38enso Inc

 

Over the past few weeks, Borders executives have been in NYC negotiating with publishers.   Many articles have been stated that this is the final chapter for this 40-year old bookseller.   They all focus on eBooks and the poor economy as the reasons.  But I think it is much deeper than that and the problems started a decade ago.

 

1)      Reliance on old systems – Borders Expert System was the top book inventory system when it was created.  It was one of the main reasons Kmart purchased Borders.   The system worked when they had 20 stores, but it was never able to scale to 200 stores and definitely not 500 locations.  It required too much manual input from the buyers.   Plus, every shipment from publishers had to go through a Borders warehouse and be stickered.   At one time this controlled inventory, but as the industry moved to JIT replenishment, this cumbersome system slowed everything down.  It generally took Borders 7-10 days longer to get books back in stock.

 

2)      Not understanding the Waldenbooks asset – Waldenbooks was folded into Borders once Kmart had purchased both.   At the time Waldenbooks had 1200 locations and was 10x larger than Borders.   But the future was in the 25,000 square foot ‘superstore’ concept and not the 3,000 square foot mall based Waldenbooks.  All of the cash WB made was spun into Borders growth.  I am not arguing with that decision.  But they should never have tossed WB aside.  Borders never understood the WB model.  They tried to create “Borders Lite” mall stores.  Basically taking a Borders inventory mix and shrinking it.  Mistake.   WB thrived on Romance, Mystery, Sci-Fi and Children’s.   They sold mass market books.   They had loyalty programs of readers in the millions.   All were disbanded.

 

3)      Missed the Internet – Possibly Borders biggest error was to turn over their internet business to Amazon.  At the time, Amazon was very small and Borders was challenging B&N for the largest bookseller in the country.  But Borders partnered with Amazon and basically sent their best customers to the competition.   Borders had tremendous customer loyalty and from Waldens, the Preferred Reader Program of over 3-million frequent buyers.   Amazon took all of them and has destroyed any Borders on-line efforts.   By the time Borders pulled the on-line store back, it was too late.

 

4)      Location, location, location – During the rapid growth days of the superstores, I would go on numerous road trips to visit bookstores.  It always seemed that when a B&N and Borders were in the same area, the B&N had a better location.   I don’t have statistics, but when there was a side by side comp, the B&N always seemed busier.

 

5)      Music and Video – Borders jumped into music and video just as that industry was taking a hit from on-line and digital downloads.  They may have had a few good years, but in the long run they ended up with massive amounts of old technology in physical cds and dvds – where the market had moved away.

 

6)      Bunkering in Michigan – I like Ann Arbor.  I always enjoyed visiting and impressed with the people.  But they should have stayed in the NYC area.  The talent pool is much larger for publishing and bookselling in the NYC-area.  Plus I know of a few instances that very talented people wouldn’t even consider Borders because they didn’t want to leave NYC.   Borders also missed out on what was happening in the publishing industry.  Would always see the B&N people at meetings and events because they were local.   It is less of an issue today but 15 years ago, it made a huge difference.

 

7)      Hoard information – For many years Borders refused to share sales information with the publishers.  B&N openly allowed publishers sales and started to coordinate re-orders etc with them.  This allowed B&N to get a jump on Borders for re-orders of hot titles.   I can remember feeling good when I confined my contact at Borders to fax us the top 100 titles instead of 50.   No inventory numbers though.  By keeping this information closed, Borders hurt their own case for getting re-orders and they also lost valuable days.  B&N could make a decision and get books to market in 3 days, Borders would still be thinking about it.

 

Having the revolving door in the corner office and not investing in eBooks are just the latest issues.   I want Borders to survive.  I believe they can survive.  But they must completely revamp.  The brand is strong and there is definite value.   But the current “business as usual” attitude will only drive them deeper into the hole.    There are many steps Borders needs to take to survive.   Maybe in the next blog post?

The book publishing industry has changed dramatically over the past three years.   Once it was dominated by the publishers.   They were the ones who controlled the content.   Publishers decided what would be published, what was “good”, what the price would be and where the books were to be sold.

 

Then the retailers started to get more influence and power.

 

First came the mall-based chains, Waldenbooks and BDalton’s.  At their peak, there were over 2,000 combined locations.  The rise of the “mass market hard-cover” was born.  Authors like Danielle Steel, Stephen King and Tom Clancy benefited.  Their books were in the front of every store in every mall in America.  Also, genres like Romance, Mystery and Science Fiction all exploded in sales.

 

Then as the mall stores waned, the corporate Superstore was born.   B&N and Borders led the way.   These stores were outside the malls (although some are anchors at malls) and carried 4-5x the selection of a mall store.   They also added in coffee and music and stationary.  The superstore model was dynamic and continued to grow for twenty years.

 

But, now both B&N and Borders are struggling.   The idea of selection is no longer having more in a physical book store.   Selection is online where there are unlimited options.   Selection is also starting to mean eBooks.

 

eBooks are the growth area for publishing.   But instead of the publishers dictating terms, the retailers are now in control. A battle is on for the reader and it is between three massive corporations.

 

Amazon — wants everyone to buy from the Kindle store.   Kindle is a closed system and books bought from other places are not allowed in.

 

Apple — wants to sell everyone an iPad.   Although they have their own iBookstore, they have allowed Amazon, B&N and others in.   So, although they want to sell books, it is more about selling hardware.

 

Google — wants to sell you ads.  They want to enhance the “Search.”   So, their goal is to sell that service and use the content inside books as part of the complete search function.  They will sell you eBooks too, if you want.

 

Will be interesting to see how this all plays out.  B&N nook, Kobo, Sony, and a few others are playing in this arena — and there probably will be a new competitor emerge.  But in the end, Amazon, Google and Apple have the deepest pockets.

 

NOTE:   In an effort to keep this post brief, I passed over the important impact of Department stores; Indies; Costco; Wal-Mart; Crown; Target in the evolution of book-selling.

I was re-reading GREEN EGGS AND HAM to my daughter this morning.   I have probably read this book 1,000 times over the years (including many hundreds of times when I was a child).  I just love this book.   Dr. Seuss was a genius.   Not many books sell as many today as it did 40 years ago.

 

But what struck me about the book today is what a great sales-person SAM-I-AM is.

 

First he is selling an unappealing product.   Green Eggs?   Ugh!    But he persists.  The other dude (does anyone know his name?) is a grouch.  He doesn’t want to see Sam-I-Am at all.  He just wants to read his newspaper and to be left alone.   But Sam-I-Am insists.  Every time the other dude says no, Sam-I-Am comes back with a new option.  How about with a Fox?   In a Car?   He won’t stop.  He is relentless.

 

Finally, Sam-I-Am gets the other dude to try.   By now these green eggs and ham are soggy, cold and been near mice, goats and other vermin.  But the other dude still tries them.  And guess what?  He likes Green Eggs and Ham!!!

 

So, I want Sam-I-Am on my sales force.    But did the other dude ever try the ham too?

 

Starting to read articles about BLACK FRIDAY plans of the retailers.  The day after Thanksgiving where the retailers tease and manipulate consumer behavior.  Get here at 7 AM and get a DVD player for $10!   Trample over people to save a few bucks.  It really brings out the worse it people.   But it drives sales.  It is the un-official kickoff for the make or break time of the year.

 

All the reporters and pundits will predict the entire Holiday season with just data from BLACK FRIDAY.

 

But that didn’t work for on-line retailers.   So CYBER MONDAY was created.   I don’t know if people look at this day as the one to shop on.  I think originally it was on Monday because most had high-speed connections at work but not at home.

 

This year, because of the massive amounts of iPads; Kindles; Nooks and other eReading devices that will be sold.   Everyone from Wal-Mart to Best Buy to Brookstone are selling eReaders.   So what will happen on DEC 25th when all of these new toys are opened?   People will buy an ebook or two.

 

I predict that DEC 25 will be one of the biggest single days for eBook sales.  Traditionally DEC 25 is not a good day for retailers.  It will be different in eBooks this year.

Last week, Barnes & Noble announced a color version of their eReader the Nook.   Although B&N has been the leader in bricks & mortar book sales and has driven a lot of innovation in bookselling, they have been behind Amazon regarding eReaders.   But with this move, B&N nook takes the innovation lead over the Kindle.

 

Sure, Amazon reacted that color is not imporatant and that it isn’t that big a deal.

 

Who knows who is correct?   I tend to think that color is a game changer.   Apple opened up the eBook world to an entire new type of book with their iPad.  Why not color?   I feel that Amazon Kindle will counter one day with color.   They say there are no plans to do so.   But then Amazon just announced a ‘lending policy’ that copies B&N’s nook.  When B&N announced it, Amazon was dismissive of the idea.

 

iPad delivers color for reading books.   Now some of the B&N Nooks also will have color.   Smartphones have color screens.

 

Once upon a time, photos were all B&W.    Once upon a time, movies were all B&W.  Once upon a time TV was all B&W.

 

Once upon a time, all eReaders were B&W.

 

Not any longer.

Amazon is notoriously secretive about how many Kindles they have sold.   A recent analyst projects there will be 5-million sold in 2010; 7.5-million in 2011 and 11.5-million in 2012.  WOW!   It all adds up to almost 25-million Kindles in a few years.   Even if he is way over, conservative estimates have at least 15-million sold.

 

But that is just part of the market.   Kindle has an App for the iPad; the iPhone; the iTouch; Droid phones; Macs and PCs.  So basically anyone will be able to read an eBook through Kindle no matter what device you own.  That comes to hundreds of millions of views.

 

This is not a commercial for Amazon.   But they have made it very easy to read eBooks.  They continue to push publishers to add content.   They keep pushing the price of eReaders down.   The downside?  Kindle is a closed system.  To read books on Kindle, one must buy books on Kindle.  The other systems are open and don’t force a device on the reader.   Will this change?   No one knows, but I am hopeful.

 

Amazon had 93% market share a few years ago.   They essentially created the current eBook market.   They have remained steady in believing in eBooks.   Their share is down to 60-70% (although the market is much greater so their business is healthier).  With increased competition, their share will probably move south of 50%.   At that time, maybe they will open up?

 

But, regardless, it is important to do business with Kindle.  But it is also key to do business with the rest.   It is never good for one company to own the market.  Play with everyone and reap the benefits.