Amazon Says Borders Deal Is First Part
Of Plan to Use Platform to Help Others (WSJ article, Apr 12, 2001 - must be early online edition)
By NICK WINGFIELD and ERIN WHITE
Staff Reporters of THE WALL STREET JOURNAL
Amazon.com Inc. is becoming a new resource for retailers that have stumbled on the Web.
The Seattle-based online merchant, as expected, announced that it would take over the Web operations of rival Borders Group Inc., including inventory, customer service and shipping responsibilities for the online book, music and video store.
Borders, of Ann Arbor, Mich., and Amazon didn't disclose financial terms, but the companies said Borders will pay Amazon a one-time fee for creating a new Borders.com Web site. Amazon will recognize as revenue the sale of all items on Borders.com, paying Borders a commission on those sales, the companies said.
About 70 people who had worked on Borders.com will lose their jobs as a result of the deal. Amazon and Borders said they would explore ways of meshing their businesses -- for instance, by allowing online shoppers to reserve books for pickup at Borders stores.
The deal gives Borders a graceful exit from a business that the company never mastered. Transferring online operations to Amazon "helps us to focus on what we do best," said Greg Josefowicz, chief executive officer, referring to the company's superstore operations. Amazon, meanwhile, said the Borders partnership, along with an earlier alliance with Toys "R" Us Inc. and possible future deals, was part of a plan to use its "platform" -- the Web and e-commerce technologies Amazon has invested heavily in -- to help other retailers with their online businesses.
"We're serving our customers well," said Jeffrey Bezos, Amazon's chief executive. "It's a very natural extension to serve other customers well."
Adobe Systems, Amazon.com Announce eBook Reader Deal (April 10)
Judge Allows Lawsuit to Proceed Against Barnes & Noble, Borders (March 21)
Amazon investors enthusiastically greeted news of the alliance, which capped a week of positive developments for the company, including an announcement of stronger-than-expected results for Amazon's first quarter. Shares of Amazon rose $1.31 to $13.31 as of 4 p.m. trading on the Nasdaq Stock Market Wednesday -- up 11% for the day and 59% for the week. Shares of Borders fell seven cents to $16.91 as of 4 p.m. in New York Stock Exchange composite trading.
Amazon also got a boost from a respected independent source, Moody's Investors Service Inc., which upgraded its ratings outlook on the company's debt to positive from stable. Moody's still has junk-grade ratings on Amazon's debt, suggesting a high risk of default, and the service expressed concern about Amazon's business model and high capital structure. But Moody's said Amazon's focus on turning a profit from its existing operations, rather than expanding into new retailing categories, "holds the potential for positive cash flow within the medium term."
It's unclear how much of a financial boost Amazon will get from taking over Borders.com, which was regarded as an online laggard. The unit had sales of just $9.7 million in its fourth quarter ended Jan. 28, compared with Amazon's book, movie and video sales of $512 million in the fourth quarter ended in December.
Amazon said earlier this week that it expects first-quarter sales in its core book, music and video retailing business to be flat from a year ago. The additional sales from Borders.com could help that business grow in the near term, though Amazon says it hasn't decided whether it will classify sales from the Borders site with book, music and video sales from Amazon.com.
Amazon "had basically tapped out customers for their book business," said Carrie Johnson, an analyst at market-research firm Forrester Research. "Their best strategy in both books and music is to tap into an offline retailer's customer base."
The deal pleased shareholders who have long clamored for Borders to cut its Internet losses. Barry Lafer, who with his brother Alan manages Lafer Equity Investors, is excited about the Amazon deal. One of the "black holes" in Borders business, Mr. Lafer said, had been the "Internet's cash drain and earnings drain -- and you didn't see the way out." Mr. Lafer was part of a shareholder group that publicly chastised Borders management in a December Securities and Exchange Commission filing, partly for not having a clear Internet strategy.
Write to Nick Wingfield at nick.wingfield@wsj.com and Erin White at erin.white@wsj.com |
