With decreasing sales (17.6% down in the last quarter compared with the third quarter of 2009), growing operating loss ( $74.4 million for the quarter ended Oct. 30.), shrinking cash reserves and assets, growing difficulties to refinance its debt, a stock that is diving below $1, and maybe above all, lack of strategy on how to get back on the track, it's really hard to imagine how Borders can avoid bankruptcy.
I wonder what the executives at Barnes & Noble think about it. I am quite sure they don't celebrate even though Borders is a significant competitor, but I wonder if they see it as a warning sign. Because I believe that even if B&N looks a little bit better shape than Borders, they're also in a very bad position and are next in line for bankruptcy. I still think that unlike Borders they have a chance to avoid it, but that will only happen if they'll learn the right lessons from the case of Borders:
1. You need a strategy - Borders thought it can make it using some patches like using Google’s Local Availability tool and Meetup Everywhere to "create a more interactive shopping experience" and closing some stores. These are nice steps but they're definitely no substitute to a clear and comprehensive strategy that will enable Borders to win the wars of the changing book market. B&N, to remind you, doesn't have such a strategy as well.
2. You need to worry for both your brick and mortar and your online operations - Borders, as Matthew Lynley of VentureBeat mentioned last week focused mainly on its brick and mortar stores: "despite losing out on sales of books and other products, Borders is essentially looking to pull a GameStop and stay focused on their brick and mortar stores. Borders acknowledged eBooks and eReaders as a definitive threat to their business, but expects its in-store sales to remain intact, according to its most recent 10-Q filing."
Both the brick and mortar stores and the online store are battleground and not making an effort to make both channels successful is a mistake. B&N suffers from a similar problem, only it looks like it is the opposite one - they put a lot of effort on improving their online activity and very little effort on their brick and mortar stores. This is OK if they want to ditch the stores and leave just BN.com as their main activity. But if they want to maintain both channels (which makes more sense), then they need to put more effort in both of them, not to mention improving the synergy between the two.
3. It's time to think out of the box - Borders didn't think out of the box and failed to find ways to bring book buyers to its stores and gain profitability. Frankly, I don't think there are any solutions there. If B&N want to avoid Borders' fate they should start thinking outside the box (and not, selling toys at their stores is not an example for such thinking), or even better, think like there is no box at all (here's our 2 cents on what can work for them).
4. The NOOK alone can't save you - Even though Borders might be sorry now that they don't sell their own e-reader like B&N, I think the lesson from the Borders' case is actually that the problems of the big chains are so profound that no single product, no matter how successful it is (The Nook linkeup has just become Barnes & Noble's best-selling product of all-time), can solve it.
Let's be clear: No matter how successful the Nook is (and relatively it has only about 4% market share), it still doesn't generate any incentive whatsoever for customers to go to B&N stores and buy there books, and the stores represent more than 90% of its sales. Eventually, even with the Nook, there is no substitute for strategy.
5. There is no time - Maybe B&N think they still have time, especially now after they had successful holidays sales, or at least that they don't have to do much until they will sell the company, and then it's going to be the buyers' problem. Well, they are wrong. As we can learn from the Borders' case, the tipping point of financial distress can be closer than it looks and when one block falls, the others tend to fall very quickly afterwards. Every day that goes by without taking serious steps is increasing the chance for bankruptcy, with our without a new buyer.
The case of Borders is definitely unfortunate, but B&N can still avoid taking the same path. I'm not sure if these lessons alone will save B&N, but I'm certain that if B&N will avoid them, they are significantly increasing the chances that they will follow Borders.
What do you think? We'll be happy to hear your thoughts!
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