Borders' In-Store-Only Coupons Sign Of A Much Bigger Problem

Starting in February, Borders quietly changed how it handled its coupons, changing them from being available for both in-store and online orders to solely in-store. In and of itself, that's not so surprising, especially given that the $3 billion chain that month all-but-halted meaningful E-Commerce investments. But the move to push all sales into the stores runs counter to customer desires, which is rarely a good longterm strategy.

That may be precisely the point. With the economy still scraping bottom, many retailers and E-tailers are having to craft strategies that are designed to be very temporary and very emergent. There's a major E-Commerce vendor, for example, that is out there trying to convince retailers to halt efforts to bring in new sales, proposing that they instead force all efforts on the installed base. This forces us to consider three distinct issues:

  • Will these temporary, emergent strategies work?
  • How easily will they be to reverse after the emergency is over? (This presupposes that they indeed can be reversed.)
  • Will these approaches actually put merchants in a much weaker position after the crises abates, even if the policies can be successfully reversed?

    Let's start with the key issue: Will these temporary approaches even work? The two examples cited offer very different—almost polar opposite—strategies. One suggests an in-store-only approach, but opening it to all existing and new customers, while the other suggests a limit to the installed base, but is channel-agnostic. Would submit that even a short-term strategy will only work if the target audience can be persuaded to do it.

    The focus on installed base at least speaks to the audience on its own terms. Even that approach is not suggesting blocking or alienating prospects, but merely that no money or effort would be deployed to try and woo them. Limited dollars in an emergency requires unpleasant triage decisions.

    Borders' coupon approach seems much less likely to succeed, namely because it's forcing one channel on a group of prospects who are typically leaning toward a different channel.

    And even if it somehow worked temporarily—worked being defined as boosting sales—issues two and three are even less kind. Is crippling an online operation going to leave the chain stronger or weaker when the crises abates? And can it be restarted, at a time when rivals have been steadily investing? Will customers resent being pushed into a channel to convenience the chain?Still, if a chain truly believes that it might not survive the storm, sheer survival might trump all. But will it really?

    The irony here is that Borders' customers are a community of information-lovers. They are likely to be more open to mobile and social media forums, let alone Web communications. Is it not indeed ironic that two of the chains whose customers are most inclined to embrace the Web—Borders and Starbucks—are the ones most inclined to ignore it?

    Borders officially says the program is indeed temporary and the chain is trying anything it can to try and survive now, so that it will have options later.

    "As our CEO, Ron Marshall, said on our most recent investor conference call, we are focused on improving gross margins through being smarter in controlling promotional offers and in-store discounts," E-mailed Anne Roman, Borders' VP for corporate communications. "We are researching and experimenting with a variety of offer types and combinations of offers to be more effective and hit the right sales/margin balance."

    One has to ask the question whether this in-store focus is based on customer and prospect feedback or whether it's internal logic, calculating that if stores today deliver more of the revenue and profit, that's where investments must go. It might sound rational and logical in a memo from the new CEO, but I think Borders may be about to discover that many of its customers are probably not going to have received that memo.

    They're going to expect the chain to anticipate their needs and work with them in their preferred channels. It wouldn't be the first chain to not properly hear what its customers are saying, but it seems an odd way of reversing sales declines.