Borders Closes: The End of An Era of Traditional Bookstores

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July 19, 2011 9:47 PM EST

The 400 bookstores under the Borders, Waldenbooks, Borders Express and Borders Outlet names will be closing shop in the U.S. after 40 years of existence, highlighting the decline of the hardcover and paperback bookstores worldwide.

As traditional bookstores have lost market share, online-based retailing has continued to gain more popularity as a distribution method for book, music and movie merchandise.  Not only that, the Internet has enabled changes to formats -- more e-books are now sold -- publishers have to offer as more people are shopping on-line.

In the U.S, when looking for books, used to be you'll be pointed to a local Borders outlet or other bookstores located in every corner.  Now someone will just tell you to type Amazon.com on your PC or smartphone.

As for Borders, Jahm Najafi, head of Najafi Cos., negotiated a sale agreement to keep the stores open and save their 10,500 employees.  However, unsecured creditors, holding some of the $1.3 billion in debt that the bookstore chain has accumulated, opposed a deal citing that the offer by liquidators Hilco and Gordon Brothers are offering more for the assets.

"Following the best efforts of all parties, we are saddened by this development," said Borders Group President Mike Edwards.  "We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time, including the rapidly changing book industry, eReader revolution, and turbulent economy, have brought us to where we are now," he added.

Borders sought bankruptcy protection in the United States in February this year hoping to shed unprofitable locations but keeping key outlets open.  However, the court-sanctioned cost- cutting measures appear not to be enough, as all stores will end up having going-out-of-business sales before turning over the keys to the landlords.

"For decades, Borders stores have been destinations within our communities, places where people have sought knowledge, entertainment, and enlightenment and connected with others who share their passion.  Everyone at Borders has helped millions of people discover new books, music, and movies, and we all take pride in the role Borders has played in our customers' lives," Edwards continued, "I extend a heartfelt thanks to all of our dedicated employees and our loyal customers."

The Wall Street Journal reported that Borders' demise could speed the decline in sales of hardcover and paperback books as consumers increasingly turn to downloading electronic books or having physical books mailed to their doorsteps; and may also make it more difficult for new writers to be discovered.

"When you lose literally miles of bookshelves, it's going to have an impact," the Wall Street Journal quotes David Young, chief executive of Lagardere SCA's Hachette Book Group, as saying.  "I hope other retailers will now step up and make offers for what they consider to be the prime sites," Mr. Young said.  "It's a tragedy Borders didn't make it through."

"The liquidation of Borders is an irreplaceable loss of a big part of the book-discovery ecosystem," said Michael Norris, a senior analyst at Simba Information, a unit of MarketResearch.com, according to The WSJ.  "Thousands of people whose job consisted of talking up and selling books will eventually being doing something else, and that's bad for authors, agents, and everyone associated with the value chain in books."

The effect of online retailing is not exclusive to Borders.  Blockbuster Inc., which had 5,000 stores selling and renting 125,000 movie titles and games in the U.S, Australia and other countries, succumbed to bankruptcy in September last year.  It cited that "ever-changing landscape" in the industry for its woes.With fewer people walking to the local Blockbuster stores, more and more people are subscribing to online video store Netflix.

Another industry hit by the availability of content online is the newspaper industry.  Many newspaper publishers have already sought bankruptcy protection or have downsized.  Whereas before the focus was on revenues from subscriptions of the newspapers and ads, many news providers that have survived, including the Wall Street Journal and the New York Times (and next, the newspapers in Australia), have put up pay-walls and seeking online ad revenues in order to address the shrinking revenue for their traditional newspapers.

As Borders is moving to oblivion -- with its name and trademarks likely to be sold to some online booksellers -- online retailers like Amazon has been picking up speed.

Amazon, which doesn't carry the costs for keeping shelves of books, the store leases, as much as employee costs of the traditional book stores, has been able to offer lower prices, but recorded revenue of $34.2 billion in sales in 2010, up from $24.5 billion in 2009 and $19.2 billion in 2008.  It generated revenue from people who stopped browsing in their local bookstores and instead have browsed online for books, ebooks, ereaders, movies, and other merchandise.

Take a look at the e-book readers, the portable electronic device used for reading digital books and periodicals.  Research firm IDC forecasts the worldwide e-reader market, led by Barnes & Noble's NOOK and Amazon's Kindle, to ship 16.2 million units in 2011, a 24% increase over 2010.  Apple's iPad and other tablet PCs, which are also being used for digital books, are expected by IDC to sell 53.5 million units this year.

According to IDC, media tablets will experience a five-year compound annual growth rate (CAGR) of 54% in Asia/Pacific excluding Japan (APEJ) region, multiplying nearly ten times to 21 million units from 2 million units shipped in 2010.  eReaders will carry a lower 18% CAGR in the region.

With more and more people using e-books and tablets instead of thumbing through the pages of the hardcover and paperback books, traditional bookstores worldwide will have a hard time posting continued profits.

With the more content being provided online, booksellers need to adjust to the changing needs of customers.  Barnes & Noble, which has more than 1,300 bookstores, has been able to survive by putting up its online stores.  While sales of the company's traditional bookstores have declined, Barnes & Noble.com, which sells the company's digital content, has reported growth in the past two years.  As digital and electronic sales become a larger part of its business, B&N, however, does not expect to open retail stores in new geographic markets or expand the total number of retail stores in the near future.

They say that Borders reacted slowly to change and failed to match the dizzying pace of innovation of the Web.  The demise of Borders is a painful lesson for traditional businesses worldwide.

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