The Demise of Borders

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Ryan Beltram, EDN

If you’ve driven past the Oakway Mall recently, you may have noticed Borders has had a lot of customers.  Typically that would be a great sign that business is doing well, but as most of us know, not in the case of the once giant book retailer.  According to an employee at the store, Borders plans to close some time in September.  More than 40 employees will have lost their jobs with the closure of the store that ironically started out as a used bookstore in Ann Arbor, Michigan.

The company officially  announced it  was bankrupt in  February and in July it was unable to find a buyer before its July 17 bidding deadline.  On July 22, the company began liquidating its remaining 399 stores including the one in Eugene.  But  you won’t get any sympathy from local bookstores in the Eugene area about Borders going under.  Tsunami Books owner Scott Landfield says a little  adversity in the book industry is normal.

“We’ve essentially been bankrupt for 15 years and we continue to work hard to keep our store open.  It’s unfortunate what’s happened to them, but I think them closing helps bring the focus back to buying local.”

When the last store sells its last book, Borders will have closed more than 500 stores and laid off thousands of employees as the big-box bookstore joins Blockbuster, Circuit City and Linens ‘n Things as victims of the recession.  But where did Borders go wrong?  Sure the recession had a significant impact on the demise of the company, but there were other factors that lead to Borders failing.

A good business anticipates changes in the way people consume their products and they act accordingly to ensure the business remains profitable.  In the early 2000s, Borders did the opposite of anticipating a new trend and they paid dearly for it.  In 2001, Borders turned over its internet operations to Amazon because its online business was losing money.  For the next seven years, it outsourced its online sales to Amazon and would only get a percentage of sales from Amazon in profit.  According to the company’s 2000 annual report, they envisioned Borders.com as nothing more than a convenient channel for customers.  No ability to purchase books straight from the website, just a place to be reminded of what they have.  Think of it as a place where you can look at the merchandise but you can’t touch it or take it home with you.

In the seven years that Borders decided not to profit significantly from online buying, Amazon went from being merely a book-buying site to becoming one of the leading online retailers.  According to Internet Retailer, E-commerce stocks rose 36% in 2010 and as web-only companies, Amazon ranked number one.  It wasn’t until 2008 that Borders announced its marketing alliance with Amazon was over and that they would be launching their own web sales site.  But by then it was too late.  Companies like Amazon and Wal-Mart had become leaders in book-buying retail and even Borders bookstore chain competitor, Barnes & Noble had focused on online sales years ago.  But it wasn’t just the internet that Borders was last in capitalizing on.

A trendy new gadget called the e-reader was introduced by Amazon in November of 2007 when they debuted the Kindle.  Barnes & Noble introduced its Nook, now sold in Wal-Mart and Best Buy, in November 2009.  Apple’s iPad came out in April 2010.  Borders decided to wait until 2010 to release their own e-reader device called the Kobo.  But once again it was late to the party.  By July of 2010, Kindle book sales had surpassed hardcover book sales, and then six months later beat the paperback books sales rate.  The Nook while not as popular as the Kindle, boosted sales for Barnes & Noble during the holidays last year.  Everyone I know has either a Kindle or a Nook.  Who’s heard of the Kobo?  Whether or not it’s a better e-reader than the more popular devices is irrelevant.

Another area that the company failed to identify was the changing CD and DVD market.  In the 2000s, it generated hundreds of millions of dollars in sales of CDs and DVDs, and it expanded those sections in its stores.  But by the mid 2000s, companies like iTunes, Netflix and other file-sharing networks became popular and places like Virgin Records and Blockbuster saw declining revenue.  The same forces killing the bookstore now were doing the same thing to the music and video industry five years earlier and Borders did not anticipate that same fate for books.

The last factor Borders failed to correct was too much expansion.  It opened too many stores and signed too many 15-to-20-year leases, making it more difficult to close unprofitable locations.  The Eugene location has two more years left on its lease and whatever business follows will likely not be another big-box chain but rather several smaller businesses to fill the large space.

Looking at the facts, the main culprit in Borders demise was the internet.  The retail industry has become a challenging business, regardless of what you are selling, but in order to succeed you have to see changes before they happen and adapt.  Barnes & Noble looks smart now having recognized the trends in bookselling–the internet, e-readers, scaled-down stores as apposed to big-box stores.  But they may have delayed the inevitable themselves having announced bigger-than-expected losses this year.  Despite a rise in revenue thanks to digital sales, Barnes & Noble is struggling and for a company up for sale, the future does not look bright.

But at least they’ll still be here during the holidays.  All those customers going in and out of Borders right now will be gone come Christmas and the 25,000-square-foot space will be deserted.

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