UPDATE: Amazon to Operate Borders' Web Site

12 Apr, 2001 By: Joan Villa

Bookseller Borders Inc. will hand over operation of its money-losing e-commerce site Borders.com to Amazon.com beginning Aug. 1 in a non-cash deal that expands Amazon's reach into the brick-and-mortar world, while givingBorders a partner more experienced at navigating the Web.

The new Borders.com will continue its store locator service and in-store event calendars, but will be co-branded with Amazon, which will be the "seller of record" controlling inventory, order fulfillment, site content and customer service. However, Amazon will continue to maintain sales ofbooks, music and video on its own site, periodically sending its own customers notification of book signings, events or performances at Bordersstores.

The agreement "transfers the demands of operating the online site to those who do it better," according to Borders c.e.o. Greg Josefowicz.

Financial terms were not disclosed but both companies said the deal would not change future sales or earnings projections. Amazon stands by its assertion that it will turn a profit by this year's fourth quarter.

However, Borders.com, which is expected to report sales of $30 million for 2000, up from $17.9 million in 1999 and $4.6 million the year before, has yet to make its online venture profitable. In March, Borders said itsfourth-quarter profits fell 48% amid continued losses from its Internet business.

As a result of the deal, the company expects to lay off about 70 of its 100-member online workforce, although Josefowicz says new jobs within Borders Group will be sought for the laid-off workers. This year's projected 20% growth in earnings will no doubt be easier to attain after handingoff e-commerce operations to Amazon, he acknowledges.

Borders.com currently sells books, music and videos, but does not break down the percentage of sales by category. According to the company's latest annual report, the 700 square feet devoted to VHS and DVD per store is a small fraction of Borders' average 26,500-square-foot store size.

Borders spokeswoman Anne Roman adds that online revenue from VHS and DVD is not necessarily higher than in-store sales. "DVD is getting more popular andwe're devoting more inventory to that in both places," Roman notes.

Amazon, in the meantime, is expected to search for more retail partnerships as it finds incremental revenue as the behind-the-scenes onlineexpert for brick-and-mortar counterparts. The move is a trend begun last fallwith a Toys "R" Us partnership that gives Amazon unspecified payments andjust under 10% of the toy site's revenue.

While Amazon c.e.o. Jeff Bezos declines to elaborate on the percentages the e-tailer will receive from Borders.com sales, he notes the company will be "extremely happy" no matter which site customers choose to visit. "I'm not saying the economics are identical," he adds. "I'm just saying we'll be happy in both cases."