slight" increase in the period. In last year's first quarter, the division had sales of $401 million, a gross profit of $82 million and net loss of $2.4 million. The sluggish gains in the B/M/V group in the period marks the second consecutive quarter that the division has had slow sales growth; in the 2000 fourth quarter, sales were up 11%.
