I read an interesting post by Renee Oricchio over at Inc.com this morning on why Borders found itself doing the bankruptcy ballet (Borders: Tone Deaf to Technology). A few paraphrased points from the article:
- Borders had no Internet strategy of note,
- Borders’ supply chain is inefficient and created much of their mountain of debt, and
- Borders failed to create value through its membership program.
I would add one more point to Ms. Oricchio’s list:
Borders failed to monetize their customers’ behaviors.
Activity Without Action
The two Borders bookstores my wife and I visit have one thing in common: the café at each is packed at most hours of the day. While I (a paper book addict probably in need of a 12-Step Program) usually leave the store with a few hardcovers, the behavior of most other patrons seems less profitable to the company. Many go to Borders for the free Wi-Fi, perhaps a coffee, and to browse through magazines that they rarely purchase. While it is only my own anecdotal observation, in many years of going to Borders Café, I saw a lot of store usage that did not result in purchasing behavior.
But the stores were busy. After 12pm, good luck finding a chair to sit in or a table to work at in one of the Orlando area Borders we frequented. The stores had traffic, but I never saw any creative attempts to monetize that traffic or to create an environment that increased interaction and usage.
With media consumption rapidly evaporating into the digital ether, Borders should have been fighting tooth and nail to capitalize on their best asset: customers like coming to their stores. How could they have done it? Frankly, I don’t know what the magic strategy might have been, but I know this: I never saw aggressive programs or changes to the model being tried. Year after year, Borders was the same bookstore with the same basic business model. And sadly, that model is a debt-laden dinosaur in the encroaching ice age of print publishing.
Yes, the print publishing market is dying – or radically disrupting, if you want to be generous about it. Even booming industries are hypercompetitive in this day and age. Rapidly contracting industries are just plain brutal, and they do not suffer fools lightly. Mistakes are punished with crushing force, and mismanagement and failure to adapt can be absolutely fatal. Add in a debt scenario that shackles a company to its shrinking but dependable revenue streams, and the party is all but over.
So, what can small business owners learn from the Borders disaster?
- An overreliance on debt can be fatal. (See my post Leverage Versus Debt: The Deadly Distinction for more.)
- Failing to adapt to changing market conditions is a strategic error of the highest order. Doing so in a contracting industry may not allow for second chances.
- Finding ways to capitalize on your strengths is as important as addressing your weaknesses.
I hope Borders finds a way to claw through its current predicament. And for today, I hope the one near my house was able to pay their Wi-Fi bill.
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Notes:
One of the “busy” Borders in my area is on the closure list. Is your favorite store? Here is the link: http://media.bordersstores.com/pdf/Borders_Reorganization_Closure_List.pdf
Borders is my favorite! It’s always been my neighborhood place to get coffee, use the Wi-Fi and meet up with friends. However, I am sad to say that I am one of those customers who loves the environment, yet rarely walks out with a purchase other than coffee and a snack. Come to think of it, in every Borders I have been to, the lounging area, seemed pretty isolated from the “bookstore” area. I hope that they can turn it around soon!
Thanks VP. One of the Borders I frequented (that is on the shutdown list) had a direct door from the outside to the cafe. People would literally go to the cafe without even walking past a product. It’s Retailing 101; the eggs and milk are at the back of the store. The cafe should be too.