Why is Borders going bankrupt? Mark Evans answers:
This is a question that many of us at Borders asked ourselves frequently and I think the answer is not a simple one. As someone who has given this a tremendous amount of thought and was Director of Merchandise Planning & Analysis for many years, I’ve outlined my assessment below:
Failure to adequately address the internet sales channel and the subsequent ebook market. Specifically, the decision to outsource Borders.com to Amazon.com. To be fair, Borders.com was costing the company millions of dollars in losses each year ($20m I think when they decided to outsource) and one could argue that the outsourcing solution was a case of letting the most efficient etailing organization (Amazon.com) handle the job and turn a big negative into a profitable business. In the short-term, this saved a lot of money. In the long run, the internet is too important to outsource in this manner and Borders’ branding, multi-channel strategy, and customer base suffered. They also dropped the ball on ebooks, but by the time this became an issue they were just trying to figure out how to keep the whole house from burning down around them, so I find it more understandable.
Poor real estate strategy. Borders leased space that was too large, the storefronts did not compare well to B&N, and they were complacent in picking and relocating existing stores to the best locations. Some of this is subjective as I don’t have great data to back this up — just my own educated assessment based on observation.
Over-investment in music. While this was a big plus for this in the early to mid 90′s, this was a disaster in the long run. This is basically why the stores were too big once the music business cratered. So, stores were sized and modeled to provide a large music CD business which largely disappeared. In addition, infrastructure was sized to support this, including a dedicated warehouse distribution facility. This last part has been addressed over time, but soaked up money, time, and energy. Note that music was also part of what made Borders a destination for many customers, so when music sales tanked, other product categories’ sales suffered as well.
Over-reliance on assortment size to compete as opposed to efficient operations. Borders was renowned for its wide and quality assortment of titles. The very large assortment size was an advantage early on before Amazon. However, by its very nature the internet was better at quickly and efficiently connecting customers with obscure titles and bringing the “long tail’ to market. Thus, Borders suffered disproportionately as the “long tail” customers abandoned them. Thus, competing on assortment size was especially vulnerable to internet retailing.
Failure to build efficient systems and processes. While Borders legendary “expert system” was considered cutting edge and an advantage early on, the company failed to successfully build upon this foundation and create new, better assortment, replenishment, and supply chain systems and processes to keep pace with the changing state of technology and efficient retail operations. B&N invested considerable time/energy/money through the 90′s in systems and processes. To provide one example, a lower ranked title that sells out in a B&N will be replenished from a central warehouse within 2-3 days. The same process could take up to 16 weeks for Borders. Borders sought to upgrade systems with two large efforts in the 00′s: first one was a home grown effort called Common Systems. Second was a “buy and integrate” project to implement Retek and E3. Both failed spectacularly. The Retek effort dramatically hurt the Walden chain, the only business unit that was managed by the system. With both of these efforts, large sums of money and, perhaps more importantly, human resources and time were squandered.
Branding failure. In addition to the Borders.com problem, Borders never reached the mindshare that Barnes & Noble did for a variety of reasons. Also, Barnes & Noble secured the exclusive U.S. Starbucks partnership, a major branding and traffic-driving win for them.
If it is really taking sixteen weeks to fill in-stock orders from their own warehouse, that’s pretty bad. They should have been able to do better than that in the pre-computer, pre-airplane era.
In the pre-computer era, I can imagine it taking a Borders store sixteen weeks to notice a stockout of one of their thousands of SKUs — which are, of course, reshelved by random customers. In this day and age though? Not an option.
It might take a while to notice a stockout of a particular SKU. The linked article, though, seemed to imply that the 16 weeks was the time from the store reordering it (from the central warehouse) to the time of receipt by the store.
Yeah, that does sound crazy. Perhaps that average was skewed by the number of orders that simply couldn’t be met from the warehouse’s inventory without tracking down copies from other retail locations.