Jag Venugopal's Blog

July 19, 2011

R. I. P., Borders

Filed under: Project Management — Jag @ 7:28 am

Word today is that one of our family’s favorite hangouts  is going out of business. I’m sad to see them go, and will miss popping into a bookstore on a whim to browse the latest offerings. Regrettably, with my purchases of the iPad and Kindle, and moving all my remaining book purchases to Amazon, I have been among the non-purchasing millions that contributed to Borders’ demise.

In the post-Amazon, post-eBook world, book retailing has become a brutal business. Stores need to stock a large collection of books to appeal to the book buyer. They need to pay for retail space, staff and utilities to run physical bookstores. Money needs to be sunk into inventory for buyers to browse around. And books have a saleable life of six months or less, before they get consigned to the bargain shelves.

Amazon has few, if any, of these constraints. Amazon’s warehouses are in suburban or rural areas, where the cost of land and buildings is proportionally far less than what a bookstore in the suburbs would pay. Without the need to maintain any stores, Amazon can invest heavily in automation and achieve economies of scale in its stock and dispatch processes. Further, Amazon’s cavernous warehouses can hold books indefinitely until they’re purchased. There’s much less need to remainder books that have not sold for a period of time.

As a result of greatly reduced costs, Amazon can afford to discount paper books heavily. The cost of paper books has steadily risen to the point where the average hardcover retails for $30 and the average paperback for around $15. However Amazon can afford to sell for a little over half the MSRP because of the advantages it enjoys from a warehouse dispatch model with no retail presence.  Borders could not match Amazon with its overhead and still manage to make a profit.

Borders made two big mistakes that contributed to their going out of business. First, when book retailing moved to the web, they chose not to sell books on the web, but instead redirected purchasers to Amazon. Sending customers to your competitor’s store is a fine way to put yourself out of business. Amazon spent years learning and refining its business processes and supporting systems; all the while, Borders did nothing.  By the time Borders built its own online operation, it was too late. Amazon.com and (to a lesser extent) bn.com were already well-entrenched.

A second blunder was to not have a strong presence in the eBook market. While Amazon was developing and selling three generations of the Kindle, and rival Barnes and Noble was busy at work on the now-suddenly-popular Nook, Borders stood blisfully on the sidelines, hawking a bunch of Sony e-readers, along with a rebranded Sony ebookstore. Eventually, they started selling Kobo e-readers and the associated Kobo ebookstore service. Both the Kobo and Sony are also-rans in an ereader market dominated by Apple, Amazon and Barnes and Noble. To date, Borders does not have its own ebookstore.

People will initially miss Borders, but most have already adjusted to the world of online book shopping and ebooks. Books are uniquely suited to online retailing — one relies on reviews and word-of-mouth to determine whether to purchase a book or not. The physical appearance of a book, or its touch and feel, is of little consequence to the purchase decision. Amazon, with its user reviews, provides all the purchasing information a prospective buyer needs. And if that is not enough, Amazon will provide the first chapter of any ebook free for a reader to sample.

So long, Borders. I will miss the 40% and 50% off discount coupons. And I will miss the treasure hunt of finding a remaindered gem in your bargain book department. And now, if you will excuse me while I browse the Kindle bestseller list.

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