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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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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