July 31, 2011, 12:00 PM

Publisher's Letter: E-retailing and the demise of Borders

E-retailing and the demise of Borders.

Big-box stores are vanishing like dust in the wind, to borrow the title of the hit by the group Kansas. Remember Circuit City, Linens 'n Things, and all those Blockbuster stores? Gone, gone and gone. Borders last month became the latest to turn to dust.

Stock analysts point to myriad reasons for their failure, but I believe only one really matters. The top managements of each of these chains realized too late how serious was the threat posed to their stores by the rise of e-retailing and responded weakly to upstart web merchants stealing their customers.

Even when they belatedly developed an online response they failed to give their web stores the same attention they lavished on their physical outlets, fruitlessly arguing that they had to protect massive investments they made in bricks and mortar. When online sales in all retail segments are growing at least three times faster than sales at stores, top managers of these defunct chains should have made the development of a competitive online channel their top priority. Because they did not, their customer bases continued to erode. Just as the big railroads missed the conversion to air travel, these chains defined retailing too narrowly and failed to adapt to the digital age.

Borders is a classic case. It built beautiful stores and paid a bundle to put them in prime locations. Its outlets featured huge collections of titles, not to mention a splendid list of music CDs. Barnes & Noble sells Starbucks coffee, but Borders stores often had superior cafes, where customers could lounge as they flipped pages and nibbled on scones. Its customer service was excellent and it invested in computer systems that allowed it to satisfy the particular reading preferences of customers in different markets.

The problem was that the chain's web site, Borders.com, was an afterthought, not launched until 2008. By then, Amazon.com, which built its online retailing empire by first selling books on the web in 1995, was not only the largest online seller of books but also the world's top online merchant, with sales this year approaching $50 billion. Where will you find Borders.com in the Internet Retailer 2011 Top 500 Guide ranking of online merchants? It's ranked #200 with web sales last year of just $75 million, so far behind Amazon in web book sales as to be irrelevant, but, more importantly, also well behind its major book chain rival, Barnes & Noble, which launched its web site just two years after Amazon began. BarnesandNoble.com boasts the 41st largest e-retailing business with web sales of $573 million last year.

For now, Barnes & Noble's survival as a bookstore chain seems assured with Borders' demise. But its long-term survival surely rests on the priority it has placed on its web business, where it is investing $140 million this year alone. It developed that business in-house, instead of farming it out to Amazon, as Borders unbelievably did at first. When Amazon introduced its game-changing Kindle digital reader, Barnes & Noble responded with its Nook, which, unlike the Kindle, features color and a web browser. More than 25% of Nook buyers are new customers of Barnes & Noble.

Barnes & Noble is hardly the only big-box chain to extend its life online. The web sites of Staples, Office Depot and OfficeMax rank #2, #5 and #9, respectively, in the Top 500 Guide. Like all big-box retailers, their stores are buffeted by the winds of change sweeping retailing. They just refuse to vanish like the dust in that wind.

Jack Love, Publisher

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