Borders struggles amid rapid changes in book sales

By Michael S. Rosenwald
Washington Post Staff Writer
Thursday, January 20, 2011; 11:11 PM

Meetings of the history book club at the Borders bookstore in White Flint Mall are device-free. The other night, during a discussion of "1848: Year of Revolution," no Kindles, iPads or Nooks showed up. There was one cellphone sighting, but it was fleeting.

"This group is challenged by e-mail," said Christian Minor, a physicist and longtime member.

In a quiet alcove, in a circle of 14 chairs and with a 496-page book on their laps, club members discussed events an ocean and several lifetimes away. But they had the present in mind, too: What will become of their monthly meeting spot?

Borders, they know, is struggling to survive. It recently suspended payments to book publishers. Dozens of its stores across the country, including several in the Washington area, have closed. For many in the industry - and for this group of Borders regulars - the question is not whether the chain will go under, but when.

"How many record stores are there these days?" Minor said after the meeting, resigned to the eventual end.

A Borders spokeswoman declined to comment or make executives available for interviews.

How Borders arrived at this once-unthinkable moment is, like many stories of troubled companies, a tale of strategic errors, missed opportunities and revolving-door management (the chain is now in the hands of a former tobacco executive). But the company's collapse, though perhaps hastened by missteps, seems to many industry insiders to have been inevitable, brought on by cultural changes too swift and sweeping to fend off, even for a huge player in the nation's cultural life.

Borders was a major force in redefining Americans' reading habits, selling millions of books in places where they had once been scarce and helping scores of novels to become movies and subjects of national conversation. Now, Borders faces a pool of potential customers who quickly spread culture themselves, one viral video or status update at a time.

Once, Borders was, with rival Barnes & Noble, the long tail of reading, with supermarket-size stores offering thousands of obscure titles alongside bestsellers. Now, Borders confronts the limitless, more efficient supply chain of Amazon's online emporium. Borders, which helped a generation of readers learn the pleasure of diving into a book for hours at a stretch, now competes for the attention of readers who dip into a few pages on an iPad, open Facebook, read some more, then tweet random thoughts. Printed books don't need a power outlet or a data plan, yet for some people, their utility seems to be fading.

Even Barnes & Noble, which analysts say is better run than Borders, feels the stress of steering a business whose customers' bookmarks are increasingly digital. "Sometimes I want to shoot myself in the morning," joked Leonard Riggio, founder and chairman of Barnes and Noble.

Boom times

Before Riggio and the Borders brothers, Louis and Tom, started their chains in the late 1960s and early 1970s, respectively, bookselling in much of the United States was largely confined to quaint independent shops offering personally selected, mostly highbrow books. Chains such as B. Dalton and Waldenbooks, offering mostly bestsellers, emerged in the shopping malls that opened as middle-class families moved to the suburbs.

The Borders brothers - then geeky recent grads in the college town of Ann Arbor, Mich. - wanted to stock their local store with a broader array of books, like the best independent shops in the biggest cities. They did so with the help of sophisticated software that helped them predict which titles would sell. The brothers saw dollar signs in licensing the software to other independent bookstores, but owners of those shops rebelled against the idea of machines doing their jobs, according to Wharton Business School professor Daniel Raff, who has studied the chain's early days.

So the brothers spread the use of their software by opening more stores of their own - bigger and bigger, farther and farther from Ann Arbor. Meanwhile, Riggio was opening large stores in once unthinkable places, like Cape Girardeau, Mo. Superstore bookselling was born.

"They elevated book-buying to the same status as any core retail experience," said John B. Thompson, a University of Cambridge professor and author of "Merchants of Culture," a history of the publishing industry. "They were reaching parts of America that had simply never been reached before with books - not just New York and Los Angeles, but small towns, other urban centers, a whole untapped market of people who wanted to buy lots of books."

In 1992, the Borders brothers sold their chain to Kmart, which wanted in on the new retail bonanza, having already snapped up Waldenbooks. The stores and their coffeehouses had become hangouts, even destinations for dates. The wide, discounted selection eventually put hundreds of smaller bookstores out of business. Malls such as White Flint brought in book superstores as anchors, on a par with Macy's or Bloomingdale's. The stores then moved into urban downtowns, including Washington's, as sought-after tenants in busy office buildings.

The chains became so ingrained in pop culture that they provided the backdrop for the 1990s romantic comedy "You've Got Mail," starring Meg Ryan as an independent bookshop owner and Tom Hanks as owner of the behemoth Fox Books.

"We are going to seduce them," Hanks' character says as he plans a store near Ryan's. "We're going to seduce them with our square footage, and our discounts, and our deep armchairs, and our cappuccino."

The goods the stores peddled at cut-rate prices became the nation's culture. Film and TV producers converted the hottest titles to screen productions. Readers rushed in for the latest Oprah Book Club pick. John Grisham became very wealthy, with one bestseller and movie after another. "These stores created a broad diffusion of literary goods, whether commercial or not, that undoubtedly had a further impact on related industries like film and television," Thompson said. "They had a tremendous impact on society."

Cultural shift

But as the two book mega-stores clobbered each other in their battle for market share, the chains, and especially Borders, missed the next big cultural shift, analysts say.

It started with Amazon. Launched in 1995 by Jeffrey Bezos, the company aimed to be the biggest bookstore on the planet, and it shipped books anywhere at prices so cheap that it lost money on many sales. The jokes came fast: Amazon dot bomb, some people called it. Amazon dot gone, others said.

But it turned out that Amazon knew what it was doing, building an infrastructure that eventually displaced Borders - then known as the more bookish of the chains - as the preferred way to get the right book into the hands of the right customer. Amazon built software that suggested other books to customers, based on their orders. As Amazon got better at such tactics, "Borders lost that patina they had, that special place of a bookstore, and they became just another discount retailer," said Albert Greco, senior researcher at the Institute for Publishing Research.

As customers drifted one way, Borders went the other direction. Analysts say Borders executives, who seemed to turn over at the same rate as bestsellers, did not pay enough attention to the social change. They spent hundreds of millions buying back stock from shareholders. They embarked on an expensive foreign expansion. And they were too slow to build their own Web sales operation, finally giving up and partnering with, yes, Amazon.

"It would be as if Ford asked General Motors to make their cars and distribute them," Greco said. "It was a very bad strategy."

Then came e-reading. Borders, unlike Amazon or Barnes & Noble, failed to invest in the technology until it had won a mainstream following. "All of these consumer trends were there and anyone could see them," said Zeynep Ton, a Harvard Business School retail expert who has studied Borders. "These trends were not a secret. They should have seen them coming."

By the time they did, it was too late: The book world's best customers swarmed to e-books, locking into platforms other than the ones Borders eventually supported. Though only 8 percent of readers surveyed in a recent Harris Poll own e-readers, those owning the devices were nearly twice as likely to buy six to 10 books a year as those who were sticking with print.

"There has now clearly been a shift to reading more quickly," said John Miedema, an information technology architect and author of "Slow Reading." "We are a little more scattered now in our approach."

That genie is not going back in the bottle. The Kindle can now tweet. Ebooks bought on Amazon can be read on Kindles, iPads, iPhones, BlackBerries or a computer screen.

Barnes & Noble launched its own e-reader, the Nook, to combat declining sales of printed books, but the chain also closed stores in the face of investor pressure. In August, executives announced that the company was for sale.

For every reader who can't stand the thought of not buying books in a bookstore, the economics of the moment - and Borders's stock price, 83 cents as of Thursday - suggest that there are many more who simply do not care. "The outlook is not very good," Greco said. "I mean, how many Kindles will be sold in 2011? How many iPads? How many Nooks? Millions. Millions and millions of them will be sold."


Reached in Silicon Valley, where he is now a tech entrepreneur, Louis Borders declined to discuss his namesake's problems or even whatever fondness he may hold for what's left of his first big idea. "I've been away for the company for a while, and I just don't want to talk about it," he said, before quickly hanging up.

The top brass of the company he founded, now led by former tobacco executive Bennett Le-Bow, are reportedly in heated discussions with publishers over missed payments for books.

This is essentially a game of chicken: The publishers need Borders as a place to sell books; to stay alive, Borders needs books to sell.

Whatever progress publishers and Borders make toward a temporary deal, analysts and industry observers say the larger problem is much more daunting: There are just too many big bookstores selling a product fewer and fewer people want, at least in printed form.

"They have lots of readers, but not enough buyers," said Greg Mattson, a retired State Department official and longtime customer at the White Flint Borders, where he was attending his first meeting of the history book club. "That's a problem."

Toward the end of the meeting, someone said, "Okay, what are we reading next month?"

Stewart Oneglia, the club's leader and a Borders bookseller, walked a few shelves over to get the next selection. "I think this is going to be a good one," she said.

It's a history of libraries.

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