You’ve probably heard the recent news, Borders is closing all of its remaining stores, and the company could go out of business at the end of September. This creates an interesting double meaning, hence the title of the article, a world without borders. When I think of Amazon, a thriving company that isn’t traditional (at least not retail), it seems like it can sell anywhere, anytime, like a company that operates without borders. While Borders, as in Borders bookstores, a brick-and-mortar bastion, will now disappear from the world. Today this evident metamorphosis deserves mention and contemplation.
Retail is a tough business for any product or service line. Rising incremental costs and retail store overhead insidiously and perpetually attack retail profits. The list of bankruptcies and retail closures is long, with well-known names like Hollywood Video and Blockbuster, Tweeter, Ritz Camera, CompUSA, Tower Records, Linens ‘n Things, Circuit City, etc. When it comes to industries or niches that can become virtual or digital, traditional brick-and-mortar businesses must transition very quickly or face a certain fate. This is a story of Amazon versus Borders and Netflix versus Blockbuster. Barnes and Noble, the great surviving bookstore, remains a question mark in my mind. Every time I walk into your local store, I witness a retail paradox. In the big section of the bookstore there are usually a modest number of people browsing, maybe one or two buying, and rarely a line at your register. However, in a small corner of his bookstore is a coffee shop that we all know called Starbucks. I would estimate Starbucks makes up 5% of the total space, but there is always a line at their register even though they are well staffed and well managed. Also, everyone at Starbucks shops, rather than browses. Perhaps this model is working in reverse, the Starbucks store could be much larger and the bookstore area much smaller, offering a plethora of digital book samples, or a computer kiosk point of sale for traditional books, allowing shoppers to grab their latte and order the books online.
The magazine area of this store is also a source of business fascination. There are often several people in this area, one of the busiest sections of the store on many days, sitting on benches, reading the litany of magazines on offer. Barnes and Noble arguably has a remarkable selection for your enjoyment, from automobiles to fitness and gardening to zoology. As I pass by, Starbucks coffee in hand, it reminds me of a library. I rarely see someone grabbing a magazine and walking to the checkout counter, rather I see people reading and then returning the magazines to the booth. This model seems to be rewarding for the browser and even for Starbucks consumers, but not for the bookstore. Every time I walk past this cute bookstore, I take note of the interesting books, but then download them onto my Kindle, definitely not a shopping experience that will pay off for their physical infrastructure.
This in no way implies that all retail is doomed. There are many retail operations that require infrastructure, from groceries and coffee to furniture, home repairs, and haircuts. However, when it comes to digital, a virtual twist on the business model or drastically adapted retail will be necessary. What is an example of dramatically adapted retail? Redbox comes to mind. At one time Blockbuster Video had a big store, let’s figure six thousand square feet, about a mile from my house. People could browse their shelves and select a video in the traditional sense, taking it home to watch on their DVD players. Redbox is a video store in a box, located within 27,000 existing retail locations, like the grocery store I frequent. They rent movies for $1 a day in a small kiosk that takes up 12 square feet. They advertise that these red boxes have up to 200 titles and 630 movies. Redbox is a fully automated video rental store, which means it is unstaffed and has a very limited workforce (someone has to stock and repair the machines). Compare that to 6,000 or 8,000 square feet consumed by a Blockbuster store, along with staffing 15-hour days. Of course, even the Redbox model faces the inevitable purely virtual and digital threat. After all, shouldn’t all video be truly digital, streaming directly to your TV or PC monitor? Those days are here for some, very soon for many, and it will be interesting to see if and how Redbox and Netflix adapt to this change.
The cheapest, fastest and best distribution system will prevail. Whether we’re changing from clipper ships to steamships, horse-drawn wagons to locomotives, or retail bookstores to e-readers, the only constant in business is change. Firms must innovate or perish.