Borders Kicks Off IT OverhaulBorders Kicks Off IT Overhaul

Retailers that can manage employees across multiple store brands and locations stand to realized greater efficiencies. For example, if there are too many people working at Borders Books & Music in Newport Beach, Calif., on a sunny Saturday afternoon, but not enough working at Waldenbooks down the road at South Coast Plaza in Costa Mesa, Borders can do cross-scheduling. Once the rollout of the common point-of-sale system is complete, it will be easy to train employees.

At some point, Borders Group will look into implementing radio-frequency identification technology, once the publishing-industry organization Book Industry Study Group sorts out consumer-privacy policies and standards. Progress is being made: The organization released a set of privacy principles in September.

There's logic in Borders Group's strategy. The company wants to make employees, from store clerks to corporate executives, more efficient. Borders is placing special emphasis on the purchasing department. It's integrating its purchasing platforms to leverage the buying power of the company's $3.7 billion annual revenue. Buyers will create common purchase orders to manage products with suppliers more efficiently, instead of entering orders into two systems, one for Borders and another for Waldenbooks. This gives buyers better reporting tools to gain visibility into inventory at both retailers as they try to keep shelves stocked with the hottest books, DVDs, and other merchandise.

Buyers trying to plan holiday book orders for The Polar Express or Harry Potter And The Prisoner of Azkaban have had to consult two separate ERP platforms, cross their fingers, and hope forecasts are correct. "We have a purchasing organization that makes central decisions for Borders and Waldenbooks, but the purchase orders have been input into two different systems," says Dan Shull, director of IT core merchandising projects at Borders Group, who admits this limits the combined visibility of product moving through the supply chain and into stores. With the new Retek ERP platform, daily morning inventory reports are automated, and everyone's working off the same information.

The decision to develop an enterprise structure that standardizes Borders Group on several software platforms may have been inevitable, but it won't be easy or cheap. Mike Spinozzi, executive VP and chief marketing officer who heads up the company's merchandising and product-development strategies, declined to provide figures on the investment in the business-technology overhaul, but a company executive close to the project says the ERP system alone will run between $30 million and $40 million. Company officials say the cost for hardware and software for the entire project will be less than $100 million. Whatever the investment, it's expected to pay off in cost reductions.

It's the Borders Group way. More than two years ago, the company spent $400,000 annually on connectivity with suppliers and has since managed to reduce annual costs to less than $100,000 after consolidating to one value-added network and deploying a business-to-business hub and tools--GXS Enterprise System, data transformation services, and messaging services from Global eXchange Services.

The technology overhaul won't affect Borders' relationship or processes with Ama- zon, Spinozzi says. Borders Group hooked up with Amazon.co.uk in the United Kingdom last month, extending an existing U.S. Borders relationship with the E-commerce retailer in place since August 2001. Borders' belated plunge into E-commerce in Europe comes as more people there embrace online shopping.

As part of the multiyear deal, Amazon will provide customer service, set pricing, and handle shipments and inventory. The new site, www.borders.co.uk, will sell books, music, DVDs, and videos. "We're doing our customers a service by having Amazon.com do the fulfillment," Spinozzi says. "Our growth in online sales has been good. The decision to partner with Amazon.com relieved us from the expense of having a fulfillment center required of a dot-com."

But don't break out the Perrier Jouët just yet. Borders Group is scheduled to report earnings on Nov. 17. Weaker sales at Borders and Waldenbooks stores prompted the company on Oct. 12 to cut fiscal third-quarter and 2004 earnings and sales outlooks. It forecast a fiscal third-quarter loss of a penny to 3 cents per share on 2004 earnings of $1.66 to $1.73 per share, including a projected after-tax charge of 4 cents to 6 cents per share.

Fortunately, Borders Group is standing on solid ground with year-to-date 2004 sales of $1.67 billion, ending July 24, up from $1.57 billion for the same period in 2003. In the long run, the technology overhaul is expected to improve operations and boost sales that the company says will creep above industry averages when the integration is complete. Borders Group believes its top-line sales can grow 8% year-over-year through a combination of new-store growth and comparable-store-sales growth supported by IT improvements.

The goal to create collaboration between the book chains, improve forecasts, increase inventory turns, and drive down out-of-stocks also should boost gross profit margins above the industry average, which ranges between 40% and 60% per book depending on the category. Inventory turns in the book business are low, about one to two annually, and typically occur later in the year, mostly influenced by fourth-quarter holiday sales. But Borders expects turns for the combined companies to improve and "be on the high side of that range," Spinozzi says. "As systems are brought online, more improvements should come."

Photo by Paul Sancya/AP