The Borders Bankruptcy and What it Means for Booksellers and Publishers

Borders Books filed for chapter 11 bankruptcy on February 16, 2011. The factors leading up to the decision included ineffective use of resources, the inability to adapt to a changing market, and poor planning. One of the reasons that Borders has done so poorly in the new millenium is that  in 2001 it delegated its online marketing to Amazon.com, unaware that Amazon was its biggest competitor. In addition, Borders was hard hit when changes in the music industry caught it unawares. People used to go to Borders to sample new tracks before deciding whether to buy a new CD , but now we all do that online as well.

Many will lament the passing of this superstore bookselling giant. People of a certain generation used Borders as not only a place to browse for books and music, but also as a replacement for the coffeeshop or outdoor cafe where intellectuals could meet and discuss literature and politics. But do any of us still remember when the superstores crushed the small local bookshops?

The chant from the 1998 movie You've Got Mail seems quite a propos: "One, two, three, four/We don't want your superstore!"

The best business videos on this topic are not available on Youtube. If you would like to watch some analysts discuss the Borders bankruptcy you might want to follow these links:

http://www.bloomberg.com/video/66799334/

and

http://online.wsj.com/video/bankruptcy-next-chapter-for-borders-group/8D7F2A20-B469-4C4C-B912-3A5F1F274F37.html

When it filed for bankruptcy, Borders was the second largest US bookstore, right behind Barnes and Noble. But like many giants, the Borders empire had humble beginnings.

The original Borders bookstore was founded in 1971 by brothers Tom and Louis Borders who were undergraduates at the University of Michigan.(I happened to live in Ann Arbor, Michigan in 1971. For a completely unrelated story about that click here.)

When they first started, the Borders brothers' inventory system tried to fit each store's offerings to its community. They founded a sister company, Book Inventory Systems (1976–1994) to serve as a wholesaler for regional independent bookstore. Until the Borders Superstore expansion in the early 1990s, Book Inventory Systems served more other, independent stores than Borders stores.

So the initial success of Borders lay in the community mindedness of the two Borders brothers, and their own understanding of the book selling business as both consumers and businessmen. But this grassroots start soon gave way to abstract management.

What is abstract management? This is the idea that you can be good at business without necessarily knowing anything about the specifics of a particular business. In 1989 former president of Hickory Farms Robert F. DiRomualdo was hired to expand the company. He knew nothing about books, but he had a lot of experience with mass marketing and branding.

The initial success of Borders was due to the fact that it was founded by people who understood what buyers wanted in a bookstore. The Borders brothers understood the average book buyer, because they bought books themselves. They understood the power of the local, independent bookstore, and they helped other independent bookstores to keep the sort of inventory that buyers wanted to browse.

The eventual downfall of the company occurred when people who were completely out of touch with book buyers took over. The fact that technology was rapidly changing the market also did not help.

In the forty years from the founding of Borders until its demise, the balance of power in the publishing industry has greatly shifted. In the 1970s established publishers had a stranglehold on the publication of books. For most authors, this meant that unless they were able to find an agent to represent them and to convince a New York publisher to accept their manuscript, they had very little chance of selling their book. Bookstores only bought from established distributors and distributors only bought from wealthy publishers who could afford massive print runs and would allow books that were not immediately sold to be returned damaged for a full refund.

The general public was not aware of this, and the average book buyer assumed that if a book did not appear in the stores it had never been written, or had gone out of print because it was not any good.

So the buyer appeared to have lots of choices, but all these choices were completely controlled by a small number of established presses. Book stores were judged on their breadth of inventory, the ease and comfort in browsing books and their atmosphere, but they were not judged on the content of the books, because the book selection available to all was rather uniform.

Mega-stores in the 1980's and early 1990s were able to beat out smaller independent bookstores because they could offer a larger selection of books at discount prices and in very spacious surroundings where people could sip coffee and chai lattes and eat biscotti while browsing books.

But then, one day it turned out that you could stay home and drink whatever you want while in your pajamas and have access to all the books in all the stores, plus an entire selection of other books the stores didn't carry, and pay only a fraction of the cost. And that's when the buyers started switching to Amazon, and the big beneficiaries of this new move were the unrepresented authors and the small independent presses that began to print their own books on demand.

All empires start small and are powered by the very young who are willing to take chances on new ideas. All empires crumble when the old and the established take over, and when authority is substituted for critical thinking.

Will Barnes and Noble be a beneficiary of the Borders downfall? Or will they fall by the wayside as well, leaving only Amazon as a serious market contender? This depends on what course of action each of the participants chooses to follow.

This should serve as a cautionary tale for all would-be giants. Today, Google dominates the search engine game. It has only been in the top position for about ten years, but many see Google as unbeatable. And yet, it is precisely when people in power forget that there are other choices that they tend to get unseated. Google has been playing fast and loose with its monopoly, and this is precisely why it may lose it in the near future.

Amazon at the moment has an advantage over all local bookstores that goes beyond size and quantity discounts: because it is a store without walls or borders, Amazon.com need not submit to local sales taxes. Many states that have lost their income streams due to the demise of local retailers are trying to get their hands on the golden goose which is Amazon. But, of course, the moment they manage to pluck the goose, there will be no more golden eggs.

The next few years should be quite interesting for those who watch the publishing and bookselling industry.

© 2011 Aya Katz