Does Borders Bankruptcy Signify the End of Physical Bookstores?
While not a surprise to anyone who had followed the book retailer's recent financial struggles, the official announcement yesterday that Borders Group had filed for Chapter 11 bankruptcy still caused a stir throughout the book publishing industry, as publishers, retailers, authors and consumers speculated about what this development could mean for the future of brick-and-mortar bookstores.
With the Chapter 11 filing, Borders CEO Mike Edwards also announced that the company would be shuttering 200 store locations nationwide.
The dramatic rise of e-book sales—according to the most recent figures from the Association of American Publishers, e-book revenue grew 164.8 percent in December 2010 compared to December 2009—is perhaps an easy factor to point to in an effort to explain Borders' closing of hundreds of stores filled with shelves of traditional ink-on-paper.
Michael Serbinis, CEO of Kobo Inc.—which partnered with Borders to power an e-book store integrated into Borders.com and to sell Kobo e-reading devices—blogged on the Kobo website yesterday: "While the e-book market is booming, the physical book market has started to feel some of the effects of digital growth. The news has been filled with challenges of book retailers around the world, most notably about Borders Group in the U.S." Serbinis went on to write that the Borders Chapter 11 filing would not impact Kobo nor its customers.
Kobo was just one of the e-reading devices that Borders chose to sell to its customers, instead of developing a single, proprietary device such as Barnes & Noble's Nook or Amazon's Kindle.
"... The shift is more toward online to the e-readers and the digital content," says Peter Wahlstrom, retail analyst, Morningstar Equity Research. "That's something that Barnes & Noble was relatively quick to embrace, and they built out their Nook platform, their own e-reader software platform and their own online digital locker, so to speak, where they could [store] customers' information and their purchases. So their customers have a reason to go back to Barnes & Noble. Amazon did the same thing with Kindle, and Apple certainly with the iTunes Store and the iPad as well. Borders was left as a distant third-, if not fourth-tier player and [was] really kind of late to the game for what is arguably one of the last remaining growth areas of the book-selling business."
The path to Borders' bankruptcy, however, may not have been solely littered with Kindles, Nooks and iPads. Michael Norris, senior trade analyst at Simba Information, points to several other factors, including Borders' partnership with Amazon, beginning in 2001, in which Borders.com was relaunched as an Amazon partner.
"That was the beginning of the end," he says. "By not being the ones to close the sale, Borders basically [created] multiple systems to close the sale instead of creating one system to satisfy the customer. And that's just where they went horribly wrong."
Norris also mentions Borders' mix of superstores as well as small-format Walden Books and Borders Express stores—"They really need to have one brand," he says—as well as its Borders Rewards Program.
"They never should have made Borders Rewards free. ... I've never viewed the Kindle as anything other than a very significant customer-service loyalty program, because people look at the $25 they spend on Barnes & Noble['s Membership Program] or the $79 on Amazon Prime or the $139 on the Kindle, and they think to themselves, 'I paid for this relationship, and I'm going to get as much out of it as I possibly can,'" says Norris. "Because Borders made it free, the customers did not have that hook. So they eventually realized that they were losing an opportunity and that it wasn't as strong as it could be by rolling out the [fee-based] Rewards Plus [program]."
Wahlstrom also mentions the migration to online purchasing. "The consumer, just over the last couple of years, has gained increasing transparency in pricing. Whether it's going to an Amazon.com or one of [Borders' or Barnes & Noble's] own websites, the incentive for a customer to go into a [physical] Barnes & Noble, a Borders, a Books-A-Million, even a Costco, Wal-mart or Target, to buy books has kinda changed over the last few years," he says. "Customers today are certainly looking for that added value, and it's very difficult and it's very expensive to be everything to everyone. So Borders and Barnes & Noble, as they stand in their superstores, are holding a lot of inventory for products that may or may not turnover very quickly."
While many agree that it is still too soon to predict how or if Borders will rebound—"We are confident ... a successful reorganization can be achieved, enabling Borders to emerge from the process as a stronger and more vibrant bookseller," said Edwards—and how this development will affect the book publishing and retailing landscape moving forward, industry insiders and experts still are speculating.
Dan O'Connor, managing editor of independent publisher Melville House, took to the company's "MobyLives" blog to react to the Borders news. "As the share of the brick-and-mortar retail market erodes—stores close. As stores close, and as consumers desert printed books for digital formats, the market for printed books further contracts," he wrote. "The end of mass production of printed books, however, does not depend on their complete abandonment in favor of e-readers. Printed books are costly to produce. Sooner, rather than later, the dwindling number of brick-and-mortar stores will not be buying enough 'offline' books from publishers to justify the expense of printing, binding and shipping them."
Walhstrom believes that reinvention is the key for Borders and other booksellers with brick-and-mortar stores. "I think, as we look ahead, we're going to have the Barnes & Nobles and the Borders and the independent booksellers continue to strive for creating a reason for the customer to come in, and being able to offer that customer a specialized, unique, maybe proprietary product that they cannot get elsewhere, as if it's a commodity business," he says. "If you're just looking to buy the next best-seller, you can get it at a newsstand, at a CVS, a Walgreens, Target, Costco or Wal-mart. Or, you can go online to Barnes & Noble's, Borders' or Amazon's [websites]."
"I want to see how Borders will turn up the volume on its own presence, even though its store footprint is shrinking. I'm also really, really interested in seeing how independent bookstores as well as Barnes & Noble step in to try to attract the buyer who still values bookstores as a physical destination, especially the independent bookstores that have outlasted the Borders stores in their neighborhoods ...," says Norris.
"It's not all going to go to the Internet and not all of it is going to go to e-books," he continues. "I think the independents have a shot at picking things up there, even though there's not a whole lot of them left these days."