February 27th, 2011 by Mike Fulton
Posted in Bookstores

Last week, Borders Books & Music announced that they were filing for bankruptcy and would be closing approximately 1/3 of their 600+ stores. While it’s a shame, it’s also not really a huge surprise. When you get right down to it, the situation with retail book sales is very similar to that of retail music sales, and most of the speciality music retail chains that were around 10 years ago have since disappeared.

I cannot pretend to know all the factors that ultimately contributed to the situation in which Borders finds itself, but there are a couple of things that keep coming to mind.

… & Music

I’ve always enjoyed shopping at Borders, but the one thought about their stores that keeps popping up over and over is how BIG most of their stores are. Sure, they vary in size, but even those which are relatively smaller are still pretty decent-sized. And in some cases, it simply doesn’t seem like the space is being used efficiently. Many of their stores are so HUGE so one would think that costs for things like rent, heating, and so forth, would be a rather significant part of their overhead.

Having a big store is not a problem as long as the items you keep on the floor are generating a good sales volume, but I’ve always been skeptical that this was the case for Borders.

Case in point is that Borders typically devotes a huge amount of floor space, perhaps as much as 40%-50% of the total, to the display of video and music. There’s nothing wrong with Borders wanting to sell these items, but they never really seemed serious about it, especially when it came to pricing. Yesterday I went to a local store which is included in the 200 that are being closed. I wanted to take advantage of the big clearance sale. I grabbed some magazines but didn’t see anything else that was discounted enough to make me buy it in paper format instead of eBook. While in the checkout line, I saw a copy of the movie Men Who Stare At Goats on BluRay. That’s not even a new release any more, but it was priced at $39.99, full list price. Who sells these at full list price? By comparison, Best Buy has it at $29.99, Fry’s Electronics is at $24.99, and Amazon has it for $20.99!

This sort of price difference has been typical, in my experience, for other BluRay and DVD videos. And it’s pretty much the same for Music on DVD or CD. Because of this, I cannot imagine any but the most ignorant or lazy of shoppers buying these items at Borders. If I’m right about that, it means that perhaps as much as half of their overall floor space in a typical location is generating only minimal income and losing money that has to be made up elsewhere. It also means that they were having to pay a lot of money for inventory and shipping on products that weren’t providing much return.

Note that this observation applies in large part to Barnes & Noble as well, although they don’t seem to devote quite as much floor space to music & video. My completely unscientific observation of the stores I personally frequent is that B&N also seems to generate more foot traffic, so maybe their sales volume supports it better.

Left At The eBook Starting Gate

Another thing that I’m sure is a factor in this equation is that Border’s has adopted a level of support for eBooks that is best described as “me too”.

Amazon has never had any retail stores, so they probably had, as a company, the fewest psychological hangups about integrating the sale of non-physical products into their business model. The effect of digital downloads on brick & mortar sales is simply not a factor for them. And even though they have their own dedicated hardware, they recognize that selling content is ultimately the point and have also created reader apps for most popular smartphones and desktop computer operating systems.

Barnes & Noble is mostly a brick & mortar company, but they’re also long-time rivals with Amazon for online book sales. Like Amazon, they were also quick to realize that digital distribution was coming to the bookselling world with as much force as it had a few years earlier with the music industry. Amazon may have beaten them to market with the Kindle reader, but B&N refused to simply stand back and let them have the market. In response, they jumped in with their own Nook reader. Like Amazon, they recognize that content is really the income generator, not the hardware, so they have also created reader apps for a variety of devices.

While both Amazon and Barnes & Noble have created reader apps for a variety of devices, they also recognize that having their own reader hardware is an important part of the overall message. This is where Borders steers a different path. They came late to the eBook party, and didn’t bring a date. Meaning that while they have started selling eBooks too, they don’t have their own dedicated reader hardware. Instead they support a variety of 3rd-party readers like the Kobo reader device, as well as models from other companies like Sony and Velocity Micro.

The Kobo hardware is pretty similar to both the Kindle and the Nook, and the user experience isn’t really all that much different. The Velocity Micro models offer color screens. The problem is that the lack of dedicated reader hardware means that Borders doesn’t have a singular focus point for their marketing efforts. If one hears “Kindle” or “Nook” there’s a pretty good chance you’ll think “Amazon” or “Barnes & Noble”, but if you hear “Kobo” or “Sony eReader” you simply don’t get the same association with Borders.

The Good News

The good news is that Borders has filed chapter 11, not chapter 13, meaning they’re planning to stick around. They are going to reorganize and try to turn things around. While they may be closing your favorite local store, they’re not going away altogether. I’m hoping they’ll figure out something that will help carry them forward into a more successful future.

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