Wednesday, August 10, 2011

Borders Post-Mortem

You've all heard about the death of Borders. There have been some who were quick to accredit its demise to upheaval in the publishing industry, but it's actually amazing the company lasted as long as it did. Rather than there being one cause of death, Borders suffered from several mistakes over the last two decades.

1. Hijacked by Kmart. Kmart was struggling to properly manage Waldenbooks. After eight years of mediocrity, they bought Borders in 1992 hoping that the executives there could help them out. Instead, they jumped ship. The Kmart execs never figured out how to sell books so they spun off the two companies in 1995 as Borders - Walden Group (the latter half of the name was dropped before the year was out).

2. Bits Beat Bricks. Internet business whiz, Jeff Bezos, realized that the Internet allowed him to sell books (and later many more products) all over the world without physically being there. With the costs of running a website far less than that of running thousands of stores, Amazon is able to offer books at a discount and ship them to your house (for free if you buy enough of them). Browsing a bookstore in your pajamas? Great!

3. Selection, selection, selection. Amazon deserves a second dagger in Borders' heart here: the selection is unbeatable. In a brick and mortar, you've only got so much space to work with. You've got to keep those cash registers ringing so that means going only with the titles that sell. Amazon can stock them all because the books just occupy a spot on the rack in the warehouse. So if a customer is looking for something specific and not well known, the odds of them finding it on Amazon are great. In a Borders store? Not so much. That means missing out on the Long Tail, not to mention future purchases from now disgruntled customers.

4. Asleep, with the enemy at the wheel. Borders couldn't figure out how to make their website profitable. In 2000, they had $27 million in revenue from the website but the cost of operations led to an $18 million loss. So, like Toys-R-Us, they partnered with Amazon, the very company that was eating their lunch. Amazon was quickly becoming a paradigm of order fulfillment while Borders threw in the towel. But as people learned Amazon was running things, they wondered why they should bother going through Borders.

5. Coffee is just coffee. In 2004, Borders partnered with Starbucks' subsidiary, Seattle's Best Coffee, to operate the coffee shops in its bigger stores. Borders hopes that the lure of good coffee will get more people into its stores. The deal works for Seattle's Best, but not so much for Borders. Sure, people will sit down and read a book, but it's not making them buy more books. And once free Wi-Fi becomes available, people begin accessing the Web rather than browsing the bookshelves.

6. Another failure to innovate or adapt. Amazon released its first e-book reader, the Kindle, in 2007. You know its story well: less expensive books, no more crowded bookshelves, near instantaneous deliveries. Bibliophiles gobbled them up. Many other companies followed suit with either dedicated devices or provided apps in their web-enabled phones and PDA's so that readers could download electronic versions of their favorite books. The growth of the e-book market has been nothing short of meteoric. But Borders totally misses the boat. Not only do they not offer e-books, but they failed to partner with any of the e-reader manufacturers. It isn't until July of last year that they open an e-Book store and offer an e-reader app of their own. The Kobo is also plugged as a preferred e-reader but by then Amazon, Apple, Barnes & Noble, and Sony have staked their claims on the market.

By now it's too late. Borders hasn't made a profit since 2006. Throw in the Great Recession of 2007-09 and the death spiral is complete.

Don't get me wrong. I was disappointed in seeing Borders go under. For new books, it was either Amazon or Borders. I'll have to drive the proverbial extra mile to Barnes & Noble or stay home and browse Amazon. The two used book stores in town are always worth a look, but their selection is limited. The failure of Borders to survive is the result of a succession of bad business moves and the inability to adapt to the changing times. But you can't pity them, that's capitalism: innovate, adapt or die. Well, unless you can con your government into a bailout, but that's outside the scope of this blog. ;-)

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