Online retailers seeking allies

E-tailers and stores looking to team up and find prosperity

April 13, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

A Toys R Us commercial now airing shows off the chain's latest in Barbie dolls and robot dogs - and the name of a former adversary.

The ad promotes the toy seller's alliance with Amazon.com. Toys R Us Inc. teamed with the giant Internet merchant last fall to help it sell online after losing millions of dollars on a Web-based operation of its own.

That deal was followed this week by another major online partnership between Amazon and Borders Group Inc., the book and music chain.

After a year in which several richly marketed dot-com retailers folded and traditional retailers struggled to find a place in cyberspace, alliances between retailers and e-tailers may become the next stage in the evolution of business on the Internet, say those involved in the turbulent industry.

"It's a trend we're clearly seeing," said Shawn Milne, who tracks online retailing for Wit Soundview Group, Inc., an Internet investment banking and brokerage firm in San Francisco.

"The traditional sellers are struggling online, and their shareholders can't take the online losses anymore," Milne said.

Amazon is also rumored to be looking for an alliance with an electronics chain and a home-and-garden retailer. Its chief executive, Jeff Bezos, this week declined to comment on speculation about a partnership with top retailer Wal-Mart Stores Inc., reported last month in Britain's Sunday Times. Meanwhile, the major record companies and digital music specialists are pairing off as a federal court judge decides the fate of Napster Inc.

The ventures acknowledge the strengths each holds in its specialized area - and the weaknesses each has realized on its own.

For Ann Arbor, Mich.-based Borders, Web losses the past three years kept gobbling an increasing portion of bookstores' profits.

Borders.com lost $18.4 million last year on revenues of more than $27 million.

Its Web sales were a fraction of the $320 million of Barnes & Noble.com Inc. and $2.76 billion at Amazon.

"It takes a whole lot to develop that sophistication; we weren't in the position to deliver the search and navigation features of Amazon," spokeswoman Anne Roman said yesterday.

Amazon will own and manage the inventory on its joint site with Borders, for a portion of the revenue and a one-time fee.

The amounts were not disclosed.

In this marriage of bricks and clicks, Borders can rely on the technological muscle of Amazon. Amazon benefits from Borders' brand name and the reach of 350 bookstores under the Borders name and 870 under the Waldenbooks name.

Amazon, which was forced to close a distribution center in Georgia last winter, also gets to maximize the use of its warehouses.

By next year, customers may be able to reserve a book on Amazon and pick it up at a nearby Borders if they want to get it in a hurry and save postage.

"We benefit either way," said Patty Smith, a spokeswoman for the Seattle-based firm, which will continue to sell books on Amazon.com as well as on its joint site with Borders.

"It doesn't matter to us which site the customer purchases the book from."

The alliances are more beneficial to the bricks-and-mortar chains than to catalog retailers, whose telephone sales and distribution systems translate more easily to the Internet, said Jeffrey Fieler, an analyst at Bear, Stearns in New York.

He and others singled out Global Sports Inc., a 2-year-old King of Prussia, Pa,-based company that manages Web sites for a dozen sporting goods chains.

It relaunched a site for Dick's Sporting Goods yesterday after the Pittsburgh-based sporting goods chain grappled to run its own Internet sales for two years. The company, part-owned by television merchandiser QVC Inc. and Comcast Corp., gives Dick's a cut of sales between 7 and 10 percent.

"It's normal business for people to focus on their core competencies," said Bill Loftus, president and chief executive officer of Breakaway Solutions Inc., a Boston-area Web-consulting firm. "Amazon's core competency isn't selling books. It's selling."

The past year has alerted the thinking in many corporate board rooms, he said: As retailers wrestled with Web sites that crashed and pure online sellers folded such as Pets.com, with the jazzy sock-puppet dog, dreams of overnight fortunes gave way to talks about Web partnerships.

Said Loftus: "The idea that you were going to build value quicker than it has ever been created in history turned out to be false."

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