On Book Retail Horizon, New Opportunity for Indie Bookstores

By Jim Sturdivant

Where Did Borders Go Wrong?

Borders Group, the nation’s No. 2 brick-and-mortar bookseller, filed for bankruptcy protection Feb. 16 and has since announced the closing of 225 stores. Michael Norris, senior analyst at Simba Information’s Trade Books Group, identified several key reasons for the company’s current woes during a session on book retailing at the recent Publishing Business Conference & Expo in New York City:

•Wishy-washy Waldenbooks. Borders dragged its feet in deciding on a firm strategy for its smaller mall bookstores. The company began closing Waldenbooks outlets in the late ’90s as the number of its superstores grew. In 2003, the pace of closing slowed as the company decided to rebrand many of these locations as Borders Express stores. Closings picked up again after 2006, though many stores remain open. Rival Barnes & Noble, by contrast, “left B. Dalton behind long ago” to focus on e-commerce, Norris said.

• Loyalty has a price. Borders’ loyalty program gave customers too much for free, Norris said. Because they did not have to pay for the program, “consumers did not have a hook to stay with it” to get the most out of their investment; when Borders finally switched last year to a paid program like Barnes & Noble’s, it was, Norris said, “too little, too late.”

• Misreading e-readers. Borders recognized the importance of e-readers early on when it began selling the Sony Reader in its stores, but overestimated the sophistication of consumers in the face of a new product platform. The company sought to be a trusted source of information about e-readers by eventually stocking several models and presenting fairly complicated descriptions of them. This backfired because people wanted simplicity. While Borders offered a choice, Barnes & Noble told customers what to buy—the Nook—and gave them compelling reasons why.

• “Termites don’t team with Orkin.” Norris pegged a point in history when things really started to go wrong for Borders: August 2001, the month the company teamed up with Amazon to provide online book sales. It was a way for Borders to have a strong Web presence without having to invest in one, but it meant that for the next seven years Borders was “divorced … from the tech-savvy consumer,” missing out on the opportunity to build and promote a proprietary e-commerce space around its brand. Amazon, Norris noted, had no financial incentive to send people to the Borders store, and by the time the bookseller learned that “termites don’t team with Orkin” and broke away from Amazon, the damage was done.

Borders Group's recent bankruptcy filing and announced closing of more than 220 stores nationwide seems to warrant a closer look at trends in book retailing.

"I've been in the business long enough to see very long cycles," notes Jack McKeown, who founded and served as CEO of Perseus Books before joining book marketing agency Verso Advertising as a consultant and director of business operations. Independent bookstores took a big hit in the 1970s with the rise of mall bookstores, McKeown says, only to morph into a new base of well-capitalized, larger "super independent" outlets (Powell's Books, Vroman's Bookstore, etc.) that created the model built out on a huge scale by Barnes & Noble and Borders in the 1990s.

Today, the book superstore model seems poised to go the way of music stores and video rental chains, though the rise of e-commerce may present less of a threat to physical booksellers than it did to music and video retailers and—by unspooling the long tail—may even aid them in some instances.

More Physical for Less

According to Brian Paeper, owner of independent Alias Books in Los Angeles, trends in bookselling, like those in other media markets, have become divorced from economic cycles. "It's a different kind of adjustment," he says. "It has to do with the book industry. It has very little to do with the economy. If you think it's the economy and you are waiting for the book business to come back with the economy …, [you're] sticking your head in the sand."

For Borders, the challenges were both industry-related/situational and Borders-specific, McKeown says. Borders paid the price for top-management turnover, a failure to grasp the power of the Internet and relying too much on music CD sales as part of its business model, he explains, compounding trends that have hurt the bottom line of book superstores generally.

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Borders Closes Stores in 200-Plus Cities: What Lies on the Retail Horizon?