Borders Group (BGP) shareholder Bill Ackman told reporters that he thinks Amazon (AMZN) should buy Borders to jump start a “bricks and clicks” strategy. Ackman is obviously just trying to whip up some enthusiasm–any enthusiasm–for his also-ran book chain (which recently put itself on the block), but the idea is worth considering.
Perhaps surprisingly, we actually don’t think a retail strategy for Amazon would be such a horrible idea. Done right, a retail presence could increase Amazon’s market share, amplify its brand, and improve its convenience for consumers. And, done right, it might also be built without wrecking Amazon’s business model.
Buying Borders, however, isn’t the answer:
- Borders sells books. Amazon sells everything.
- Borders stores are probably not the right size, shape, configuration, and location
- Borders cannot be bought for the “$400 million” Ackman tossed off to reporters. Borders’ equity value is about $400 million, but its enterprise value is $900 million, and Amazon (or any other buyer) would presumably have to pay a premium to the latter.
- Buying an existing network of stores would immediately saddle Amazon with the challenge of running a large, distributed business it doesn’t understand–and one that is currently sputtering. If Amazon is to develop a retail presence, it should do it gradually, like Apple (AAPL).
And Apple really is the right model here. Apple has gradually built one of the most spectacular (and spectacularly successful) retail presences in the world, one that has complemented and augmented its brand and cemented its image in popular culture. Note that Apple did not accomplish this by buying a has-been retail chain. It did it by designing a whole new retail experience and controlling every aspect of it.
If Amazon is ever to develop a bricks-and-clicks strategy to complement its online business, it should do the same thing. Specifically, it should begin by answering the following questions:
- What is the ideal complement to the current business?
- What sort of services and staffing should each store offer?
- Where should the stores be? How big? How upscale?
Intelligent answers to these questions will be critical to Amazon’s success. Another critical element will be execution–and the best way to learn to execute a new strategy well is to start small and build from gradually, not to acquire a pre-existing network. Apple has been building stores since 2001, and, 7 years later, it only has 209 worldwide. If and when it eventually moves into the retail business, Amazon should probably follow a similarly cautious rollout.
So, no, Amazon shouldn’t buy Borders. But it also shouldn’t rule out bricks-and-clicks.
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