Widen the Borders

Posted on June 14, 2008

Amazon has indicated they have a real interest in getting into the storefront retail business with their books, etc. lines. Thin margins have always made this an iffy business with the overhead that a major corporate entity entails in running hundreds of stores. Yet, Amazon should be able to make it if anyone can. Theirs has been one of the most stable Internet businesses over the years and there is hardly anyone that doesn’t know the name of Amazon.

The problem is the entry cost. Now is one of the worst times ever to be going into business, even if you’re just expanding an already profitable one. The cost to build a network of stores right now would be very expensive. So they will have to wait until prices (hopefully) settle back down some or look for another means of entry.

One means of entry is to find an existing company and buy them. It just happens that such a company is for sale right now and that’s Borders. This book retailer has been struggling of late and looking for a purchaser. Barnes & Noble would only be interested to protect themselves from an Amazon attack. Otherwise, they would be foolish to make the purchase because the two companies overlap in so many areas. A lot of stores would have to be closed due to proximity issues. Not a problem if Amazon buys in. It would probably cut their entry cost by 50% to get in this way.

Another reason Amazon is looking to add brick to their click operation is because they are about to lose protected status on taxes. A large number of states are now ramping up to require retailers online to collect taxes from purchasers in their respective states. That alone has handed the market to Amazon in the thin profit area of bookselling.

We shall see but don’t be surprised if the familiar Amazon logo shows up in a shopping center near you in the near future.