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CC-002 Bookstore chain · USA 2011

Borders — The Bookstore That Hired Its Killer to Run the Website

ecommerceliquidated2010s
Lifespan
1971–2011 · 40 yrs
Peak Stores
~1,249 (2003)
Killed By
Amazon / e-books + own missteps
Status
Liquidated

Summary

Borders was the great American book superstore, and in September 2011 it stopped existing. Founded in Ann Arbor, Michigan in 1971 by brothers Tom and Louis Borders, it grew over four decades into a chain of roughly 1,200 stores under the Borders and Waldenbooks banners, the kind of place — deep aisles, listening stations, a cafe, an armchair, a category nobody else carried — that turned book-buying into an afternoon. On February 16, 2011 it filed for Chapter 11 bankruptcy, and when no buyer emerged to keep it alive, the case converted to liquidation in July. The going-out-of-business banners went up across 399 remaining stores, and about 10,700 people lost their jobs.

What makes Borders a case study rather than merely a casualty is that it was, for a time, the smarter of the two big book chains, and it made three strategic decisions so clearly wrong in hindsight that they read like a checklist of how to lose. It outsourced its entire online business to Amazon in 2001 — handing its e-commerce, and its customers, to the company that would bury it. It bet its floor space on CDs and DVDs just as recorded music and physical video began their collapse. And it arrived late, and underfunded, to e-readers and e-books, ceding the digital page to Amazon's Kindle and Barnes & Noble's Nook.

None of these was unforced. Each looked defensible at the moment it was made: Amazon's platform was genuinely better than anything Borders could build cheaply; music and movies were high-margin and drove traffic; e-readers were an unproven niche. But each ceded a future battlefield to a competitor, and together they meant that when the book business went digital, Borders had no website of its own, no e-reader of its own, and a fleet of large-format stores stocked with media nobody wanted to buy in a store anymore.

The bookstore's last profitable year was 2006. After that came a revolving door of chief executives, a balance sheet thick with leases and debt, and a belated, doomed scramble — a Kobo-powered e-book platform launched in 2010, far too late. Barnes & Noble bought the trademark and the customer list out of the wreckage. The stores, the cafes, and the staff who knew where everything was simply went away.

Timeline

1971
The brothers' bookshop
Tom and Louis Borders open an 800-square-foot used bookstore in Ann Arbor, Michigan.
1970s–80s
The inventory edge
Louis Borders builds a sophisticated inventory-management system that lets stores stock to local demand — a competitive advantage that lasts roughly two decades.
October 1992
Kmart buys in
Kmart acquires Borders, pairing it with its Waldenbooks mall chain.
1995
Borders Group goes public
Kmart spins off Borders Group, Inc., headquartered in Ann Arbor, as a standalone public company.
1997 onward
Going global
Borders expands abroad — Singapore, Australia, the UK, Ireland and beyond — chasing scale.
2003
Peak footprint
The chain operates about 1,249 stores under the Borders and Waldenbooks names.
April 11, 2001
The website handed to Amazon
Borders and Amazon announce that Borders.com will be re-launched powered by Amazon, which becomes the seller of record — owning the inventory, fulfillment and the customers.
2006
The last good year
Borders posts its final annual profit; from here the losses compound.
2007
The Amazon split
Borders ends the Amazon alliance and relaunches its own site — roughly a decade behind.
2010
A Kobo afterthought
Borders launches an e-book store powered by Kobo, years after Kindle and Nook defined the market.
February 16, 2011
Chapter 11
Borders files for bankruptcy listing about $1.275 billion in assets against $1.293 billion in debts, and moves to close 200-plus stores.
July–September 2011
Liquidation
With no going-concern bidder, liquidators led by Hilco and Gordon Brothers wind down the last 399 stores; about 10,700 jobs are lost and operations cease in September.

The Better Bookstore

For most of the 1980s and 1990s, Borders was arguably the more impressive of the two book superstore chains. Its origin was a competitive weapon disguised as a used bookshop: Louis Borders had built an inventory-management and sales-forecasting system that could tell a store manager which titles actually moved in that particular town, and stock accordingly. In an industry that ran on guesswork and returns, this was close to a superpower, and it underwrote a category-killer expansion — vast stores with selection no mall shop could match, a cafe to keep customers browsing, and a clerkly, literate house style. Kmart bought it in 1992 and spun it off in 1995, and by 2003 the group ran about 1,249 stores.

The trouble was that the very thing Borders sold so well — physical books, music and movies, browsed and bought in a large, expensive, leased building — was the thing about to be disrupted on every front at once. And the company's response, repeatedly, was to treat the disruptive frontier as someone else's problem. That instinct produced the three decisions that, stacked together, defined the fall.

Three Doors Left Open

The first door was the website. In April 2001, Borders announced that it would shut its own struggling online store and re-launch Borders.com as a co-branded site powered by Amazon, which would handle inventory, fulfillment, content and customer service as the seller of record. On the spreadsheet it was rational: Amazon's platform worked, Borders' did not, and outsourcing turned a money-losing distraction into a revenue share. In practice it meant that for roughly six years, every customer who went to Borders online to buy a book was handed, gift-wrapped, to the one competitor capable of destroying the chain — its purchase history, its preferences, its loyalty, all flowing to Amazon. When Borders finally took its site back in 2007 and tried to build its own, it was a decade behind a rival it had spent that decade feeding.

The second door was the floor plan. Borders devoted enormous, prominent square footage to CDs and DVDs, betting on high-margin media to drive traffic — a sound bet in 1999 and a catastrophic one by the mid-2000s, as recorded-music sales cratered under downloading and the DVD market began its own decline. The chain found itself paying rent on acres of shelving stocked with exactly the categories migrating to iTunes and Netflix fastest. The traffic-driver had become an anchor.

The third door was the page itself. As Amazon's Kindle (2007) and Barnes & Noble's Nook (2009) established e-readers and e-books as the future of the book, Borders had no device, no platform, and no real plan. Its eventual answer — an e-book store powered by the Canadian firm Kobo, launched in 2010 — arrived years after the market had been carved up, with no proprietary hardware and a brand already visibly failing. By then the company was simply too weak to make a digital bet stick.

Everything Must Go

The arithmetic caught up in the usual way: slowly, then at once. Borders' last profitable year was 2006; after that came losses, a churn of executives, and a debt load and lease book that left no margin to absorb a digital transition the company had spent a decade declining to fund. On February 16, 2011 it filed for Chapter 11, listing about $1.275 billion in assets against $1.293 billion in debts — a balance sheet underwater by a rounding error, which is its own kind of verdict. The plan was to close the weakest 200-odd stores and reorganize around the rest.

It never got the chance. A rescue bid collapsed over creditor objections, the bid deadline passed in July with no buyer willing to keep the chain operating, and a bankruptcy judge approved liquidation. Liquidators led by Hilco Merchant Resources and Gordon Brothers Group took over the final 399 stores, the EVERYTHING MUST GO signage went up, and about 10,700 employees were told the dates of their last shifts. Operations ceased in September 2011. Barnes & Noble — the rival that had built its own website and its own e-reader — acquired the Borders trademark and customer list, a tidy epitaph: the assets that survived were the brand and the mailing list, the two things Borders had handed to Amazon a decade before.

The Five Factors

01
Outsourcing the future to your eventual executioner
Handing Borders.com to Amazon in 2001 solved a near-term problem (a weak website) by surrendering a long-term battlefield (e-commerce, and the customer relationship that comes with it). When the disruptive channel is the one that will define your industry, building it badly yourself beats letting your most dangerous competitor build it well on your behalf.
02
A traffic-driver becomes an anchor when its category dies
Betting prime floor space on CDs and DVDs made sense while those were high-margin and high-traffic. It became a fixed cost paid in rent and shelving for products the customer was migrating to download and stream — the classic error of doubling down on a profitable category at the exact inflection point it begins to collapse.
03
Late and underfunded is the same as absent
Borders did eventually launch an e-book store, in 2010 — with no hardware, no platform of its own, and years after Kindle and Nook had defined the market. Arriving to a new format after the incumbents have locked in customers and devices is not a strategy; it is a press release.
04
A large-format fleet is a wager on a format staying physical
Borders' value proposition was the big store: the selection, the cafe, the afternoon. When books, music and video all moved to screens, that footprint turned from moat to millstone — high fixed costs that could not be shed at the speed demand fell.
05
Being the smarter incumbent does not save you if you cede every new front
Borders had the better inventory system and, for years, the better stores. None of it mattered, because on each successive battlefield — the web, the e-reader, the e-book — it chose to let someone else win. Operational excellence in the old game is no defense against a refusal to play the new one.

Aftermath

The human cost was concentrated and quick. About 10,700 employees lost their jobs in the 2011 liquidation — booksellers, cafe staff, the people who could find anything — and across the broader Borders Group footprint over the years the total ran far higher. The stores, many of them large anchor spaces in malls and on main streets, went dark and stayed empty for years in a lot of towns, part of the wider hollowing-out of physical retail. The Waldenbooks mall chain, owned by the same group, went down with it.

The brand had no real afterlife. Barnes & Noble bought the trademark and the customer list, mostly to convert Borders' loyalty members into its own, and the name effectively vanished from the high street. Borders endures now as the textbook example — alongside its sub-site neighbor Blockbuster — of an incumbent that could see the digital wave coming and met it by handing the surfboard to a competitor. Where Blockbuster passed on buying Netflix, Borders did something stranger: it paid Amazon to run the very channel Amazon would use to replace it.

Lessons

  1. Never outsource a strategically critical channel to a competitor capable of destroying you; a clumsy in-house version of your own future beats a polished one owned by your executioner.
  2. Watch the inflection point on your highest-margin categories — the moment a profitable, traffic-driving product line begins to migrate to a new medium is the moment to shrink your bet on it, not grow it.
  3. Treat new formats as land grabs that close: entering late, without proprietary technology, after rivals have locked in customers and devices, is functionally the same as not entering at all.
  4. Size your physical footprint to the durability of the format it depends on; a big-box fleet is leverage while the product stays physical and a fixed-cost trap the moment it does not.
  5. Operational excellence in the legacy business buys time, not immunity; the incumbent that wins every old battle and concedes every new one still loses the war.

References