Bookstore bankruptcy

Borders, the second largest US bookstore chain, filed for Chapter 11 bankruptcy last week.

Like many Michigan companies, the chain is currently making adjustments in hopes to remain a major market competitor.

This news should not come as a shock to those who have been following Borders' revenue margins: the company has not posted a year of profit since 2006 and its annual revenue has fallen by approximately $1 billion since then. Stock shares have fallen below 50 cents a share and reported a 25 percent decline in profits over the holiday season.

One problem could have been with its expansion plans. Even though Borders was in the red in 2006, it continued to open stores internationally, such as in Dubai, Sharjah, Omen and Malaysia, the last of which is Borders' largest store at 60,000 square feet.

Since this expansion, the store has sold its franchise in Australia, Ireland and the UK.

Another could have been investment spent on technological development. Fourteen stores across the country got electronic upgrades, featuring MP3 players and e-readers on sale and to use in the store.

In 2008, Borders began to roll out stores with highly technological store concepts, which their website said would "present some of the most exciting and groundbreaking digital devices and services when, in for the way you live."

Select stores were also equipped with digital video monitors that also displayed news and sports. While executives may have been searching for a way to reinvent and eventually turn a profit, the company continued to dump money into unsuccessful ventures.

The company showed a further turn for the worse when they broke free from Amazon.com, their seven-year business partner for online retail. Instead, they began selling merchandise from the newly revamped Borders.com.

At the time, Borders' VP of e-business told the International Business Times that "We are a bookstore - and we have to be a real bookstore online. We really tried to make [the site] feel like a Borders store."

Between 2009 and 2010, several high-ranking positions within the company were vacated and filled by new executives. The position of CEO had changed four times in those two years, along with changes to the Chief Financial Officer, the Board of Directors, the Vice President and the President of the company. The new team consisted of a diverse group: board members Paul J. Brown and Dan Rose previously worked for Hilton Hotels and Facebook respectively.

One Borders employee, wishing to remain anonymous, explained that the new management team may be imposing a much more stringent business model, namely by closing down unprofitable locales.

"Borders is just using the opportunity to close down old and underperforming stores," said the anonymous employee. He also noted that the Borders in the Westfield Shopping Center in Toledo is not amongst the list of stores likely to be closing.

A call to the brand-loyal

A day after Borders announced their filing for bankruptcy, CEO Mike Edwards sent out an e-mail to all members their Borders rewards program. In it, he outlined plans the company has for the future and why some of the stores are closing.

"Because of the ongoing impact of the difficult U.S. economy, coupled with the rapidly changing bookselling environment, we must restructure Borders and reposition our business for long-term success," Edwards wrote.

So far, that has meant Borders closing 200 of its 642 stores and receiving a $550 million loan from GE Capital.

Marketing ‘experience'

Filing for Chapter 11 may not mean the end of Borders. The bylines – a part of the Title 11 United States Bankruptcy Code, is designed to prevent companies from closing, by allowing them to restructure their debt.

"All print has been suffering lately, but you can't really predict the decline," explains Iryna Petina, professor of marketing at UT.

"There is possibly a trend of people reading less – but overall electronic sales of books have been up. People are reading their news online, spending time checking social networking sites, playing video games on their phones. It's not about books going down, however, people are choosing to do different things with their free time," Petina said.

Reports last year from the Association of American Publishers show a 164 percent increase in the sale of electronic books. Borders, which is in the e-reader business, endorsing the Kobo e-reader, and making their books available for download.

Still, the question remains whether or not the Ann Arbor-based company can stay in their primary market – bookstores.

"From the point of view of the marketing world, there is always a way to reinvent the brand. Frankly, I don't think that anybody can predict what is going to happen."

"Even if they switched completely to e-readers, people may still consider coming to the store if there are entertaining settings for them to come and hang out with their friends," Petina said. She went on to say that "the internet allows consumers to feel more empowered, because they have more control over their shopping experience. If you can do this with a store, you can attract people."

Petina pointed to the temperamental idea of "experience." For marketing specialists, discerning why one consumer purchases one item as opposed to a comparable one often has little to do with rational decision making. Instead, shopping trends have shown that people are drawn to places that provide the desired experience, make their purchases and then rationalize the decision later.

"Books are a sensory experience. Yes, it's tangible, but you don't buy it based on a rational decision; you can't, you haven't read the book yet," she explained.

Conversely, she also pointed to the aesthetic value of a physical book. Much like vinyl records, the purchase of a seemingly outdated technology is also related to the experience quotient of marketing.

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Contribution by Arts and Life Editor DC Guastella