Borders Suspends Payments to Some Publishers

[jbcohen]

Has anyone had any luck at geting around the middle man, the book store, and buying from the publisher? Wonder if this is possible and something that I should try to do.

[fjtorres]

Some big publishers run unpublicized online stores and have done mail order in decades past. Small and medium publishers rely heavily on direct sales. But for the most part the BPHs have outsourced all downstream functions to distributors and high volume retailers which is why a Borders implosion is such a threat.

[porkupan]

Originally Posted by DMcCunney

What's happening to Borders is not a surprise.

Unfortunately, it is not. 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 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, kiosks, online access in the stores when PRS-500 first came out. Wasted! They and Sony saw 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.

[luqmaninbmore]

I was really stunned and hurt by the closing of the Borders Express (used to be a Walden's Books) by my house. It was the only non-Christian, non-Pagan, new bookstore in Glen Burnie. It died almost exactly a year ago and I am still not quite over it.

[Fbone]

Originally Posted by porkupan

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.

Commercial leases in NJ are too high for many businesses to remain. My local Borders is still open but the property taxes for the small 4 store shopping center is $335,000/yr. Add insurance, maintenance and snow removal etc and you get high rents.

[Penforhire]

pork, well stated. That lack of vision is similar to what music producers had, as the business went away from CD's and toward digital music. Apple picked up 90% of the portable music player (PMP) market and iTunes calls the shots now. It isn't a unique lack of vision. It seems older industries often fail to embrace paradigm shifts (thinking of the player-piano & live music business versus early radio too!).

I see newspapers trying now but it feels like too little too late. I cannot imagine any of the print editions are long for this world.

[fjtorres]

Originally Posted by Penforhire

It isn't a unique lack of vision. It seems older industries often fail to embrace paradigm shifts (thinking of the player-piano & live music business versus early radio too!).

The classic economics case study is the collapse of the US Railroad business.
The railroad operators literally failed to recognize that they weren't in the railway business, but in the transportation business, and that interstates + cheap cars = no passenger rail business.

To an extent, B&M retailers are facing the same delusion; confusing the delivery medium with the product. They still think they are in the book business, that the dead tree pulp medium is the product. In their case, their true product has always been *access* to the books, not the books themselves. People who shop at B&M stores are doing it because they prefer the experience, not because they're unaware that the same product can be found cheaper elsewhere.

It's all a matter of added value. Or lack there-of.

The superstores killed off the non-chain bookstores because they had the back-end logistics chain to command volume discounts and efficiently maintain and distribute large catalogs of product with a lower overhead than their smaller competitors. Without a compelling value-add to justify their price structure, the smaller competitors faded.

But the same consolidation and logistics principles that helped the superstores dominate the B&M landscape turned out to be their undoing because the online vendors and the department store chains could be even *more* efficient with lower overhead. And if the name of the game was to move massive amounts of dead tree pulp as efficiently as possible to maximize the discount and total revenue, skipping the overhead of hundreds of expensive storefronts is clearly the way to go.

Just as the interstates changed the value equation for personal transportation, the internet has changed the value equation for dry goods retailing. The industry as a whole is still trying (and mostly failing) to come to grips with the reality that the book industry has essentially fractured into two parts; one selling high profile commodity "bestsellers" with universal availability at launch that generates the bulk of the industry's revenues, and the other a smaller, neglected business of selling (relatively) low-volume genre and niche content.

The BPHs and the B&M chains have hitched their wagons to the commodity side of the business and are now seeing what happens to commodity product retailers; volume becomes their life. They are forced into a never-ending struggle to trim costs so they can price match their competitors' ever-dropping pricing. The result is a death-spiral for all but the most efficient player. The nominal product itself (the book) ceases to matter, the real product becomes the *access* to the book. Without added-value services attached to the core product or higher margin tag-along sales the leaner, meaner players win. And when it comes to buyers of commodity bestsellers, even the chain superstore have little value to add.

If you want a copy of a given hot NYT bestseller you can get it just as easily at WalMart or Target, if you prefer immediate local access, as at a Borders or B&N. It'll be the exact same product. At a lower price. And typical buyers of this content are solely interested in the one book, the one they saw on Oprah or the evening news; they're not going to spend an hour strolling the aisle looking for something else to read, they acrue no added value from the deep catalog at the bookstore. If they buy something else along the way they are just as likely to buy a box of chocolates or a case of beer as they are to pick up clothing or detergent. The added value, if any, is from getting the book on the way to the counter with the new BD Movie releases.

Conversely, other buyers of the same content don't care if they get the book immediately and find that online storefronts meet their needs just fine. The value-add lies in the price and convenience of home shopping. No need to drive anywhere; just click, save, and wait.

For all that fans of B&M bookstores wax poetic about the joy of wandering the racks (and I rather enjoy it myself) the fact is that a business that relies on volume sales of high-profile commodity titles doesn't need (nor can it *afford*) those deep library-like racks. The bookstore costs come from trying to sell one type of product while their revenue is coming from another. Their business model simply makes no economic sense.

If Borders goes under, B&N merely gets a temporary reprieve, because their problem isn't just those pesky Borders stores across the street of 70% of their sites; it's their core business model. As long as the industry as a whole gets the bulk of its revenue from the commodity NYT blockbusters instead of cultivating the deep and wide backlist and midlist, they will be under unending pressure from the department stores and online vendors. They need to transition to higher margin product or find a way to deliver added value enough to break out of the commodity-pricing death spiral they find themselves in. Preferably both.

And, as noted elsewhere, all these issues facing the two chains are separate and distinct from the mainstreaming of ebooks. The ebook transition is simply the last straw that will break the camel's back by simply siphoning away a fraction (and just a fraction) of the best customers. It doesn't have to be a big fraction in raw numbers before the loss eats away the sliver of profitability of the storefront.

When you live by sales volume, you die by sales volume.
And the day of the superstore chain is just about done.
It's all a matter of time, now.
It might be months, it might be a decade before the final obit, but the patient is terminal.

[porkupan]

Originally Posted by fjtorres

When you live by sales volume, you die by sales volume.
And the day of the superstore chain is just about done.
It's all a matter of time, now.

Though I mostly agree with your analysis, I don't think the dire predictions will necessarily become a reality in the near future. Тhere is still enough market for a book superstore out there. Just not as much market there was 10-15 years ago.

If you recall, 15-20 years ago the number of book superstores was quite a bit smaller than it is today. The growth in B&M bookstores, especially in the suburbs has been tremendous. Perhaps there was never need for this much book delivery capacity at the first place? The chains failed to realize that B&M floorspace growth was not necessarily the best model for their business.

I believe the superstores should and will survive in the densely populated areas of the U.S. There is enough people out there who like the feel of going to a bookstore, spending time browsing the shelves, buying gifts, buying books, having a latte at the cafe - in whatever order of priority. These people don't necessarily look for the best bargain and the cheapest price: if you like cheap coffee, you don't go to Starbucks, you make your own. But there are people at Startbucks nonetheless.

The question is, will Borders survive? I believe, if they enter the bankruptcy protection and the court allows them to swiftly shutdown the consistently non-profitable stores, they have a good chance for staying in business. Even with their current business model.

Of course, the crazy daily 33% off coupons have to stop. Even Amazon is not stupid enough to give a 33% discount on every book they sell. The discount should apply to the current bestsellers, the backlist items, computer books, etc. should be purchased at near full price. I am afraid it's too late to seriously compete with Amazon and B&N in the electronic content delivery business. At the very least they should stop pushing the Netronix made Kobo hardware that has "made in China" written all over it. The Kobo ebook store is OK, but Borders should get rid of their plethora of e-readers and leave only the classy Sony Readers on display.

If Borders cut the losses and returned to catering to slightly above average clientèle, the niche is probably still there for it to fill...

[ATimson]

Originally Posted by porkupan

Even Amazon is not stupid enough to give a 33% discount on every book they sell.

Pretty much every book over $10 they offer a 30%+ discount on - or at least, all the ones that I've ever bought.

Originally Posted by porkupan

The discount should apply to the current bestsellers, the backlist items, computer books, etc. should be purchased at near full price.

Then I'd stop buying any books at Borders and buy entirely from Amazon instead; there wouldn't be enough cases where Borders is on par/cheaper to bother searching them out.

[L.J. Sellers]

It looks like Simon & Schuster has stopped shipping books to Borders and is now canceling author events because the books won't be in the stores. I feel bad for the authors.

http://www.edrants.com/simon-schuste...orders-events/

L.J.
[Promotional link deleted - MODERATOR]

[DMcCunney]

Originally Posted by porkupan

Though I mostly agree with your analysis, I don't think the dire predictions will necessarily become a reality in the near future. Тhere is still enough market for a book superstore out there. Just not as much market there was 10-15 years ago.

If you recall, 15-20 years ago the number of book superstores was quite a bit smaller than it is today. The growth in B&M bookstores, especially in the suburbs has been tremendous. Perhaps there was never need for this much book delivery capacity at the first place? The chains failed to realize that B&M floorspace growth was not necessarily the best model for their business.

It worked for a while, with greater selection being a competitive edge. The problem with the superstore is that floorspace growth requires corresponding revenue to pay the rent. It's all about sales per square foot, and the more square feet you have...

B&N is shuttering one superstore in Manhattan for that reason, because rental in the area is probably $35/sq ft or more. People say "Gee, it's always crowded", and so it is, but books are relatively low margin, and they simply can't sell enough of them. The one closer to me seems healthy enough, but it's in a lower rent area.

I believe the superstores should and will survive in the densely populated areas of the U.S. There is enough people out there who like the feel of going to a bookstore, spending time browsing the shelves, buying gifts, buying books, having a latte at the cafe - in whatever order of priority. These people don't necessarily look for the best bargain and the cheapest price: if you like cheap coffee, you don't go to Starbucks, you make your own. But there are people at Starbucks nonetheless.

They do shop on price, which is why outfits like B&N are killing the independents, but price isn't the only factor.

Someone elsewhere mentioned a friend who owned a small bookstore chain in the midwest, and was grateful he'd decided to add coffee and food to his mix in the stores. He's not exactly booming, but he's still in business, and the revenue from the cafe section lets him make payroll.

The question is, will Borders survive? I believe, if they enter the bankruptcy protection and the court allows them to swiftly shutdown the consistently non-profitable stores, they have a good chance for staying in business. Even with their current business model.

The biggest hurdle in shutting down stores is likely existing leases, which they can't simply break without asking for even more trouble. If bankruptcy will allow them to exit leases, it might help.

Of course, the crazy daily 33% off coupons have to stop. Even Amazon is not stupid enough to give a 33% discount on every book they sell.

Amazon gets something like a 55% discount from the publishers, so no, it's not crazy to give 30% across the board.

This sort of retailing is low margin commodities, with the main competition being on price. In that environment, you may make pennies on a dollar, so you seek to take in a lot of dollars to make pennies on. It's all about market share, and Amazon uses price to gain market share.

If Borders cut the losses and returned to catering to slightly above average clientèle, the niche is probably still there for it to fill...

Depending on demographics and location. Borders Group owns the Waldenbooks chain, for example, which is pretty much entirely located in shopping malls. (And some outlets have been renamed "Borders Express".) I think at least some of them will be viable, depending on location and product mix.
______
Dennis

[fjtorres]

Originally Posted by DMcCunney

Borders Group owns the Waldenbooks chain, for example, which is pretty much entirely located in shopping malls. (And some outlets have been renamed "Borders Express".) I think at least some of them will be viable, depending on location and product mix.
______
Dennis

Actually, that format bookstore would be the most likely to survive into the next decade and beyond...
...if Borders weren't shutting them down.
<sigh>
Sales per square foot is *exactly* the issue.
The superstores killed the independents based on deeper catalog and lower price. But online rules on both catalog and price, so what remains? Ambiance? Do people rushing in for the latest Oprah book club recommendation care about ambiance?

The growing emphasis on bestsellers means the bulk of the floor space goes to slow sellers which means the most efficient bookstore format is the old B. Dalton mall bookstore format; minimal floorspace devoted to genre paperbacks, magazines, and best sellers. In other words, the classic newstand.
Add in a print-on-demand system tied to online sales in the back, a line of branded ebook readers in a corner, and a deli/coffee bar on the side and you just might survive.
The bestsellers and food pay the rent, the paperbacks, ebooks, and POD provide the profits; you get high sales per footage and headcount (staff of four per shift) and you can get by well into the next century.

But that is exactly the opposite of what Borders is doing and even B&N is falling short of that "less is more" model.

As I said, pbooks are not going away anytime soon; but the *big* stores just don't make economic sense. Bookstores won't die but the business model of warehousing pre-printed books stopped making sense ages ago. It's time to change or die.

[DMcCunney]

Originally Posted by fjtorres

Actually, that format bookstore would be the most likely to survive into the next decade and beyond...
...if Borders weren't shutting them down.
<sigh>

Hard to say, without knowing details about which are being shuttered. Not all malls are equal. Some have rather higher rents than others, and the problem of "Can they sell enough books to cover the costs?" will bite.

I'm quite sure a number of mall locations are under-performing. I also suspect Borders could do a better job on tracking product mix and understanding what sells where.

Sales per square foot is *exactly* the issue.
The superstores killed the independents based on deeper catalog and lower price. But online rules on both catalog and price, so what remains? Ambiance? Do people rushing in for the latest Oprah book club recommendation care about ambiance?

It depends on where they are.

For a mall location, picking up the latest Oprah recommendation might well be an "impulse purchase", that you do while at the mall for other reasons. But in such a case, you have an idea of what you want, and you aren't likely to linger and browse once you've made your selection.

For a larger venue, like a superstore, ambiance is critical. You go in expecting to browse, and possibly discover things by serendipity. You want an environment which encourages that, and in which you are comfortable in doing so.

The growing emphasis on bestsellers means the bulk of the floor space goes to slow sellers which means the most efficient bookstore format is the old B. Dalton mall bookstore format; minimal floorspace devoted to genre paperbacks, magazines, and best sellers. In other words, the classic newstand.

The bulk of the floor space going to slow sellers has always been the case. The difference, in the days before the superstore, was that you didn't have the shelf space to hold any significant percentage of what was published, so slower selling titles got purged regularly to make room for new stock. Most books did not (and do not) get reordered. In a place like an airport newsstand, the shelf life of a title might be as short as two weeks.

Add in a print-on-demand system tied to online sales in the back, a line of branded ebook readers in a corner, and a deli/coffee bar on the side and you just might survive.

Depending on location, you might not want the POD system.

The bestsellers and food pay the rent, the paperbacks, ebooks, and POD provide the profits; you get high sales per footage and headcount (staff of four per shift) and you can get by well into the next century.

But that is exactly the opposite of what Borders is doing and even B&N is falling short of that "less is more" model.

As I said, pbooks are not going away anytime soon; but the *big* stores just don't make economic sense. Bookstores won't die but the business model of warehousing pre-printed books stopped making sense ages ago. It's time to change or die.

Whether a big store makes economic sense depends on where it is. Part of the issue with Borders vs B&N is that they were trying to compete in the same markets with the same approaches. There may be a market to support one superstore in an area. There is unlikely to be room for two.
______
Dennis

[carld]

Originally Posted by porkupan

I don't think Borders gained any business by re-branding their cafes as "Seattle's Best".

Seeing "Seattle's Best" would drive me away in an instant. That coffee is terrible. I got a cup of it at BK and took it back for a refund. I thought someone had made the coffee wrong, just awful awful stuff.

Now back to out regularly scheduled discussion.

[DaronFraley]

I think there is a parallel to music stores with all this. When I was growing up, music stores were all over the place. That was one of the few places you could go to get a record or a cassette tape. Department stores sold music too, but in limited quantities. Those were the days of tangible music collections; the record, the cassette, and then the CD. Now CDs are sold at three places: Online stores, a FEW specialty music stores, and department stores.

This seems to be happening to books too. Walmart, Target, etc. entered the book selling business. Online stores were already in place. And the brick and mortar stores seem to be disappearing. I think that if a brick and mortar store doesn't sell MORE than just books, their days are numbered. Book stores are going to be as rare as music stores, in my opinion.