In May 2008, retailer Borders finally delivered on its vision of what executives thought a Borders
e-commerce engine should look like: a website that meshes the sometimes serendipitous experience of browsing for books and music in-store with the limitless, searchable and interconnected possibilities found in online shopping.

Kevin Ertell, Borders’ senior vice president of e-business, says that the site’s development process was chiefly about “bringing those two together in a way that leverages the strengths of each of the channels but brings them together in a way that’s greater than the sum of its parts”.

One example of this blended strategy is called the Magic Shelf. The attention-grabbing feature on the Borders.com home page uses Flash video technology to recreate a virtual bookshelf and the Nirvana of finding a book or DVD that you’ve always been meaning to purchase.

That this online endeavour is, perhaps, a decade late is water under the bridge to Borders Group executives. In 2001, Borders had ceded its entire e-commerce operations to Amazon.com, which as of now is Borders.com’s largest and most entrenched competitor. “We knew it was really important that we have our own website,” Ertell says. “And that we get to control our brand, the experience for our customers and integrate that into the store experience in a way that wasn’t possible under the Amazon partnership.”

The new Borders.com is the centrepiece of the retailer’s strategy going forward. Borders’ capital expenditure in 2008 is mainly focused on building out the site’s functionality and the systems that will wrap around it – replenishment, supply chain, CRM and in-store improvements, like kiosks that will allow customers to search in-store and online inventories.

The desired result of all the front and back-end integration and cross-channel marketing and sales opportunities is better fiscal health for Borders. It certainly could use it. Revenues dropped from $4.1bn (£2.7bn) in 2006 to $3.8bn (£2.5bn) in 2007, and profits have been on the decline for several years. In May 2007, its stock traded at over $20 (£13) per share; just over a year later, in July 2008, the share price hovered around $4 to $5 (£2.60 to £3.30) and as this article went to press, the price was just $1 (65p).

The significance of Borders.com to the company’s future is not lost on anyone inside its Ann Arbor, Michigan, headquarters. “It’s a marketplace we weren’t really competing in, and we had to be there and we had to be successful with it,” Ertell says. “Everyone understands that, and everybody rallies around it.”

In retrospect, the partnership with Amazon seems like anything but. Amazon did everything for Borders – -inventory management, content development, back-end fulfilment and customer service – as it grew its business into the juggernaut it is today. The wealth of intellectual capital and hard-earned lessons that Amazon realised over the years from selling to Borders’ online customers stayed inside Amazon’s Seattle headquarters. All Borders got out of the deal was a percentage of sales.

Borders did, in fact, have an early e-commerce site before it moved under Amazon’s umbrella, but the costs of running it totalled more than the revenue it generated. “The relationship with Amazon.com allowed us at the time to focus on our bricks-and-mortar stores while still having an online channel that was branded Borders,” said Anne Roman, a spokeswoman for Borders, in a 2007 CIO article.

Opening chapters

Before the new Borders CEO George Jones arrived to transform the company in July 2006, Ertell says he had been working on a business plan for a new e-commerce site. “One week after he got here, we met and he said: ‘We gotta go with it. We gotta do it’,” Ertell recalls. “He came in already knowing we had to do it, and he was the catalyst that kicked it into full gear.”

The scope of the project was massive, and the site had to be up in 18 months. “We had an aggressive timeline that we wanted to make,” says CIO Susan Harwood, who joined Borders mid-project in August 2007.

Ertell says that the prospect of creating a new, fully-functional website from scratch, that was expected to help transform and save the company, was both exciting and daunting. As for the overriding strategies for the site, Ertell says several key themes influenced the overall site and IT systems design. “We always saw the site as more than just the Buy button,” he says. “The goal has always been to help us have better relationships with our customers, to drive sales online and in store via the site, and [for the site] to be a really great cross-channel hub for us.”

One key piece of the plan was that the company reorganised itself around the e-commerce operations and made it core to the company’s short-term and long-term strategies. “A lot of companies have their web operations completely separate from the business because they started in the late 1990s, and it was this little business that only a couple people cared about and was incubated on the side. And it grew, and it grew apart at a lot of companies,” Ertell says. “So we made sure we were organised [around it], people were incentivised and all of those types of driving forces were in place before we built it. And it’s already helping us.”

The company also decided to allow the Borders Rewards loyalty programme members – who currently number more than 27 million – to redeem their rewards online. This allows customer data to be further mined to determine shopping patterns and to track how customers are using the website and in-store service offerings.

CIO Harwood points out that the new e-commerce data streams will better inform Borders’ merchandising systems and provide merchandising decision-makers with more information on what products are hot (for example, what books are getting lots of advanced orders online or spikes in traffic on the site).

Unfortunately for Borders, the web is already stacked high with online-only e-commerce players and retailers with economies of scale that are doing a very good job of selling a broad assortment of books, CDs, DVDs and other media products. Furthermore, sales of some of those media products that Borders is selling, such as CDs, have been heading south during the past few years.

And online customers, it should be noted, are notorious for their impatience with slow sites that lack an intuitive design and personalisation. “Consumers are increasingly seeking online experiences that are relevant, engaging and personal,” wrote Forrester Research analyst Kerry Bodine in a June 2008 report. “That’s why companies need to design websites that are not only useful (offering value) and usable (providing easy access to value) but also desirable (appealing to emotions).”

Ertell says Borders employed several methods to gauge what their customers wanted in a site. “We spent a lot of time doing customer research, and we started out just talking to customers,” he says. “What they liked, and what they didn’t.”

A beta site that lacked the e-commerce functionality but that had lots of other elements went live in September 2007. “The whole point was to get it up and get as much feedback as we could on that,” he says. Borders also partnered with social networking site Gather.com to assemble even more feedback.

The early version of the Magic Shelf went live on the beta site. Ertell says that there was some “internal discussion” about whether the Magic Shelf idea was good or not. “So we just put it up and said: let the customers tell us if it is,” he says. “And what we found was that they loved the idea, but they didn’t necessary love the execution of that original one. There were some things navigationally that they didn’t like.”

The end result of all that testing, however, was that according to Borders feedback, the Magic Shelf has been a “big, big hit”, Ertell says, though he declines to provide specific metrics.

Borders was aware that to truly cement the new site-to-store connection, the instore search kiosks needed to be connected to the web. So Borders created a version of Borders.com that would work on the kiosks. As of early July, those were being rolled out to Borders’ 1100 stores.

The in-store kiosks connected to the web are key, says Kevin Sterneckert, a retail research director at analyst firm AMR Research, mainly because it’s really hard to find a shop assistant who’s as knowledgeable as what’s offered online. Sterneckert says that the last time he was in a Borders physical store, he wondered why anyone actually went to bookstores any more.

“Where do I start to find a book? Where do I look for my favourite authors? Where will I start? I didn’t know,” Sterneckert recalls thinking. “I found myself wanting to go back to the web so that I could locate what I wanted. I think the tie-in that Borders is trying to do with the web and in-store -experience is really critical.”

From site to store

Ertell says that’s exactly the reasoning at Borders. “The idea is to bring all those strengths together, to not only let people place orders in the stores via those and thus augment our store inventory by more than 10 times, but also allow people to create a wish-list at home and access it at the store.” Scraps of paper that people put in their wallets or pocketbooks will, hopefully, be a thing of the past, he adds.

Site-to-store and store-to-site ordering and pickup or delivery is a critical customer component for all retailers these days. At Borders, the new store-to-site kiosk capability will help to further the bricks-and-mortar and online bind. “If the customer goes into a store looking for something obscure that we don’t carry, they’ve got the ability, right there in the store, to satisfy their need and have it shipped right to the home or to the store,” Harwood says.

AMR’s Sterneckert is bullish on this service offering. “I think the connection between online and in-store presence is really what the customer is looking for and that will pay dividends for Borders,” he says. “You can’t go to other bookstores and have a rich experience, like what you can get online. This can be a competitive advantage for them.”

While Borders didn’t have an e-commerce presence on the internet for seven years, thanks to its partnership with Amazon, it also didn’t have a long in the tooth assemblage of legacy systems to deal with, either.

This meant the team developing Borders.com could leapfrog right to the latest web-facing and back-office applications.

“The technology available today makes it a lot easier to do,” says Ertell. For instance, Allurent provided the functionality for the Flash-based Magic Shelf, which was done “relatively easily”.

At the back-end, Borders didn’t use anything exactly out of the box, says Harwood. “We took things as a platform and expanded on them and customised them,” she says. “But [a lack of legacy systems] did give us a shortcut to get some basic functionality up and running, and to give us a framework in which to develop. So, to that extent, it was easier.”

Harwood says the applications supporting Borders.com are a combination of customised packaged software and completely custom code, and that those all had to be integrated with Borders’ existing back-office systems and some that connect to external partners – for order management (Sterling Commerce’s Order Management system), financial systems (Lawson Financials), credit-card processing (CyberSource), third-party fulfilment (Baker & Taylor) and Borders’ internal -reporting systems, to name a few.

“All of that had to be built and tightly integrated,” Harwood says. “It wasn’t any more daunting than any other aspect of the project, but it added to the workload.”

At one point, “we had someone from virtually every applications team and almost every group on our technology services areas involved in one way or another with the e-commerce development project,” Harwood says. “Certainly it had an impact on what we were talking about in the conversations with our [business] partners and the bandwidth we had to take on other initiatives. Because this wasn’t the only project we were pursuing.”

Naturally, in a project with a scope, scale and overall importance as large as this one was for Borders, collaboration between the e-commerce, IT and marketing teams was critical. The pressure was intense. When asked what his web group was looking for from Harwood’s IT group during the entire development process, Ertell says “everything.”

“We worked really, really hard on this, and we were demanding as hell,” he adds. “I’ll raise my hand and admit that.”

Harwood agrees. “We had a very high bar set for us. We had to come out of the gate at a competitive pace. [This is] a mature industry, and we did that,” she says.

According to its most recent 10-Q filing in June, Borders executives are planning more IT investment to “leverage innovation, technology and strategic alliances to differentiate our business”. The majority of capital expenditure will be for “systems supporting the domestic Borders superstore business, including merchandise buying, replenishment and supply chain, as well as in-store technology enhancements”, states the filing.

As to the importance of Borders.com, the bland language of the filing belies the criticality of the site’s success: “The proprietary e-commerce web site will also 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.”

In other words: this e-commerce gambit has to succeed for the firm to succeed.

Key figures

It’s still very early in the new life of Borders.com, and Ertell says that he’s watching a number of key performance indicators closely – especially- sales, profitability and conversion rates on sales, though he won’t yet share actual numbers or the total cost of the website project.

To date, Ertell says the most popular functionality includes: redeeming Borders Rewards benefits online (which customers could not do on the Amazon site); personalising the Magic Shelf (the virtual shelves can be stocked specifically to the tastes of individual customers); reading customer and staff book reviews in store via the online kiosks; and accessing store inventories via the web (customers can look up store inventory and place items on reserve in the stores through an email request). That service, called Reserve On-line, “is a great way for the website to actually get people into the stores”, Ertell says.

Like most online retailers, Borders is analysing customer satisfaction scoring data and web analytics, in its case using the Omniture application suite. “There’s a million things we can do with that,” Ertell says, “such as doing ad-hoc analysis on what’s working and what’s not.”

AMR’s Sterneckert spent some time in both a physical Borders store as well as on the new Borders.com. One thing he noticed was that (on his relatively fast web connection) the site was slow to load, especially the Magic Shelf. Typically, Sterneckert says, websites have roughly three seconds to make their impression. “I was willing to sit there and wait because I wanted to see everything,” he says, “but I don’t know how many customers are going to wait and actually see the shelf load up. They might miss it.”

In response, Ertell says that he is aware of some performance issues on the home page, and is actively working to solve them. “However, we don’t have excessively high exit rates on the home page, so it doesn’t appear that we have a major problem with people giving up after three seconds. Nonetheless, we are seeking to improve the load time of the homepage on a number of fronts,” he says.

Sterneckert also has concerns about the “operational ramifications” of the Reserve Online feature if customers started placing holds on books in stores that they never end up claiming. Hypothetically, an in-store customer who does want to buy a book wouldn’t be able to because it’s been placed on hold by many online customers.

“We really don’t see this as any different from a customer calling on the phone to put a book on hold in our store,” Ertell responds. “Stores will keep the item on hold for up to three days. If the customer doesn’t pick it up, it gets put back in stock.”

Ertell and Harwood are well aware of the challenges that the new Borders.com faces. The dire need to differentiate the site from the entrenched competition was paramount from the get-go. “We thought, OK, we’re going to launch a website in a pretty mature area on the web, the book business, which is probably the most mature,” Ertell says.

Amazon dominates the online retail market, which includes books, CDs and DVDs, and it recently estimated that overall sales would be around $20bn for 2008. It has also claimed one of the top three online retailer spots in ForeSee Results’ annual index for customer satisfaction – four years in a row.

During the last year Amazon has been adding new functionalities to its operations, such as mobile shopping, video-on-demand and a new partnership with TiVo that allows customers watching TV shows to purchase DVDs and books featured on those shows via Amazon.

For Borders.com to succeed, says Sterneckert, it has to get the word out as quickly and as broadly as possible. “This online environment is very fickle,” he says. “And the minute the word gets out in the social networks that there’s something cool and better and interesting, there’s a mass trial that will happen.”

Sterneckert would advise Borders to take on innovative marketing approaches and work with internet marketing firms that know how to do grassroots, social-networking-type campaigns to get the word out. “How many people even know that Borders sells books from their own site now?” he asks. “So what are they doing in the store to connect the store consumer with the online consumer? If they just had their regular store consumers all online, that would be a huge gain in customer traffic to the online site. So what’s encouraging or incentivising [the in-store customers] to shop online?”

Ertell notes that Borders is primarily marketing the site through Shortlist, the weekly email to Rewards Members that includes book, music and movie recommendations. Other initiatives to get the word out include coupons, online search engine marketing, affiliate marketing, direct mail, in-store marketing, several key partnership promotions, and online display and emerging media tactics.

Even with his initial reservations, Sterneckert thinks Borders.com has a shot. “It seems to me like they have the right stuff, that if marketed correctly, they can gain share,” he says. “But it’s got to be a combination of things: their current, in-store customer base and also some innovative marketing to draw new customers to their site.”

For Ertell, it’s time for Borders.com to deliver. “It’s one of our key strategic initiatives,” he says. “I don’t think it could be any more important.”

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