July 23rd, 2011 by Mike Fulton
Posted in Bookstores

Several months ago, Borders Books & Music announced that they were filing for bankruptcy. One of their first actions in their attempt to bounce back was to close about 200 of their 600-ish stores. At the time, I wrote a post about it called The Borders Situation.  I certainly don’t know everything that contributed to Borders’ downfall, but some things seem to stand out.

Store Closures Too Late To Matter?

If the stores being closed were turning a profit, closing them makes no sense whatsoever. Closing them suggests that they were losing money. So, why didn’t they close some of these stores down one by one before the situation got to bankruptcy? I mean, I guess I could understand waiting if it was a case of a bad performance in a quarter or two, but if a store was regularly losing money, and there’s no real plan to turn things around, why keep it open?

Maybe there’s some cryptic business practice involved that a non-MBA such as myself would not understand without a long explanation, but it seems to me that if a store is losing money quarter after quarter, and if you don’t have money in the bank and a clear plan for turning that situation around, then you ought to be closing that store long before things reach bankruptcy court.

Really, Really Big Stores

Anybody who has ever shopped at Borders will have noticed that the stores are really, really big.  Big stores means high overhead for rent, heating, cooling, electricity, etc. Generally businesses prefer to keep their overhead as low as possible, but this doesn’t seem to have been a major concern at Borders.

Having a big store and high overhead is OK as long as your sales volume and profit margin stays ahead of it.  But I have my doubts that Borders was managing to do that.

Movies & Music

Borders typically devotes a huge amount of floor space to home video and music titles, but their pricing is completely non-competitive.  Even without bringing Internet-based sales into the equation, it’s not at all uncommon to see a new DVD or BluRay release $10 or $15 cheaper at another brick & mortar store like Best Buy, Wal*Mart, or Target, sometimes even in the same shopping center.

For as long as I’ve shopped at Borders, this has NEVER made any sense to me.  Do they think that their customers are unaware of these price differences?   I cannot imagine any but the most ignorant or lazy of shoppers buying these items at Borders.

Traditionally, the only way you justify failing to at least attempt to match your competitor’s price is to add value to the equation so that customers have a reason to shop at your store, even if the price is a little higher.  For example, a store specializing in big-screen TVs is likely to have salesman who are more knowledgeable about their products than the guys over at Best Buy where the same TV might be $20 cheaper.

Borders simply had higher prices for video & music titles. No added value. People bought elsewhere.

I would love to see sales figures, but my guess would be that in-store video sales in particular are a pretty small percentage of Borders’ sales volume.  And I doubt music sales were doing much better.  That means that a lot of their overall floor space in a typical location is generating only minimal income, and also that they were spending a lot of money on inventory and shipping for products that weren’t providing much return.

Caught In The Wake of The eBook Revolution

In a lot of ways, the rise of eBooks and readers seems to have caught Borders by surprise.  They eventually made a partnership with Kobo to feature their eBook readers on the Borders’ website and in their retail locations, but it wasn’t an exclusive deal, so customers walking into the store would see an array of other readers from companies like Sony.

I’m all for giving customers a choice, but given that Borders was late out of the starting gate with eBooks, this really diluted their marketing efforts.  Borders should have made Kobo the exclusive device sold in stores.

Attracting Customers

I’ll be honest, even before the local stores closed, I usually shopped at Barnes & Noble rather than Borders. The reason is quite simple. B&N has a membership deal where $25 a year gives you a minimum of a 10% discount on all your purchases, online or in-store. Some items provide even bigger discounts. Anybody who spends at least $227 or so per year will end up coming out ahead.

Borders also had a membership deal, but instead of a flat discount on everything, they would send out email a couple of times a week with coupons. Most of these coupons would offer a discount on some specific title, usually some new release. The discounts were not bad at all, but if you weren’t interested in the item being featured, they were useless.

The email coupon would also sometimes offer, for example, 30% off any item purchased. These were great, but they weren’t offered every week. Also, you had to actually READ the email to learn about the deal, and then print out the coupon.

With B&N all I had to do was show up and buy something. Even if I forgot my membership card they could simply look it up using my phone number.

Bye!  We’ll Miss You!

Even though it wasn’t always my first choice, I would still head into a Borders store once in awhile, simply because of the different selection they would have.  I would try to take advantage of their coupons when they lined up with my interests, and I always enjoyed browsing throughout the store. I’ll miss that.

It occurs to me that Borders’ going away will create an opportunity for smaller bookstores to make a comeback in some areas.  I hope there are plenty of small business entrepreneurs who are willing to give that a shot.

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