June 12, 2008
Should Amazon Buy Borders?
Billionaire hedge fund manager William Ackerman thinks Amazon.com should consider making a bid on Borders Group. Mr. Ackerman holds a substantial stake in the struggling book and music chain.
His reasoning, other than making something out of his investment, is that Amazon will soon lose any tax advantage it has as a pure-play e-tailer as states require it to collect sales tax. Without the advantage, Amazon will need other means to put itself in front of consumers.
"Amazon could buy the company for about $400 million to get those locations that would take more than $1 billion to build," he told reporters, according to an Associated Press report. "You have to think of it like how Apple has retail stores across the country."
Mr. Ackerman sees Amazon being able to sell items beyond books and music as providing it an immediate advantage not enjoyed by Borders.
Discussion Questions: Would it benefit Amazon to add Borders’ bricks to its existing clicks business? Do you think Amazon can go on indefinitely as a pure-play e-tailer or will it eventually have to open physical store locations?
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Amazon has a strong reputation and would seriously put this to the test in building a physical presence. Furthermore, is the risk of entering a radically different industry worth the potential returns?
Apple has definitely opened many eyes with their progressive retail shops. But take note, Apple has at most a few hundred products to sell and they are all closely related. This means that their staff can offer real expertise on each and every product. I don’t see how Amazon would be able to provide expertise on their broad assortment of merchandise and believe they would have much to lose.
This appears to be another case of an investor providing less than helpful advice.
This is brilliant, inevitable, and necessary, as I have been saying for 8 years! Multi-channel, then merged-channel is how best, most successful retailers operate today and in the future. Even dedicated Amazon users will gladly visit physical stores for the total experience, where they will be able to access in-store terminals with with their accounts, history, etc. The Borders operation is a very good one; I see this as a win/win/win, with expanding visits, sales, profits, growth (and rising stock price).
Can Amazon go on indefinitely as a pure-play? No, that’s the point–they would be limiting their potential. It won’t be easy, and has to be done right, but it is the way to go.
This move would open Amazon up to a different market and help to solidify the market they already own. Definitely a great idea!
Amazon has been great at re-inventing themselves rapidly, this will allow them to follow trends and to build a business for the long run.
Should Amazon buy Borders? I can’t see why in the world it would want to.
Here’s my line from your summary: “Without the advantage, Amazon will need other means to put itself in front of consumers.” Amazon.com is one of the most well-known brandnames on the Web (along with Google, Yahoo and eBay) and is sharply growing. How much more “in front of consumers” do they want/need to be?
What would a Borders buy get them? Book inventory. Already have it. Name recognition? Ditto. The only thing they would truly pick up are physical locations.
That’s a lot of real estate and personnel costs they’d be taking on. What’s there to balance it out? The additional revenue from added in-store services would not likely overcome those new expenses. Yes, they’d get local places for customers to return unwanted purchases, but that’s a huge expense for a relatively minor improvement. (Cynical comment: How much of an ROI is there in making those kinds of returns easier? If Amazon wanted to make their returns policies a lot more flexible–akin to what Costco does–now THAT could have a substantial customer service impact. But they don’t need physical locations to do that.)
More importantly, Amazon has done impressively well with technology and capability deployment and a LOT of that has to do with it being unencumbered with brick-and-mortars. No headaches of integrating legacy systems (and legacy manager thinking). That’s been quite liberating for Amazon.
The physical bookstore is struggling and Borders is doing some impressive efforts to address that. But a Barnes & Noble merger would, to me, make a lot more sense.
Borders is clearly making efforts to remain relevant within an extremely challenging retail space, though it may be too little too late. Their new concept store here in Ann Arbor, for example, has an entire interactive area dedicated to self-publishing. Amazon has always been bold in its thinking and strategy, so perhaps the time is right to create a physical presence and make the Amazon experience more tangible.
My bet, however, would be on Barnes & Noble coming along as the strategic buyer. Borders’ stock is trading at a deep discount these days and the acquisition purely from a real estate/geographic footprint perspective may prove to be irresistible to B&N.
If this was 1998 and Amazon was just breaking into bookselling, the cheap acquisition of Borders might be very appealing. But this is 2008 and Amazon sells so much more than books. It is also highly successful in making a market for other retailers, big and small, to sell their products through Amazon. With millions of items for sale, in a thousand different categories, why would they want to acquire a dying business like Borders simply to have a physical presence?
Truly there is something magical about being in a bookstore. The Borders on the corner near my home offers so much more than just books. It’s an experience, a relationship, it’s tangible, touchable, and serves to activate a variety of emotional connections that fulfill shoppers’ wants and needs in a very real manner. It has served my family well for many years.
Sounds hokey, I know, but shopping is emotional. I love Amazon, but they could use some tangible branding for the long haul. Convenience, speed and access will only carry you so far.
I think they can do well with brick and mortar, but they’ll have to really think it through and not just buy legacy. I would say the opportunity to reinvent is really exciting for them!
Ackerman’s “Apple” analogy doesn’t work for me. I hope this does not happen because it changes what Amazon is all about. This is strictly an investment consideration, not a well thought out strategy–with all due respect.
Amazon should stay away from any bricks and mortar operation. They have a great concept that seems to be getting better every day. I use Amazon to buy almost everything and as a “low cost” check, it can’t be beat. Amazon provides a great service at very reasonable prices.
Those who would have them taxed have only to look at the hundreds of (used to be) US businesses that have moved offshore to avoid depressing levels of taxation in the US. Amazon could easily run their business from the islands. UPS would provide delivery as they do today.
Borders should look to Starbucks if they need a buyer. Both would benefit from that merger. Starbucks would gain a reason for being and Borders would find out how to make a good cup of coffee.
Amazon, on the other hand is the internet version of the old Sears and Roebuck catalog. Books were an easy way to build a business quickly, but the business model is a retail version of eBay. Sellers are consolidated on the Amazon site and Amazon gets a cut from each sale without having to handle inventory. The beauty of software is that a system designed to sell books can just as easily sell rubber baby buggy bumpers. And they do!
I commented elsewhere today (cell phones and retailing) on managing the “big head” and the “long tail,” the high volume stuff vs. everything else. Online will always have strengths in online, but the right offline/online combo could give them a serious run for their money. It all comes down to the execution, but Tesco has done it right in the UK (and may here.) And Wal-Mart and others could give Amazon a run for their money if they needed to.
Bottom line: I expect that they will need to. So no reason for Amazon to stay inside their online powerhouse. The offline world of retailing will be a permanent fixture in retailing, and shoppers will increasingly see online/offline as one experience.
Amazon can’t match their web prices in a bricks and mortar store–just ask B&N. Two-tier pricing would dilute the brand, as would a finite inventory selection. And one of the ways they are able to price so low is with a good amount of virtual inventory.
With 35-40% discount on most new hardcovers, and 45% and a good amount of bestsellers, they are keeping margins razor thin, as retail discounts top out at 48% for the major houses, slightly more if they can cut a good deal with a wholesaler/jobber. Many think the books are a loss leader to get customers to click through to other product lines, much as Best Buy did with music. If that’s the case, what’s the point of a b&m, no matter how cheaply you can buy them?
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Amazon has a strong reputation and would seriously put this to the test in building a physical presence. Furthermore, is the risk of entering a radically different industry worth the potential returns?
Apple has definitely opened many eyes with their progressive retail shops. But take note, Apple has at most a few hundred products to sell and they are all closely related. This means that their staff can offer real expertise on each and every product. I don’t see how Amazon would be able to provide expertise on their broad assortment of merchandise and believe they would have much to lose.
This appears to be another case of an investor providing less than helpful advice.
This is brilliant, inevitable, and necessary, as I have been saying for 8 years! Multi-channel, then merged-channel is how best, most successful retailers operate today and in the future. Even dedicated Amazon users will gladly visit physical stores for the total experience, where they will be able to access in-store terminals with with their accounts, history, etc. The Borders operation is a very good one; I see this as a win/win/win, with expanding visits, sales, profits, growth (and rising stock price).
Can Amazon go on indefinitely as a pure-play? No, that’s the point–they would be limiting their potential. It won’t be easy, and has to be done right, but it is the way to go.
This move would open Amazon up to a different market and help to solidify the market they already own. Definitely a great idea!
Amazon has been great at re-inventing themselves rapidly, this will allow them to follow trends and to build a business for the long run.
Should Amazon buy Borders? I can’t see why in the world it would want to.
Here’s my line from your summary: “Without the advantage, Amazon will need other means to put itself in front of consumers.” Amazon.com is one of the most well-known brandnames on the Web (along with Google, Yahoo and eBay) and is sharply growing. How much more “in front of consumers” do they want/need to be?
What would a Borders buy get them? Book inventory. Already have it. Name recognition? Ditto. The only thing they would truly pick up are physical locations.
That’s a lot of real estate and personnel costs they’d be taking on. What’s there to balance it out? The additional revenue from added in-store services would not likely overcome those new expenses. Yes, they’d get local places for customers to return unwanted purchases, but that’s a huge expense for a relatively minor improvement. (Cynical comment: How much of an ROI is there in making those kinds of returns easier? If Amazon wanted to make their returns policies a lot more flexible–akin to what Costco does–now THAT could have a substantial customer service impact. But they don’t need physical locations to do that.)
More importantly, Amazon has done impressively well with technology and capability deployment and a LOT of that has to do with it being unencumbered with brick-and-mortars. No headaches of integrating legacy systems (and legacy manager thinking). That’s been quite liberating for Amazon.
The physical bookstore is struggling and Borders is doing some impressive efforts to address that. But a Barnes & Noble merger would, to me, make a lot more sense.
Borders is clearly making efforts to remain relevant within an extremely challenging retail space, though it may be too little too late. Their new concept store here in Ann Arbor, for example, has an entire interactive area dedicated to self-publishing. Amazon has always been bold in its thinking and strategy, so perhaps the time is right to create a physical presence and make the Amazon experience more tangible.
My bet, however, would be on Barnes & Noble coming along as the strategic buyer. Borders’ stock is trading at a deep discount these days and the acquisition purely from a real estate/geographic footprint perspective may prove to be irresistible to B&N.
If this was 1998 and Amazon was just breaking into bookselling, the cheap acquisition of Borders might be very appealing. But this is 2008 and Amazon sells so much more than books. It is also highly successful in making a market for other retailers, big and small, to sell their products through Amazon. With millions of items for sale, in a thousand different categories, why would they want to acquire a dying business like Borders simply to have a physical presence?
Truly there is something magical about being in a bookstore. The Borders on the corner near my home offers so much more than just books. It’s an experience, a relationship, it’s tangible, touchable, and serves to activate a variety of emotional connections that fulfill shoppers’ wants and needs in a very real manner. It has served my family well for many years.
Sounds hokey, I know, but shopping is emotional. I love Amazon, but they could use some tangible branding for the long haul. Convenience, speed and access will only carry you so far.
I think they can do well with brick and mortar, but they’ll have to really think it through and not just buy legacy. I would say the opportunity to reinvent is really exciting for them!
Ackerman’s “Apple” analogy doesn’t work for me. I hope this does not happen because it changes what Amazon is all about. This is strictly an investment consideration, not a well thought out strategy–with all due respect.
Amazon should stay away from any bricks and mortar operation. They have a great concept that seems to be getting better every day. I use Amazon to buy almost everything and as a “low cost” check, it can’t be beat. Amazon provides a great service at very reasonable prices.
Those who would have them taxed have only to look at the hundreds of (used to be) US businesses that have moved offshore to avoid depressing levels of taxation in the US. Amazon could easily run their business from the islands. UPS would provide delivery as they do today.
Borders should look to Starbucks if they need a buyer. Both would benefit from that merger. Starbucks would gain a reason for being and Borders would find out how to make a good cup of coffee.
Amazon, on the other hand is the internet version of the old Sears and Roebuck catalog. Books were an easy way to build a business quickly, but the business model is a retail version of eBay. Sellers are consolidated on the Amazon site and Amazon gets a cut from each sale without having to handle inventory. The beauty of software is that a system designed to sell books can just as easily sell rubber baby buggy bumpers. And they do!
I commented elsewhere today (cell phones and retailing) on managing the “big head” and the “long tail,” the high volume stuff vs. everything else. Online will always have strengths in online, but the right offline/online combo could give them a serious run for their money. It all comes down to the execution, but Tesco has done it right in the UK (and may here.) And Wal-Mart and others could give Amazon a run for their money if they needed to.
Bottom line: I expect that they will need to. So no reason for Amazon to stay inside their online powerhouse. The offline world of retailing will be a permanent fixture in retailing, and shoppers will increasingly see online/offline as one experience.
Amazon can’t match their web prices in a bricks and mortar store–just ask B&N. Two-tier pricing would dilute the brand, as would a finite inventory selection. And one of the ways they are able to price so low is with a good amount of virtual inventory.
With 35-40% discount on most new hardcovers, and 45% and a good amount of bestsellers, they are keeping margins razor thin, as retail discounts top out at 48% for the major houses, slightly more if they can cut a good deal with a wholesaler/jobber. Many think the books are a loss leader to get customers to click through to other product lines, much as Best Buy did with music. If that’s the case, what’s the point of a b&m, no matter how cheaply you can buy them?
Amazon is in dozens of retail businesses. Should Amazon buy one retail chain in every category? Should Amazon buy Sears, RadioShack, 7-Eleven, Nordstrom, and The Limited?