Nonfoods Talk: Writing the next chapter

What lessons can supermarkets glean from the fall of Borders?

By Seth Mendelson

What’s the book on Borders?

As has been well documented in the press in recent weeks, the giant bookstore chain declared bankruptcy in mid-February and announced it was closing about 30% of its stores and laying off thousands of workers. There is talk in the industry that this is just the latest futile attempt to stave off the complete closing of the chain, which could happen in the next 12 to 18 months.

Many say that the current recession is the undoing of Borders. They point to an industrywide decline in consumers shopping for books at retail outlets as the main reason why the chain went from a high-flying operation to one that is barely surviving. The growth of Amazon.com and its less expensive books did not help, nor did the creation of such electronic book readers as Amazon’s Kindle and Barnes & Noble’s Nook.

Both of these e-readers, as well as several others, have turned the book industry on its ear, offering consumers an increasingly broader selection of products at price-points that traditional book stores cannot come close to matching.

That is some pretty compelling evidence. But, I say that while all of these events helped plunge a dagger into the heart of Borders, the real culprit is the chain itself. For years, Borders officials believed that they could fool consumers with a merchandising and marketing strategy that kept prices high and offered consumers discounts through the use of coupons and special events.

I have first-hand knowledge of this strategy. Since signing up for the Borders “loyalty” program several years ago, I have since received online promotional coupons for up to 40% off on a regular basis. Great deal, I thought initially. What I quickly learned, though, was that the deal was too good to be true.

Yes, Borders offered the discount coupons, but the price-points on many of its products were so much higher than other retailers—including very often Barnes & Noble—that even with the discounts it was still more expensive than many other outlets. So consumers, myself included, did the one thing we could do—we stopped shopping the chain.

Thus started the snowball effect. Fewer shoppers and waning sales meant scaling back on many of the things that could have kept the brick and mortar stores ahead of the digital revolution. Service took a hit and that was followed by a cutback in such merchandising efforts as variety and even promotional activity. Unfortunately, bankruptcy protection became the only answer.

Now let us be clear. The golden days of bookstores are a good 10 to 20 years behind us. Thanks to the Internet, and specifically Amazon.com, consumers have easy and cheap access to thousands of books, often delivered within a minute. But bookstores can re-invent themselves and survive. Many chains, particularly Barnes & Noble, are turning themselves into new-fangled toy stores, complete with a wide variety of adult-oriented games, puzzles, CDs, DVDs and other products designed to keep consumers coming through the door, along with an increasingly unique selection of books and periodicals.

Interestingly, many of these bookstores are catering to young children and older consumers, the two demographics that have not been dramatically impacted by the digital age.

But Borders officials failed to realize that when it all boils down to it, price is still a huge factor in getting consumers to purchase products at the outlet and become frequent shoppers.

What can supermarkets take away from this lesson? Even as times and technology change, it is still important to understand that consumers are usually looking for convenience, service and, most importantly, value from the stores they shop. Failure to do so will just make it easier for that new technology—or that new retailer down the road—to steal market share.

Seth Mendelson can be reached at  646-274-3507, or smendelson@groceryheadquarters.com.

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