Wednesday, November 30, 2011

Book Lovers Rejoice! Bookstores Will Survive!

The recent bankruptcy and closure of all the Borders bookstores is easily taken as a harbinger of the approaching demise of the bookstore and soon thereafter, the physical book itself. For those who grew up savoring trips to the bookstore hoping to find that unexpected gem, and for those who devoured and treasured those physical objects called books and fear that their end is imminent—keep the faith! 

The conventional wisdom is that Borders failed because it could not contend with on-line outlets like Amazon. The popularity of e-readers was supposedly the last straw. Ben Austen provides an article in Businessweek that lets us know that the situation is more complicated than that: The End of Borders Is Not the End of Books.

According to Austen’s tale, Borders was not done in due to competition, but rather to its own incompetence.

"When Borders declared bankruptcy in February, more than 200 of its 400 outlets were still ‘highly profitable,’ says its final chief executive officer, Mike Edwards. There’s no question that the book industry is in flux, with digital sales last year making up about $900 million of the $28 billion-a-year market and increasing fast. But a sizable portion of the book business is still taking place in actual stores. Barnes & Noble, the nation’s largest book retailer, hasn’t been forced to close its 700 locations. Thus, it wasn’t Amazon—or Amazon alone—that sank Borders."

Austen relates a sequence of unwise decisions made by Borders. Some of the blame could be attributed to the six CEOs it endured over the last twelve years.

"For the past decade and a half, Borders seems to have been in the business of making mistakes. Consider the company’s efforts to develop an online presence. Amazon was launched in 1995, and Barnes & Noble responded with its own website two years later. It took Borders another year to get started online, and the venture quickly lost tens of millions of dollars. In 2001, Borders made a deal with Amazon to run all of its online business—a partnership, in retrospect, that comes across as tragically shortsighted...Amazingly, Borders wouldn’t end the Amazon deal and launch its own website until 2008."

"Borders managed to be on the wrong end of several upheavals. It invested heavily in CDs and DVDs just as music and movies were going digital; in 2006, nearly a fifth of all Borders revenue came from music sales. And though this would be the company’s last year of profitability, it continued to expand, building huge stores of 25,000 and 30,000 square feet right into the Internet boom. Sales per square foot in its superstores plummeted from an average of $261 in 1997 to $173 by 2009. Borders even purchased a stationery company, Paperchase, in 2004, as handwritten correspondence withered. And then there’s the company’s entry into digital books: If you didn’t know Borders had an e-reader called Kobo, you’re not alone."

Perhaps the biggest error that Borders made was in expanding precipitously starting in the late 1990s. Just at the time when Amazon was becoming a force it established too many big stores in too many marginal locations. The well-placed stores generally were profitable, the poorly located ones faired less well.

Where does the book selling business reside post-Borders?

"Analysts predict that Barnes & Noble will have to shrink the number and size of its stores, and it hasn’t tried to gobble up many of the vacated Borders locations—70 percent of which, Barnes & Noble says, were within five miles of one of its outlets. (Barnes & Noble did purchase the remainder of Borders’s Web business.) But so far Barnes & Noble is holding on to its stores, focusing on e-books and filling its outlets with high-profit-margin nonbook items, such as educational toys and games."

Austen closes with some truly positive, and unexpected, insight.

"Small independents....may actually stand to gain the most from Borders’s passing. Plenty of shoppers don’t want to give a digital download to a niece for her birthday and often don’t think far enough ahead to order a book through Amazon for an upcoming trip. Many simply like the experience of going to a bookstore. Jeff Green, president of Jeff Green Partners, a retail-consulting firm based in Phoenix, believes bookstores of around 2,500 square feet offer a perfectly viable—if only modestly profitable—business model. John Rubin runs Above the Treeline, an Ann Arbor–based company that provides sales and inventory analytics as well as digital catalogs to booksellers. According to point-of-sale data he’s compiled, business at locally owned stores has, in fact, held steady in recent years. And while advances in technology have certainly made hardcover books a bit passé, they have also enabled small stores to operate far more efficiently. "It’s the only retail industry I can think of that will go full circle, back to the way it originally was," says Green. ‘From the small-village bookstore to the big-box retailer and then back again. That doesn’t ever happen in retail’."

Amazon is great for ordering a book you already know you want. It is not so good for browsing randomly. If you enjoy seeking out a few good titles out of a thousand options, rather than out of a hundred thousand, you may soon have more good browsing experiences. Those comfortable little bookstores may be coming back.

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