Borders: the textbook case of mismanagement gone wild
Bookstore chain Borders appears near bankruptcy. Unfortunately, this is not a surprise. Its impending demise has been a long time coming. I'd say more than 10 years, mostly by own hand. I've been watching this train wreck of a company ever since I bought 200 shares of BGP stock in the beginning of 1999 for $18.50 a share. It is now on the verge of de-listing, I am losing about 95%. And I am not "long" on Borders, I just don't really care to sell my BGP holdings at this point.
At the time I bought the stock the dot-com boom was going on. Everyone who thought they had anything to sell was opening an e-commerce site. Borders did too. They were only a few months behind Amazon and B&N. Borders.com didn't have as much user content, but the site was done professionally, it worked great, and the selection was amazing. I bought about 40 books from Borders.com in its first year, they even sent me a thank-you mug as a gift. The reason I bought into BGP stock was just that - I couldn't see how this giant prosperous book-selling company wouldn't grab at least a quarter of the U.S. online book sales while maintaining its profitable brick and mortar (B&M) presence. I imagined every Borders store having an online portal and sales terminals within a year. That was not to be.
Then something inexplicable happened. After DiRomualdo Borders started going through almost yearly CEO changes. And every new CEO was worse than the previous idiot. Borders was still making money, but the people at the helm were making decisions, one crazier than the other, which in the long term doomed the company. First, someone (Josefowicz?) decided that Borders had no chance at an online store, so they closed Borders.com and outsourced the online business to Amazon. That was the stupidest, absolutely most nearsighted decision any executive could ever make. Unless it was intentionally done to destroy a good company. I still can't comprehend how could anyone in their right mind not see what a terrible move this was.
For a few years Borders.com became a pointer to Amazon. Borders got a percentage of sales if people came to Amazon via their link. So, some people probably did insist on entering Amazon via Borders portal. I am sure the majority wouldn't bother. This move made absolutely no sense long term: you don't give your business to your direct competitor! If Amazon re-branded its entire book-selling business as Borders.com it would have been something. But Borders was basically just a portal into Amazon, one of many. Who would care to type "borders.com" in their address bar to get to Amazon? People remembered Amazon, they went directly there. When Borders realized they were taken for a ride, they lost the most important years on online land grab.
For some years just the "Waldenbooks" (smaller mall-based stores) were bleeding money, then the superstores started to. Instead of closing the consistently non-profitable Waldens, Borders re-branded them as "Borders Express".
The stupidity kept coming: the constant coupons. 25% off (visitborders.com), then weekly 33% off to all email list subscribers. Borders tried to go after bargain hunters, but Amazon was smarter: if you bought $25 worth of goods you got free shipping and no tax. So, the ultimate bargain hunter wouldn't buy from a B&M bookstore anyway: even with a coupon you still have to pay the sales tax. However, the flood of coupons made its impact: no one in their right mind would any longer buy anything at Borders and pay full price.
Then came the re-branding of the cafe. Lots of people came to Borders simply to read and drink coffee. Not necessarily a bad business. Most Borders cafes had been quite good. I don't think Borders gained any business by re-branding their cafes as "Seattle's Best". I am sure Starbucks was happy with a new revenue stream though.
Borders executives refused to see where the major threat was coming from. They kept trying to fight with B&N, while the brick and mortar book business was being butchered by the online sellers and discounters. At some point a few years ago everyone started to sell books at dumping prices: Walmart, Target, BJ's, ShopRite. Harry Potter instead of making a killing for book sellers became a major "loss leader", sold below cost to get people to come to the stores. And come they did - to the supermarkets and discount retailers.
While the paper book price wars were going on, a totally new way of publishing was slowly gaining speed: ebooks. Borders was persuaded by Sony to start carrying ebook readers. But the attempt to sell Sony Readers was half-hearted at best. They had two-three years on B&N, could have had an ebook store, full integration, kiosks, online access in the stores when PRS-500 first came out. Wasted! Borders and Sony watched what Amazon was doing, and I don't know what they were thinking. I suspect that B&N sold more crappy nooks in one day than Borders sold Sony Readers in two years.
And on and on and on... Laying off booksellers, cutting inventory, cutting hours, closing stores. In New Jersey they are closing every store that came to the end of its lease. The one nearest to my house, in Marlton, had been around for like 30 years. Always rather crowded. Closed. I cannot believe they were losing money in Princeton! Closed.
Well, I used to go to Borders at least once a week. Probably spent a few thousand bucks there over the years. No longer have a choice: I am going to take my business to the nearest B&N now.
Repost from MR.
At the time I bought the stock the dot-com boom was going on. Everyone who thought they had anything to sell was opening an e-commerce site. Borders did too. They were only a few months behind Amazon and B&N. Borders.com didn't have as much user content, but the site was done professionally, it worked great, and the selection was amazing. I bought about 40 books from Borders.com in its first year, they even sent me a thank-you mug as a gift. The reason I bought into BGP stock was just that - I couldn't see how this giant prosperous book-selling company wouldn't grab at least a quarter of the U.S. online book sales while maintaining its profitable brick and mortar (B&M) presence. I imagined every Borders store having an online portal and sales terminals within a year. That was not to be.
Then something inexplicable happened. After DiRomualdo Borders started going through almost yearly CEO changes. And every new CEO was worse than the previous idiot. Borders was still making money, but the people at the helm were making decisions, one crazier than the other, which in the long term doomed the company. First, someone (Josefowicz?) decided that Borders had no chance at an online store, so they closed Borders.com and outsourced the online business to Amazon. That was the stupidest, absolutely most nearsighted decision any executive could ever make. Unless it was intentionally done to destroy a good company. I still can't comprehend how could anyone in their right mind not see what a terrible move this was.
For a few years Borders.com became a pointer to Amazon. Borders got a percentage of sales if people came to Amazon via their link. So, some people probably did insist on entering Amazon via Borders portal. I am sure the majority wouldn't bother. This move made absolutely no sense long term: you don't give your business to your direct competitor! If Amazon re-branded its entire book-selling business as Borders.com it would have been something. But Borders was basically just a portal into Amazon, one of many. Who would care to type "borders.com" in their address bar to get to Amazon? People remembered Amazon, they went directly there. When Borders realized they were taken for a ride, they lost the most important years on online land grab.
For some years just the "Waldenbooks" (smaller mall-based stores) were bleeding money, then the superstores started to. Instead of closing the consistently non-profitable Waldens, Borders re-branded them as "Borders Express".
The stupidity kept coming: the constant coupons. 25% off (visitborders.com), then weekly 33% off to all email list subscribers. Borders tried to go after bargain hunters, but Amazon was smarter: if you bought $25 worth of goods you got free shipping and no tax. So, the ultimate bargain hunter wouldn't buy from a B&M bookstore anyway: even with a coupon you still have to pay the sales tax. However, the flood of coupons made its impact: no one in their right mind would any longer buy anything at Borders and pay full price.
Then came the re-branding of the cafe. Lots of people came to Borders simply to read and drink coffee. Not necessarily a bad business. Most Borders cafes had been quite good. I don't think Borders gained any business by re-branding their cafes as "Seattle's Best". I am sure Starbucks was happy with a new revenue stream though.
Borders executives refused to see where the major threat was coming from. They kept trying to fight with B&N, while the brick and mortar book business was being butchered by the online sellers and discounters. At some point a few years ago everyone started to sell books at dumping prices: Walmart, Target, BJ's, ShopRite. Harry Potter instead of making a killing for book sellers became a major "loss leader", sold below cost to get people to come to the stores. And come they did - to the supermarkets and discount retailers.
While the paper book price wars were going on, a totally new way of publishing was slowly gaining speed: ebooks. Borders was persuaded by Sony to start carrying ebook readers. But the attempt to sell Sony Readers was half-hearted at best. They had two-three years on B&N, could have had an ebook store, full integration, kiosks, online access in the stores when PRS-500 first came out. Wasted! Borders and Sony watched what Amazon was doing, and I don't know what they were thinking. I suspect that B&N sold more crappy nooks in one day than Borders sold Sony Readers in two years.
And on and on and on... Laying off booksellers, cutting inventory, cutting hours, closing stores. In New Jersey they are closing every store that came to the end of its lease. The one nearest to my house, in Marlton, had been around for like 30 years. Always rather crowded. Closed. I cannot believe they were losing money in Princeton! Closed.
Well, I used to go to Borders at least once a week. Probably spent a few thousand bucks there over the years. No longer have a choice: I am going to take my business to the nearest B&N now.
Repost from MR.