Inside the E-Commerce Strategy That Could Save Borders, Part 2

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

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In a sense, then, the team developing the new Borders.com could leapfrog right to the latest Web-facing and back-office applications. (See “Inside the E-Commerce Strategy That Could Save Borders, Part 1” to read the first article in this two-part series.)

“The technology available today makes it a lot easier to do,” says Kevin Ertell, Borders’ senior VP of e-business and a leader on the project. For instance, vendor Allurent’s software package provided the functionality for the Flash-video-based Magic Shelf, which was done “relatively easily,” he adds.

On the back-end, Borders didn’t use anything exactly out of the box, says CIO Susan Harwood. “We took things as a platform and expanded on them and customized them,” she says. “But [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 customized 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 fulfillment (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.”

“We Were Demanding as Hell”

Naturally, in a project with a scope, scale and overall importance as large as this one was for the $3.8 billion 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.”

“I don’t think this was out of place,” responds Harwood. “We had a very high bar set for us. We had to come out of the gate at a competitive pace [because this is] a mature industry, and we did that.”

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 company to succeed.

Early Customer Data Analysis

It’s still very early in the new life of Borders.com (Chapter 1, perhaps), and Ertell says that he’s watching a number of key performance indicators closely—especially sales, profitability and conversion rates on sales. (He won’t share actual numbers or the total cost of the website project.)

To date, Ertell says the most popular functionalities include: redeeming Borders Rewards benefits online (which customers could not do on the Amazon.com site); personalizing 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 e-mail request). That service, called Reserve Online, “is a great way for the website to actually get people into the stores,” Ertell says.

Like the majority of online retailers, Borders is analyzing 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, “doing ad-hoc analysis on what’s working and what’s not.”

Kevin Sterneckert, a research director of retail at AMR Research, 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 “we are aware of some performance issues on our home page, and we’re 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,” he adds, “we are seeking to improve the load time of the homepage on a number of fronts.”

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.”

Stand and Deliver

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.com dominates the online retailing market, which includes books, CDs and DVDs, and it recently estimated that overall sales would be around $20 billion for 2008. It also has 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.com.

For Borders.com to succeed, says AMR’s Sterneckert, they’ve got 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 work to be online, that would be a huge gain in customer traffic to the online site. So what’s encouraging or incenting [the in-store customers] to shop online?”

Ertell notes that Borders is primarily marketing the site through Shortlist, Borders’ weekly e-mail to the 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.”

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