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Borders Closes the Books on Amazon
theodp writes "Borders said Thursday that it was severing ties with Amazon and will compete directly against the e-tailer with its own website. The loss of Borders could cost Amazon $80-$160 million in annual revenue, according to one estimate. 'Amazon could gain market share in book selling over time because it will have an advantage over Borders, which now will charge a sales tax for all books sold. Companies have to charge a sales tax for Internet sales if they have a physical presence in states that collect sales taxes, [Stifel, Nicolaus & Co analyst Scott] Devitt said. Amazon collects sales taxes only on books sold in Washington, North Dakota, Kentucky and Kansas. Borders would collect sales taxes in all 50 states, the company said."
Sales tax, schmales tax, couldn't they just drop the price of the books they sell so their price with sales tax is competitive with amazon without tax?
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The reason Borders partnered with Amazon in the first place was because they couldn't come up with a good enough web site on their own. What has changed since that time? I think their greed is overcoming their common sense here, as Amazon is going to be hard to compete with.
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I think borders would only be competing with Amazon's book arm. Back in the late 90's, Amazon may have directly competed with an online version of Borders, but now Amazon is like Wal-mart, in that they sell a large swath of other products besides books. Borders may now compete more directly with Barnes & Noble, though, where before Amazon floated them clean past their physical-store rivals.
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For a $50 book, I'd rather pay $4 in sales tax and 25 cents in gas than pay $5 for shipping and having to wait a week... Besides, the new competition might even drive the costs down making the whole "extra cost" issue moot.
Delaware does not have a standard sales tax (aside from taxes affixed to certain items ahead of time like cigarettes, that is), so I suppose it would be 49 states then? Then again, Delaware may well not be the only state without sales tax.
Slightly off-topic:
How soon before the next serious effort to force mail-order and electronic retailers to charge some form of sales tax for out-of-state purchases?
Way off-topic:
How many people actually bother to pay "use taxes" on goods they buy from out-of-state mail-order houses? How soon before a politician is brought down for failing to pay "use tax" on a $10,000 luxury item he bought mail-order to avoid paying a few hundred dollars in state sales taxes?
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Why in Oregon when don't have a sales tax?
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Borders will collect sales tax in Alaska, Delaware, Montana, New Hampshire and Oregon, who do not assess sales tax state-wide? That's kind of odd.
Companies have to charge a sales tax for Internet sales if they have a physical presence in states that collect sales taxes
Borders would collect sales taxes in all 50 states, the company said.
So if I bought a book from Borders' new web site, which state would I, as a New Hampshire resident, pay said sales tax to?
are they going to compete with Amazon? Doesn't Amazon have a patent on selling books online?
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Oregon does not have sales tax. I wonder what they will do with the sales tax collected on Oregon sales?
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See here, here, and here.
The articles are on Amazon ranking manipulation. From the 3rd link:
"One major quirk: Used and new book sales are counted equally. So an author anxious about his sales ranking could put a few dozen of his books for sale for a penny apiece and ask a friend to buy them all."
Hey, if it boosts your Amazon rankings, you'll make up for it in volume!
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Maybe dealings with Amazon have gotten too bad for borders? IE expensive, bad service.
Also, it's 2007 and there's many more people out there with the skills to put a good site together.
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I wonder how hard it would be for Amazon to enter publishing business, they could easily buy out a company such as lulu and brand their own Amazon books.
If one presumes that Borders is trying to go head-to-head with Amazon, then it looks bad. But Borders has spent billions upgrading their B&M stores in the last decade or so. ( Remember when a B&M bookstore was 2000 sq ft with no coffee and a much smaller selection? ) Borders is trying to get some of the online crowd into B&M stores. Borders will be delighted if their online sales break even, or even operate at a small loss.
I predict that we will see Border's web site saying: You can order this book and it will be delivered in x days, OR you can drive y miles and have it today!
Most of the time when I order something from Amazon they are shipped from Fernley, Nevada, a town about 30 miles east of Reno. That means that Amazon has a point-of-presence in Nevada. Are they not charing sales tax for Nevada residents as well? Are items ordered from the Internet exempt from Nevada sales tax? I live in California so I wouldn't know. I only know that Amazon doesn't charge California sales tax which is a godsend when you're buying things like laptops and such. Of course, you're *SUPPOSED* to pay tax on items obtained out-of-state and through mail order on your state income tax form but I've never met anyone who has told me that they've paid it.... except me. *wink* *wink* *nudge* *nudge*
I like this title better.
As for the sales tax issue, people will just use froogle or something and find the lowest price without the tax and then buy that book, most likely.
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I've only ordered something on Amazon once for in-store pickup in Borders, and I actually ended up getting the book for free because the Borders store employees didn't know how to properly complete the transaction. When the charge never showed up on my credit card I even called Borders and talked to the manager (felt like stealing to me) and he said that it was their screwup and that I could keep the $30 book. Admittedly this is probably an anomaly, but I'm sure it's happened to more people than just me.
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i was just getting relatives to give Borders gift cards instead of B&N ones so that I could use them on Amazon. that was extremely useful. rats!
Not really, no. Amazon has gross margins of about 21% and so does Borders. In case that doesn't mean anything to you, 21% gross margin isn't spectacular. That means Amazon and Borders are not making a lot on each sale and there isn't a lot of fat to cut out. Books on Amazon are typically already discounted pretty steeply. Borders doesn't get any economies of scale that aren't also available to Amazon and Borders has physical stores to maintain. Sure, Borders could discount down to zero profit but neither company is likely to do that unless they think they can get some advantage out of it and I can see no advantage for either side in a price war right now.
...is because they've seen their business shrink quite a bit over the past few years (relative to their competition) and they're trying to recapture whatever they pay Amazon for selling their books. Of course the cost of creating and maintaining a B2C Web site isn't trivial, so it will be interesting to see if, in the end, this move will raise their revenue - or kill them entirely. Also, in terms of the sales tax - they could reduce the price of their books a little online, still make more revenue per sale, and in the end the customer may be paying the same amount.
That...and Amazon is a competitor of theirs so it doesn't make a lot of sense to support Amazon at their own expense.
Your mind looks a little cramped. Why don't you stretch it a little?
A long time ago..? I remember going to the Borders website, found which store location had the DVD I was looking for in stock, went and bought it.
Different customers have different needs, but for me, the ability to search a store's inventory is more useful than being able to place a mail-order an item over the web. I can order something from a gazillion places, but if a store nearby physically has it, I'll swing by and pick it up.
I'm always a little surprised that not all stores w/ web presence do this. The inventory search doesn't even have to be that current -- at least narrow down the availability for me, and I can call the store and double check.
Yeah, but they can ship FROM ALL 50 states.
I'm guessing cheaper.
I have been to more tha 20 of these stores and they are usually ransacked shelves with filthy floors and that piss poor Seattles Best coffee in them.
This isnt a big deal at all- In fact it may actually help Amazon because now they can guarantee a higher quality of service.
Also, it's 2007 and there's many more people out there with the skills to put a good site together. We have a winner folks. Without going into details, I can tell you with a reasonable amount of certainty that Borders was not happy with their relationship with Amazon. Borders was treated as a second-class citizen with regards to most things, and their site wasn't supported very well with regards to bug fixes, etc.
yes there are plenty of people that can put a good site together..
but building something that is onpar to scale as well as amazon does is far from trival or easy or somehing a single person can do..
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Amazon also charges sales tax in Tennessee (all 9.975% of it) because they use distribution warehouses there to ship out literally tons of merchandise every day.
New Hampshire also doesn't have a sales tax. (Or an income tax for that matter. They do everything they can to try to tax the tourists rather than the residents...)
We don't have a sales tax...
You can't charge someone a tax that doesn't exist, and then pocket the money.
paintball
If I don't pay the sales tax at the time of purchase, I'm still legally obligated to report untaxed purchases and pay up when I file my taxes, right?
Of course, I know few people who presently keep track of all of their online spending, but isn't Amazon's advantage here only an advantage to those who lie on their tax forms?
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That's probably true actually. Starbucks has gross margins of almost 59% which is obscenely high for any company selling a non-software product. While it's probably not an apples to apples comparison, Borders probably does make better margins on their coffee and deserts than on their books. Even outsourcing the operations to a third party there still is enough margin there to make a reasonable profit.
How about those states who not only have sales tax, but an out-of-state "use" tax for all material being mailed in. Dell actually collects that!
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There seems to be some sort of misconception regarding sales taxes.
Sales taxes cost a B&M absolutely zero. That's something that they collect on behalf of the government and then give to them. (So they also don't profit from it either.)
And technically, you should declare all items that you didn't pay sales tax on to your state when you file your (state) income tax so you can be taxed accordingly. For those states without an income tax, I'm not sure exactly how that would work.
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Yes, there are worse businesses to be in than book sales. I assume that is your point? Airlines, consumer electronics, and several others come to mind. UAL (United Airlines parent company) has gross margins of 14%. Consumer electronics (and I include PCs in that category) is a low-margin cut-throat business. What do books, airplane seats, and PCs have in common? They are all effectively commodities. Anytime you are selling a commodity of any sort, margins are going to be thin unless demand greatly outstrips supply (see oil) for a period of time or there is some other barrier to market entry such as patent protection (see drugs).
UNLESS they stop charging up to 50% OVER retail for their CDs and DVDs. Honestly, how do they actually sell that stuff in their brick-and-mortar stores? $30 for regular, non-collector edition DVD's? $18 for the latest Brooks & Dunn CD ($14 at Amazon)? I honestly feel sorry for anyone who buys those there and doesn't know any better...
There is simply too much glass..
There's a lot more experience on the market for setting up and maintaining major web sites, so it will be easier for Borders to setup a *profitable* site now. The big problem with the Borders/Amazon co-mingle is that many times you ended up in Amazon and not Borders. A lot of times, I would order a book from "Borders.com", then discover that I can't use my Borders gift card because I am buying from Amazon and not Borders. Plus, now that Amazon is selling everything, the book side is merely a side business for Amazon where it's Border's bread and butter.
With Border own site, it will be easier for customers to order books and pick them up at a Borders store (and save shipping). The web store and B&M store can now be merged into a single shopping experience. More important, Borders will now own the information gleaned from web orders and not Amazon. Loyal customers may get special marketing promotions and be told when new books are available.
It was bound to happen. I see the day when other major retailers will pull out of Amazon's marketing agreement and build their own sites.
Move headquarters and all operations to Oregon (and/or any other states with no sales tax.)
B-)
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I make another prediction: within 10 years, if Borders is still in business, you will be able to order a used book through them at their B&M store. They will cultivate a stable of online used book dealers to supply them.
This, BTW, is a natural continuation of the strategy implied in TFA - offer every book every way that Amazon can, plus coffee. If Amazon sells online, Borders will sell online; if Amazon sells used books, Borders will sell used books.
A further prediction: What they will NOT do is buy or trade used books at B&M stores. ( A few isolated stores might do it, but it will not be corporate policy ) This is because they are a very control-from the-top type of corporation. They pay their clerks little more than minimum, and severely restrict the decisions that employees can make. ( I recall a clerk once telling me that they received directions from corporate about which books were to go in which display windows. ) But buying books from customers requires lots of on-the-spot decision making, and tht is incompatible with their corporate culture.
That's a liquidation sale and the usual rules don't apply. When they close down a store they are simply trying to turn as much inventory as possible into cash, even if they take a loss in the process. The alternative is to simply put the book into the landfill which makes for a 100% loss instead of partial loss.
Ironically, the gross margins at the bookstore itself are better than online for Borders since they can usually sell the books for cover price. But the net margins are hurt because they have to pay for all the property, sales staff, etc. Leased warehouse space costs $3-$10 per square foot depending on quality and location. Retail space like you see in a Borders can be anywhere from $15-$35 or more.
You can often find companies willing to sell select merchandise cheaper, or to undercut prices for a time to gain customers. But unless nerdbooks.com has a special source not available to Amazon, they won't be able to profitably sustain cheaper prices for long. There simply isn't enough profit in the business to do that. Specialty bookstores can do ok if they have a loyal clientèle willing to pay a bit more (maybe in a high priced location like Greenwich, CT) or they provide specialty products/services the big boys don't. But if it is a pure price game it's a losing proposition to compete with Barnes&Noble, Amazon and Borders. They simply have a bigger bankroll and can get the merchandise cheaper than the smaller players.
It's hard to report use taxes where I live. There's no state income tax.
I only do it for big-ticket items. It's too much trouble for the small stuff.
You can offset the tax if you paid sales tax in another state though, so you don't need to worry about vacation souvenirs if you paid at least as much tax as you would here.
Wow, that's pretty impressive... What percentage rate will they be charging for sales tax in Delaware?
How about Alaska, Montana, New Hampshire or Oregon?
Huh? All 50 States? Even those without a sales tax?
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"IE expensive, bad service."
Huh? I was under the impression that Microsoft didn't charge for their browser.
Can't argue with the 'bad service' part tho...
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Here in Illinois, it's due in the following month (by the 10th I think), or else you get a threatening letter.
"Borders would collect sales taxes in all 50 states, the company said." If that is true, then they are ripping people off. Not all states (such as Alaska for example), have sales tax. If they are charging people here sales tax, then they are pocketing it as extra profit - probably illegally too.
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For a $50 book, I'd rather pay $4 in sales tax and 25 cents in gas than pay $5 for shipping and having to wait a week...
We have a Borders here which I patronize when I need a book in a hurry, if they have it. But I'm always paying list price (computer/physics/nutrition books, mostly) whereas Amazon always has it for 20-30% off of list. We have a medium-sized Borders so there's a 40% chance they'll have the book I want. The big Borders are more like 80%, but they're at least an hour and a half away.
If I was going for the NYT bestseller list, this wouldn't be a problem, Borders discounts them - I hope to get back to fiction when I retire.
Here, Borders is $2.64 cents worth of gas away and we have no sales tax. If I don't need it in a hurry, Amazon ships free, which is nice.
I have room for both in my life, depending on function. I used to frequent the Borders cafe before I realized junk food was killing me, but the coffee is at least drinkable, if I can stand the 10 minutes in line to get it (they only hire potheads as a company policy, apparently).
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