5 Reasons Borders Went Out of Business (and What Will Take Its Place)

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Remnants of a closed Borders Bookstore in San Rafael, Calif.

Forty years ago, when Borders opened its first store in Ann Arbor, Michigan, the book industry was a different place. But for years, Borders acted like it wasn’t, culminating in the announcement this week that it would liquidate its remaining 399 stores.
Borders has been on the verge of insolvency throughout the recession, briefly flirted with a bid to buy Barnes & Noble (a move most analysts saw as desparate, wrong-headed and financially impossible) and filed to restructure under bankruptcy protection in February, when it began closing a third of its then 659 stores.

What was it that forced Borders to write its final chapter? Here are five explanations:

1. It was too late to the Web

For years, Borders outsourced its online book-selling to Amazon.com. So anytime you visited borders.com, you were redirected. While at the time it may have seemed like a smart decision to jump on the coattails of the Amazon juggernaut, relinquishing control to another company hurt Borders’ branding strategies and cut into its customer base.

(MORE: As Borders Closes Bookstores, Rival Barnes & Noble Survives)

2. It was too late to e-books

In a similar vein, Borders didn’t foresee the rise of e-books like Amazon and later Barnes & Noble did. It didn’t develop its own e-reader to compete with the Kindle or the Nook, and Borders only opened an online e-book store a year ago. And when you walked into a Borders, you barely knew that they sold e-books for devices like the Kobo and Cruz. (Have you even heard of those?) By contrast, Barnes & Noble went all out with the Nook when it was released in 2009 — when you walk into a B&N now, the Nook kiosk stares you right in the face.

3. It opened too many stores

Borders just got too big — so big in fact that many of its stores (an estimated 70 percent) were competing with a local Barnes & Noble’s, offering a glut of book stores even as people were shifting to online shopping.

4. It had too much debt

When the recession hit in 2008-09, Borders was already carrying a huge debt load. It had restructured twice since 2008 in an attempt to pay down some $350 million owed. But Borders could never get out of the hole that its inefficient business practices had put itself in.

(MORE: The E-Book Era is Here: Best-Sellers Go Digital)

5. It over-invested in music sales

Borders was a bookstore, but over the years it morphed into a multipurpose entertainment retailer. In the 1990s, it invested heavily in CD sales. Bad move: Around then, people stopped buying CDs as they began buying iPods instead. And when it finally reduced music inventories, Borders found itself with more expensive retail space than it needed, putting additional pressure on its business model.

What will take Borders place? Although its profits were down late last year, Barnes & Noble remains profitable, and Credit Suisse estimates that it could grab half of Borders’ retail store business. And there still seems to be a place for traditional bookstores — just not in the size and scope as they were. Last year, the number of independent bookstores in the U.S. actually increased.

But the reality is that people are increasingly turning to digital books. In February, e-books outsold paperbacks for the first time ever, growing 202 percent compared with the same month last year. And one reason B&N has avoided Borders’ fate is thanks to the Nook, which has successfully grabbed a quarter of the e-book market away from Amazon.

The death of Borders doesn’t necessarily mean the beginning of the end for books. But the days of the massive shopping mall-like stores appear to be numbered.