What killed Borders?
In a recent post of mine, I promised more thoughts on the recent stories of Borders backwards slide toward the abyss of belly-up, bailed-out businesses (see here for the original post). And perhaps it’s too harsh to call Borders “belly-up” or in need of a “bail-out”.
Or is it?
Borders is clearly in need of a bail-out. Back on March 24th, the The Boston Globe (via the Financial Times online) reported that Borders braced for a sell-off, and that it had lined up $42.5mil in financing to continue operating.
On the 25th, the StreetInsider.com stated that shares were down again despite an analyst at Goldman Sachs stating that it would be a benefit to Barnes & Noble (and subsequently Borders) if B&N bought the second-largest bookchain.
Just a few days ago, a private equity group, A&R Whitcoulls, pulled out of a deal that would have had them buying 27 stores Down Under (Australia and New Zealand). See the full story here.
And just yesterday BGP (Borders trading symbol) announced it was delaying it 2007 annual report as it sought alternative financing.
So just what’s up with Borders currently? Is it too crass to say “Who the hell knows?” Are they officially dead?
I think the answer remains to be seen as to whether they can bounce back from their issues. But what killed them? Well, naturally, I have opinions on the matter.
You see, I worked for Borders full time in the stores for five years, and then part time after that for another five years. In ten years, what I saw was a company who made it their goal to try and match drink for drink with B&N. So they expanded at an exponential rate. But amidst their growth, they continued to fail at properly managing their business.
I’ll give you three examples.
Example one: Selection.
Borders had a great selection. Always. You wanted to find something, you could go into a Borders and chances are, they’d have it. Couldn’t do that with a B&N. You go into a B&N looking for something obscure, you weren’t walking out with it. Sure, a new B&N would have a nice deep selection, but as the store matured, the selection was scaled back.
Normally you would think a great selection would make a book chain great, would make it a destination. And it would, if were a chain ten stores deep, maybe twenty, maybe even the 70-some odd stores big BGP was when I started. But when you’re a chain hundreds and hundreds (three-, four-, maybe five hundred now–I lost count when I left), you can’t keep stocking your stores with everything. The tax alone you pay on carrying that inventory will kill you, not too mention how much it costs to acquire the product to begin with.
Borders expanded, arguable too fast for it’s own good, and never figured out how to manage their inventory better.
Example two: Cafe.
Borders never got it. Never got the feel for it, never understood it, never figured out how to run it. B&N came at this from a different angle: Books and coffee. Great combination. But since they didn’t know anything about cafes, they hired someone to do it for them. Enter Starbucks. After all, if you’re gonna do it, you may as well get the best. So B&N contracted with Starbucks to have Starbucks cafes in the B&N stores. Once B&N finally understood the business, they took the business over from Starbucks, but continued on with the Starbucks products. BGP, on the other hand, tried to make it work on their own, and after years of failures, finally handed their cafes over to a third party, Seattle’s Best. (BTW, Seattle’s Best is a Starbuck’s subsidiary.)
Example three: Bargain.
Have you ever checked out the bargain selection at a B&N? Ever compared it to the bargain section in a Borders? Pales by comparison. Pales. Now, bargain (remaindered) books are purchased in funny ways sometimes, by the pallet, by the pound sometimes. And certainly the larger the retailer, the more purchasing power the retail has to buy the “good” remainders. But Borders is large enough that they should have made better selections (or canned the bargain buyers and started over). And when it came to merchandising, they never figured it.
So, am I surprised that Borders is in trouble now? No, not really. Sad? Definitely. When I started, it was more like a family than a corporate place to work. But, knowing that at one point I had stock options around $40 and then the stock split, and now it’s trading at $6-ish, I’m not surprised. Just sad.
