Fighting For Survival, Borders All-But-Abandoning E-Commerce

When Borders announced Tuesday (Feb. 3) that it was reorganizing and "consolidating" various business areas, it marked a dramatic reversal for one of retail's most aggressive merged channel advocates.

The change in heart, driven by new CEO Ron Marshall, will almost immediately force Border's E-Commerce team to halt additional investments.

Although the move certainly reflects a new top management strategy that does not see E-Commerce making much money for the company anytime soon--a regrettably realistic assessment--it also is part of a pragmatic strategy of pouring every possible resource into the brick-and-mortars while simultaneously implementing chain-wide--and very deep--budget cuts. As Marshall told senior managers at a recent meeting, Borders needs "to get the financial house in order."

It's a legitimate approach, especially given what some Borders execs see as a very real potential for the company going under within a year if something major doesn't happen soon. One way or the other, change is going to have to happen in the stores, so giving stores unconditional budget priority makes sense.

The Web site won't be gutted per se, but it also won't be seeing additional investments. "He's basically going to let it alone," said one Borders manager, who asked that her name be withheld.

Marshall's CEO gig was announced January 5, when he was instructed, according to a corporate statement, to "aggressively drive a turnaround of the company within today's challenging economy."

Marshall comes to the job as a veteran number cruncher. He has some retail experience, but almost all in the ledger side of the house. Before Borders, he was principal of Wildridge Capital Management, a private equity firm he founded about three years ago. It was Marshall, for example, who drove a turnaround of $4 billion supermarket retailer Pathmark Stores Inc., where he served as executive vice president and chief financial officer from 1994 to 1998.

The Pros And Cons Of Betting On E-Commerce

If the turnaround works, will Borders pick up its E-Commerce leadership? Or will it confirm that focusing on the Web--please forgive the cliche--is more part of the problem than part of the solution?

E-Commerce growth is clearly a strategic matter, with investments viewed for the long term. It's a wise move, unless you believe that your long term is measured in weeks. In that case, long-term vision may be viewed as an expensive luxury.

But what if the Borders turnaround fails? Will that outcome be seen as a vindication that abandoning E-Commerce is shortsighted and ill advised? Or will the E-Commerce doomsayers declare that Borders had already been irreparably damaged by excessive E-Commerce investment, moves that distract senior management at a crucial time?

There's yet another scenario. It will also be argued that the enthusiastic embrace of E-Commerce that Borders executed was in and of itself a sign that the chain was desperate and scared and willing to try anything to change the market's dynamics. That argument would say that the problems started long before the E-Commerce move—and the Amazon divorce--and that even a perfectly executed E-Commerce strategy couldn't turn it around.

In other words, don't blame Dr. Web for this one. The patient was already critical when he was wheeled into the hospital.