How Borders Flailed Then Failed …Plus Notes on the Future of Book Retailing
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How Borders Flailed then Failed …Plus Notes on the Future of Book Retailing By Arthur Rosenberg Senior Editor The last time Borders actually made a profit was back in 2006. Since then its yearly income had dropped by more than $1.3 billion over the course of just four years. In very simple terms this pretty much sums up Border’s recent descent in fortunes as the company slid down the path towards bankruptcy, rapidly followed by its ultimate liquidation, after a totally unsuccessful, last ditch attempt to auction itself off resulted in a total of zero bidders. Founded in 1971, Borders operated 1,249 Borders and Waldenbooks book stores at its peak in 2003. However the company struggled with challenges to adapt to a rapidly morphing industry, especially in terms of game changing opportunities posed by the Internet and radical shifts of market-centric electronics. Failed Challenges Failure to directly address the then brave new world of e-commerce and to create a distinct concept on the Internet cost the company valuable branding, customer loyalty and a range of untold sales opportunities. The birth of music and video downloads followed by the inception of e-readers, cost the company vital book, music and video sales as it failed to anticipate and rapidly adapt to popular new technologies. Ultimately, both traditional and non-traditional competitors were often able to out-price and out- market Borders so that it lost sales from previously loyal customers. This year alone, since it filed for bankruptcy protection in February, the company has shuttered over six hundred forty stores and released nearly twenty thousand employees. Talk about recessionary cuts. The Big Question? The question posed by many following the somewhat sudden, though not surprising liquidation of Borders, seems to be regarding where to place the blame for the demise of the long-time number two brick and mortar book retailer. While many question the long-term (and short-term) wisdom of the company’s corporate management, others wonder if the company’s end was inevitable based on the book world’s morphing landscape, especially due to the game changing, rapid growth in demand for e-books and e-publications. The public’s eager acceptance of the concept of e-books and the technology behind it, followed by the rapid rise of its sales, likely doomed Border’s future as this phenomenon has cast a pall over much of the future of traditional book retailing. Still Barnes & Noble continues to tweak its business model toward a commanding focus on e-books. With a different approach, Books-A-Million has long demonstrated an ability to carefully select successful new locations and has thus watched as nearby Borders and Barnes & Noble locations closed down. Independent and specialty booksellers and discount chains such as Half Price Books show current signs of strength. 3 www.ChainStoreGuide.com | 800.778.9794 | [email protected] Background Ironically it was the inception of the books superstore, grown nationally by Borders and Barnes & Noble, which caused the closure of many long-term independents as far back as the 1980s and well into the 1990s. The superstores were able to out-price independents, while offering vastly greater selections of books, music and ultimately movies within the relaxed atmosphere of a fine coffee shop, ultimately offering free WI-FI. They also had infinitely greater resources with which to design and fund comprehensive websites on that latest of creations, the Internet. The current comeback of the independent book dealer is largely due to far superior customer service based on product and customer knowledge at the store level, as well as, to the closing of numerous Borders and Waldenbooks locations over the past few years. Many of these vacancies left communities with book vacuums of sorts. This was all too apparent even prior to the announcement of Border’s entry into bankruptcy and its ultimate liquidation. The Borders Group had shuttered nearly six hundred locations during the five years preceding its announcement of bankruptcy early this year. We also witnessed the demise of key Barnes & Noble locations, often due to escalating local real estate costs, as was the case of the vacated, multi-story gem by New York’s glamorous Lincoln Center. Upon completion of its liquidation, Borders will have closed more than six hundred forty locations in the months since its entrance into bankruptcy. Traditional chains too can still compete even if their names are not Barnes & Noble. As noted Books-A-Million continues to aggressively compete in a fairly traditional way by employing clever management and real estate diagnostics. Specialty chains of course continue to enjoy their particular niche while often sharpening their electronic marketing and merchandising skills. Border’s Management As to the questions concerning the culpability of Border’s management in leading the company to its demise, perhaps the operable term should be Border’s managements. As an editor at Chain Store Guide, I am responsible for closely monitoring the several thousand companies which comprise the files for which I am responsible. This includes searching for executive changes within the companies I cover. Through the years Border’s communications revealed a wealth of executive changes and even shakeups on the corporate level. As time went by however, this constant executive movement suggested an atmosphere of upheaval which gave way to the feeling of a company in overall flux, always congratulating its newcomers as the clear-cut solution to its then current set of challenges and problems. The same was true of the company’s market strategies. Periodically the company would announce a considerable shift in the course of its strategic plans, often seemingly based on watershed ideas designed to stem the tide of declining financial indicators. Again, over time it became apparent that the company was continually seeking strategic shifts and then proudly pronouncing these as the then final piece to the puzzle of competition. Over time it seemed that puzzled was the operative word for Borders ever changing management turns. 4 Comprehensive and definitive retail and foodservice intelligence A telling example of these questionable management upheavals occurred during what essentially proved to be a company era, which spanned the year 2009. In late 2008, Borders finally pulled the plug on its partnership with Amazon.com and launched its own independent website. In January 2009, the company announced that Ron Marshall would take over as CEO. Former CEO George L. Jones received a severance package of $2.09 million. The company also replaced its CFO and a week later a new Chairman of the Board was announced. The changes in management were largely due to Borders’ holiday sales having fallen off by 11.7 percent. Noting the date, this was a particularly troublesome holiday season for most companies across the retailing spectrum. Indeed the recession had blanketed most of the nation with financial worries. Also, let’s not forget about the timing of Borders dropping Amazon’s services and taking on many web related responsibilities for the first time. Just over a half year later Borders had replaced more than half the members on its Board of Directors. The Marshall administration’s first holiday season paled in comparison to the dismal one that had brought it into power. 2009 holiday sales were down 14.7 as the company announced that it would close a number of its Waldenbooks stores in an effort to improve profitability. In late January 2010, Ron Marshall resigned to become President and CEO of The Great Atlantic & Pacific Tea Co. (A&P). During his tenure at Borders, all of the top executive officers resigned or were encouraged to leave, including several who had been with the company for over two decades. Following his departure, Borders stock fell below one dollar per share. A&P hasn’t performed much better. Management Styles Companies steeply challenged by conditions of the marketplace have basically two avenues from which to determine solutions to these problems. One is to consult with customers and outside experts to gain perspective. The second is to brainstorm within the current management base. If this latter process is employed and fails to work, the next step is often to tweak key areas of management and brainstorm again. Should this effort not produce adequate results, an overhaul of top management is often the result, with yet another round of brainstorming after the golden parachutes have been issued. It seems to me that Borders employed much of this latter corporate design. Blockbuster was another victim of this hubris of corporate think as I stated earlier this year in a CSG Insight. As I mentioned within that insight, Best Buy, though far from being on the brink of ruin, often displayed a similar hubris. Recently the company announced that they are hoping to lease first ten, then twenty percent of their in-store selling space to other retailers. They have also recently reversed long term, rigidly held customer policies including doing away with restocking fees, in an attempt to regain customer momentum and reverse troubling financials. 4 5 www.ChainStoreGuide.com | 800.778.9794 | [email protected] At the same time Apple continues on as our nation’s (and likely the world’s) most admired retailer. Apple began its corporate retail operations just a decade ago and opened its first stores to a lot of doubts from industry experts. Opinion makers scoffed at the notion of a manufacturer of a relatively narrow line of products opening a chain of retail stores. However, company founder Steve Jobs was on a mission, not unlike those he pilots when launching revolutionary, game-changing new products. Jobs decided that the key obligations needed to achieve success for his envisioned retail stores were strong customer service based on a management team which would eagerly seek out and apply customer ideas and opinions.