Wednesday, February 2, 2011

Borders (BGN): Nearing the End of an Era

Unfortunately, it looks like the bad news that has been threatening itself for a while is really coming.

In the late 1980's and throughout the 1990's, it seemed like Borders (BGP) would ALWAYS be a thriving industry.

Borders and Barnes and Noble bookstores used the same concept, and I never knew which one was better. (I still don't!) When I went into a Borders, I never thought about the temperature, which means it was always the right temperature. There seemed to be books on anything and everything I could ever want...and much more.

There was a huge selection of magazines. They had nice chairs, where you could sit comfortably and read parts of books that you might buy...or might not. There was never any sales pressure; just customer service to help you find a book or suggest one to you, and they were always friendly and happy to help.

Plus, they had a really cool cafe, where you could buy specialty coffee drinks or pastries. Their sitting area provided another place to sit and read.

Recently, they have wireless internet access. So you can meet people at a nice place and meet while doing some research, too.

This is why it's such sad news that Borders is very likely to file bankruptcy sometime next week.

It's never good to hear companies having to file bankruptcy, but it's really rotten when great places can no longer run profitably.

Sometimes, bankruptcy protection offers an opportunity for a business to rebound, like General Motors and Chrysler. They reduce their payments by wiping out a lot of their debt, making it much easier to return to profitability.

Can Borders return to profitability?

One never knows--for sure--however, my thought is absolutely not.

GM and Chrysler could, and they're doing really well right now. Why not Borders, too?

What we have in Borders, ladies and gentlemen, is a flawed model.

It wasn't flawed when they came onto the scene. They had a novel concept by catering to true bookworms who wanted an experience to accommodate them. Most bookstores were really drab, and they just carried books. Borders (and Barnes and Noble, also) provided an experience.

Doesn't Borders provide a good experience today?

By most accounts, they still do. Whenever I go into a Borders bookstore, I usually enjoy myself. It's pretty much the same thing as when they started.

...and THAT is the problem.

THEY stayed the same, but the market changed.

What about the market changed so much that Borders will die?

Most of you reading this already know the answer....The Internet!

The Internet is an awesome tool. From home (or work or wherever else) you can find a new or used book at the best possible price, and the book will be delivered to your home.

Simply put, technology made buying books cheaper and more convenient than Borders ever will, and the Internet is NOT leaving us anytime soon.

When your business model depends upon successfully competing against other drab and uncomfortable bookstores, you can make an impression.

When your business model later depends upon upstaging the Internet's convenience and its low cost of buying the same things you sell, you are not going to be able to retain your market share.

You might see individual stores do really well in places that make a point to support local and good businesses, but most people will not spend MORE money for LESS convenience.

Borders, the chain, will die soon, and that's really bad news.

We are NOT better for Borders filing bankruptcy and eventually closing its stores.

It will be a sad day, and it's coming sooner rather than later.

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