Beyond Borders: How the Failed Bookstore Chain Hastened Its Demise

Yesterday, Borders (BGPIQ) finally gave up. After not finding a buyer, the financially-strapped bookstore chain decided to close. The fire sale could happen as soon as Friday.

The economic climate and the digital book push both hurt a company that was traditionally an also-ran next to Barnes & Noble (BKS). But Borders also made some bad management decisions that hastened the death. Here are the biggest errors in judgment:

The Kobo digital reader came too late: Did you even know Borders had an official e-reader? The Kobo is a solid device, but it came out in Spring 2010 -- years after the Amazon (AMZN) Kindle and a few weeks after the Apple (APPL) iPad. Talk about awful timing. Borders' one salvo against the increasingly digital book universe was about two years too late.

Borders hasn't said what will happen to Kobo since the small company behind it has been using Borders as its main outlet, but I suspect it won't be pretty. Perhaps a tech giant like Microsoft (MSFT) can acquire it and somehow turn it into an interesting third option next to the Kindle and iPad.

Bad leadership: Despite declaring Chapter 11, the chain still asked the bankruptcy court for more than $8 million to pay executive bonuses. According to my BNET colleague Lydia Dishman:

That includes $1.7 million to president Mike Edwards and a pay boost of between 90 and 150 percent of their base salaries for five other top execs... [W]ith Borders total debt tipping the scales at $1.29 billion -- owed mainly to Random House and Simon & Schuster (CBS) -- and with the planned closure of at least 200 stores, the whole program seems preposterous.

You would think that the company would be marshaling its resources to keep the remaining stores open, not rewarding execs for getting Borders into Chapter 11 in the first place.

Lack of diversification: Finally, Borders failed because it had no other revenue other than physical books and periodicals. Consider the rivals:

• Barnes & Noble: Sold one million Nook books on Christmas Day 2010.
• Amazon: Once a traditional book retailer, now selling more Kindle books than physical books.
• Apple: The iBookstore is yet to take off, but groundbreaking book experiences are happening on the App Store.

Borders was the only major book retailer that was almost completely dependent on people getting in their car, going to their store, and purchasing a physical book. When it comes to that sales model, the chapter is closed.

Photo courtesy of quinn.anya // CC 2.0
Related:

• Borders in Bankruptcy, Shuts Down 200 Stores: What's Next
• Why Borders' Call for Fat Executive Bonuses is Absurd
• O Magazine App Shows Digital Magazines are the Next Bookstores
• Will Barnes & Noble-Borders Merge?

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