Borders stores were huge — much bigger than their competitors and apparently unassailable — and now they’re shutting down. But from the beginning they were set on a course for disaster.
The Borders group did not get into financial difficulty because of competition from internet sales. They came to Australia with a flawed business model and a certain megalomania. Borders opened megastores with a view to knocking off the strong independent booksellers and sucking business out of the existing chains.
Borders, like so many other short sighted businesses, sacrificed profitability for market share. They poured huge money into extensive stockholdings. Their hope was that if they stocked everything, shoppers wouldn’t look elsewhere.
Borders cut costs the only way they could — on staff. Their check-out approach displayed a culture Australian book buyers weren’t comfortable with. One reason there has always been a strong independent bookselling tradition here is that customers appreciate genuine knowledge, service and engagement. Enthusiasm counts. It’s not like selling tyres.
Borders were doomed to fail from the beginning. Profit in this type of business comes from stock turn. It’s how effectively you use your precious capital. For every dollar in the business you must turn it over and make a profit on it as many times in a year as you can. Borders, in order to bludgeon competitors out of the market, stocked everything. That ensured their stock turn would be inadequate and the cost of capital too high. Unless their pockets were bottomless, it was only a matter of time.
Along the way they’ve caused considerable collateral damage.
They have managed to take down the Angus and Robertson (company owned) stores, and the Whitcoulls chain — which in turn had included UBS, London Bookshops and the Philip King group. We have yet to see what harm they’ve done to suppliers. Presumably they stood over suppliers in demanding preferential terms. Now as the back gate is shut, they’ll be sitting on considerable inventory at the expense of those suppliers. And of course from a receiver’s point of view, it makes sense to sell stock even at 50 per cent off to the public and pay creditors whatever paltry return in the dollar is left. How many smaller local publishers will be burnt here?
But this isn’t the doom and gloom story Borders and most commentators are peddling. In Australia, Dymocks, Collins, and those independents left standing will benefit. In New Zealand, the ubiquitous Paper Plus group will prosper. Indeed they have never ascribed to the Borders approach and their unique model might yet find traction in Australia.
Paper Plus sell books, magazines, stationery and in some places incorporate a postal shop. They manage to survive even in small towns, with a combination of co-operative central buying and individual shop ordering. Of course the newsagent monopoly is a stumbling block in Australia. As long as magazine suppliers continue to get away with refusing to supply anyone other than designated newsagents, this remnant of monopoly capitalism will continue to control markets (and inflate the value of newsagencies beyond their actual profitability).
The other great stumbling block is the prevention of parallel importing. As long as local subsidiaries of overseas publishers can monopolise supply and artificially inflate prices, bookshops can’t compete with internet suppliers on price (with overseas originating product). Of course whenever this is raised, publishers wheel out local authors to bleat about the dire consequences to the industry. Over the years we’ve seen them repeatedly do it using whatever local writers are the current vogue.
But internet competition isn’t killing local bookshops. It’s the lack of competition and monopoly practices that mean locals try and compete with their hands tied.
Last year bookshop sales overall were down 4 per cent. That’s not a bad result under the circumstances. Look at sales in other sectors. Compared with real estate, they should be chuffed.
Of course internet sales are hurting the book business, but it’s not the end of the world. Borders just got it wrong. Their mistake was coming into a market they didn’t understand, applying a dodgy generic model and spending like drunken sailors. It was a gamble doomed by the numbers from the beginning.
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