A Big-Box Bookstore Comes to an End

Credit: Times Magazine

“All truths are easy to understand once they are discovered, the point is to discover them.”

Galileo Galilei

Another juggernaut of the book industry goes by the wayside into oblivion.  I’m referring to the recent bankruptcy of big-box bookseller—Borders.

Borders Books and Music has finally decided to close 399 stores and to furlough 10,700 employees.  In these times of uncertainty, this is a severe blow for these newly laid-off people who will have a very hard time finding a new job.

According to the company’s spokesmen, they had to fold due to the following reasons:  “We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time, including the rapidly changing book industry, e-reader revolution and turbulent economy, have brought us to where we are now.”

The closings will almost certainly be a boon for Borders’ competitors. Other national book chains, like Barnes & Noble and Books-A-Million, could move into stores vacated by Borders. Some competing bookstores are already nearby. A spokeswoman for Barnes & Noble said that 70 percent of Barnes & Noble’s stores are within five miles of an existing Borders store.

In my opinion, Border’s demise came about because of a major management principle called “A Strategic Inflection Point”.   According to Andrew S. Grove former Chairman of the Board of Intel Corporation, a strategic inflection point is that which causes you to make a fundamental change in business strategy.  Nothing less is sufficient.

These strategic inflection points represent what happens to a business when a major change takes place in its competitive environment.  A major change due to introduction of new technologies, or changes in the customer’s values or a change in what customers prefer.  Almost always it hits the corporation in such a way that senior management are among the last to take notice.

Let’s take a look at some of Borders omissions in identifying some major strategic inflection points.  First, Borders famously blew its relationship with the Internet. From 2001 until 2008, it outsourced its online sales to Amazon, essentially handing customers over to the bigger, better site during the formative years of e-commerce.

Second, Borders neglected e-books. The Amazon Kindle came out in November 2007. Barnes & Noble debuted its Nook, now sold in Walmart and Best Buy as well, in November 2009.  Apple’s iPad came out in April 2010.   Borders’ Kobo (ever heard of it?) came out last, just a year ago. Another big mistake in a cut-throat environment.

Third, Borders mishandled its big-box strategy. It opened far too many stores, including several overseas, despite lackluster sales. The stores tended to be too big and too expensive, in terms of overhead.  Brick-and-mortar stores are not in the spotlight anymore.  People are more inclined to shop online.  It’s cheaper, faster, and hassle free—no matter what they say.  That is what finally killed Borders—the emergence of online bookstores and the emergence of e-books.  Retail has become a challenging, if not outright terrible, business, regardless of what you are selling.

I for one, will not buy another paper book.  They are more expensive and difficult to find in Panama.  Instead, I buy my books from Amazon.com and read them in my Kindle’s e-book reader application.  Digital books can be downloaded from Amazon.com in less than sixty seconds.  In addition, the average price for a Kindle book is approximately $11.99 compared to $25.00 for the same paper book available in this country.  The difference is abysmal. In a cash-strapped economy every penny saved is a penny earned.

People will still buy paper books, but their numbers will dwindle as electronic books take the industry by storm.  This is a strategic inflection point which Border’s management failed to identify, and they are paying dearly for it.  Good Day.

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