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From the Editors

From the Editors

Why Borders Went Bust

August 9, 2011
Related Topics: Strategy and Management

International book and music retailer Borders Group was finally forced out of business in the middle of last month. In the weeks since, as some 400 stores move into liquidation, there’s been much pontificating in the business media and even by the company itself about why this happened. On July 21, as a Borders Rewards member, I received a mass email from Borders CEO Mike Edwards. The tone of the email is generally one of regret and thanks to Borders’ many customers, but one statement in particular stands out:

“The fact is that Borders has been facing headwinds for quite some time, including a rapidly changing book industry, the eReader revolution, and a turbulent economy. We put up a great fight, but regrettably, in the end, we weren’t able to overcome these external forces.”

In other words, blame it on the Internet, mobile reading devices, the recession - anything but its own management missteps.

Others weren’t so sure. In a Wall Street Journal article published the same day titled “Lamenting Borders' Death at 'Store No. 1,” Matthew Dolan described Borders’ initial founding and expansion as based on “pitch-perfect customer service.” Over time, he says, the company moved away from this core value:

“The Borders shopping experience degraded over the years as critics say the chain grew too wildly.”

Full disclosure: I worked at Borders for two and a half years in the early 2000s. During that time, I was cognizant of this shift in the company, as were others; I specifically remember a co-worker saying to me early in my time there, “This company is changing.” And it didn’t seem to be for the better.

At the store level, you noticed it in small ways. For starters, Borders bookstores are filled with information desks at which employees stand and help customers find what they want to purchase. When I started, the computer monitors at these desks faced away from the customer, toward the employee. This was a functional service arrangement through which employees actually located products for customers and offered to special order them if they couldn’t.

Then, the company turned all these computers around to face the customer, and installed inventory programs on them that were user-friendly enough that almost anyone could use them, but they didn’t really correlate to the reality of what we had in stock or where it was. The information desks, then, were no longer intended to be manned. The implication was clear: Help a customer if they ask for it but otherwise let them find what they’re looking for themselves. The message I received from the senior leadership of the store was our focus should be on shelving and organizing product and maintaining merchandise displays. If a supervisor or manager asked me what I was doing and I said I was helping customers, I’d be given a funny look or a smirk and be told to get back to doing actual work.

Another small change at the store level with big implications about where Borders was headed was the company took away the staff’s ability to play CDs on the sales floor in favor of MP3s piped in from a tightly controlled computer in the basement. This completely disconnected the staff from playing music they were passionate about or even knowing what was playing at any given time. I once had a customer ask me what song was playing and I couldn’t tell her because of this new setup. She even said she’d buy the CD if I could tell her what it was and I still couldn’t help her. There was a display on the information desk that was supposed to tell you what was playing at any time but this was permanently broken.

If the Internet can be pointed to as one of the largest reasons, if not the reason for Borders’ demise, let’s look at what efforts it made to get online. In 2001, as its closest competitor Barnes & Noble was getting more active in e-commerce, Borders partnered with Amazon to handle its online sales. Working in the company at that time, I can tell you this was generally thought of as a brilliant move - outsourcing this functionality to a company that does it so well.

Now, with the benefit of hindsight, it’s clear how foolish this was. In an NPR article published July 19 titled “Why Borders Failed While Barnes & Noble Survived,” Peter Wahlstrom, who tracks Barnes & Noble for the investment research firm Morningstar, says, "In our view, that was more like handing the keys over to a direct competitor." Borders ended the partnership in 2008 but by then it was far too late.

Another space where Borders faced stiff competition – as do all media retailers – is in combating downloading, both legal and illegal. Its response: In 2008 Borders introduced concept stores at which customers could make and burn their own seven-song CDs – drawn from a library of 2.4 million songs – for $9.99 each. Customers could also download MP3s directly onto digital devices at these concept stores but Borders couldn’t get Apple’s iPod to work in connection with this system. Not surprisingly, these stores didn’t catch on.

Borders blames its demise at least partially on “a rapidly changing book industry, the eReader revolution, and a turbulent economy.” I assert that just as much as it was undone by those “headwinds,” Borders was undone by some fairly simple, but massive, problems: ineffectual, short-sighted use of its talent and bad management of its resources at the store-level. Borders forgot about the core element of its company culture that originally got it so far: helping customers find and buy what they actually want. Once a massive brick-and-mortar chain forgets about that, it’s not long for this world.

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