The bookstore chain will liquidate its remaining stores by September. But before other retailers despair, they should look at what really killed the company.
After a failed auction attempt yesterday, Borders Group Inc. is now shifting into full liquidation mode. The nation's second-largest bookstore chain will close its remaining 399 stores and is likely to shut down for good by September.
The question now: What does Borders' closing mean for other small businesses that struggle to compete against online competitors?
Borders' collapse is both expected and disconcerting. The company filed for bankruptcy protection last February and has struggled ever since. After closing a first wave of retail stores, the bookstore chain had increasing trouble even stocking its shelves, as publisher after publisher refused to send inventory to Borders. This was because Borders delayed payment to publishers on books it had already sold, and the company wanted to establish delayed-payment plans for its future sales.
From personal experience, I can tell you that margins and cash flow in the book publishing industry are incredibly tight, and only the largest publishing houses would even be able to afford to contemplate such a plan, even if they were inclined to participate.
It is very easy to blame online merchants like Amazon.com for Borders' demise. (Indeed, when my own local store closed this winter, a handwritten sign on the front doors was scrawled with "Store closed. Thank Amazon.") This makes many other brick-and-mortar retailers nervous; when faced with competitors that can stock almost anything and send items right to someone's doorstep, often without the added cost of a sales tax, it seems an impossible task.
To be sure, Amazon does have a huge competitive advantage in this sector. Amazon knows it, too: It is currently locked in a battle with California over sales taxes that state enacted on July 1, filing papers last week to seek a voter referendum to kill the new Internet sales tax law. Meanwhile, Amazon sidestepped enforcement by removing its physical presence from the state by cutting off its California-based affiliates with barely any warning last month.
California is the eleventh state to enact Internet sales taxes, and Amazon so far isn't paying taxes in 10 of those states. The only state where it pays sales taxes is in New York -- and that's only so it can challenge the law in court.
Looking at this, it's rather discouraging for merchants with physical storefronts that have to charge their customers sales tax and easy to see why everyone is so nervous.
But Amazon and the book industry may be a special case, one that is far more conducive to online sales than other retail sectors. This is purely anecdotal, but for me, books are one of the few commodities that are easy to buy online. This is for two reasons: First, I don't need to see, touch, or otherwise examine the book before I buy it. If my favorite author has a new book release, I just buy the copy. Second (and this is important), the level of customer service I get at the local big-box bookstore is the same or even less than what I can get online.
The problem I had with Borders, and continue to have with Barnes & Noble, is that when I visit their stores I rarely find anyone willing to help me. I may get directed to the proper shelf in the store, but if I want recommendations from staff on which is a better book to buy for business planning or technology, I always get blank stares.
Contrast that with online booksellers, where user and even staff reviews can help guide me to the right book.
Small businesses should read the previous paragraph and take special note of it, because customer service is the one area where they can compete -- and win. It may seem trite, but it is still true. Books are easy to buy online because of their nature. Makeup, I have learned from my three daughters, is not. It must be examined, tried on, and (if at all possible) shown to their father so he can have a heart attack.
Customers still want the personal touch. Even prickly customers who say they can't be bothered still want to feel like there will be someone available should they ever need help. A business that goes out of its way to connect with me is more likely to retain my business, even if it has an online competitor.
Borders should be taken as an object lesson not for the penalty of competing with online merchants, but as an example of what happens when businesses fail to remember the basics of good customer service.
Brian Proffitt is a veteran technology journalist, analyst, and author with experience in a variety of technologies, including cloud, virtualization, and consumer devices. He is also an adjunct instructor with the Mendoza College of Business at the University of Notre Dame. Visit Proffitt Margins or follow him on Twitter @TheTechScribe.