BusinessWeek offers an interesting inside look to the bankruptcy of Borders. The perception that many people had was that this was a blow delivered by Amazon and ebooks, that there is no future to the bookstore. It might be true but the Borders case is not a good case in point, argues this article.
The piece points out that the store it is profiling here was actually very profitable, and increasingly so in the last few years. In fact, more than half the stores were in the black. The reason it closed was entirely due to the overall financial health of the company and a series of bad management decisions. It expanded insanely and wildly during the boom years, gobbling up ever more real estate as prices were soaring. When the bust hit, prices crashed and its investments in physical space suddenly looked stupid. This put massive pressure on the operation. It could no longer sustain its profitability expectations and its belief that the boom would last forever didn’t materialize. There were also a series of too-little-too-late decisions regarding digital media.
I find this account very persuasive. People without knowledge of the way business works always assume that any company that is going belly up was flopping, that people just weren’t buying the product. That is not usually the case. What it means is purely a matter of accounting: costs outran revenue and expected revenue. That can happen very easily with a few, small miscalculations. No matter how much success you are experiencing, it is the cost accounting that ultimately matters. This is true regardless of whether we are talking about a multinational with $5 billion in sales or the lemonade stand down the street. Every firm faces the same cost/revenue matrix.
Cost accounting rules, whether big or small, and this is true for everyone. This is the great egalitarianism of the market that is hardly ever noted or noticed by people who know nothing of business life.
To be sure, the book business must and will change, and dramatically. The old-line publishers will be buried. Laissez-Faire Books will be on the cutting edge. (Unpaid advertisement: please like Laissez-Faire Books FB page!)
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