Borders Didn't Understand the Free Market, and Died of Its Own Corporate Ignorance

In a pitiless, realistic assessment of the multiple causes of the death of Borders, entitled “Books Without Borders,” National Review‘s Rich Lowry tells it like it is:

Nostalgia aside, the extinction of Borders is the very model of a free-market economy at work. The store fell victim to the unyielding injunction of a truly creative economy: “Adapt, or die.” It failed to keep up with evolving technology and shifting consumer preferences, and so has been forced to make way for more adept competitors.

This ruthlessly efficient reallocation of resources took place because Borders wasn’t big or politically connected enough to get a bailout; because its employees didn’t belong to a powerful union favored by the White House; and because it didn’t sell something, such as green energy, deemed worthy of taxpayer support. The upshot of the changes that buried the store, and were allowed to unspool without governmental interference, will be cheaper and more readily available books.

The story of Borders has been repeated again and again by all the countless American companies that have risen to prominence only to disappear. It started with an inspired innovation only to be overtaken by subsequent innovations. It had an advantage that, in new conditions, became a liability. It lost its footing on the free market’s ceaseless wheel of change.

The ideal model of 1995, only 16 years ago, was DOA by 2011, when Borders failed to evolve with the times:

Read about Borders circa 1995 and it is lauded as “a chain that seems as attuned to the new world of technology as the refined old world of literary society.” It had a state-of-the-art inventory system. It stocked its enormous stores with tens of thousands of titles. Borders thrived by providing choice and convenience, two of the pillars of the consumer economy.

Then it didn’t recognize quickly enough the new ways of delivering them. It had to rely on Amazon to sell its books online, a boost to the online retailer that would do so much to make the Borders model obsolete. It branched out into sales of CDs and DVDs, an initially profitable move that backfired when the music industry went digital. It missed out on e-books. Locked into leases at uneconomical locations, its voluminous real estate began to weigh it down.

Barnes & Noble, in contrast, developed a website to sell its books online itself and marketed its own e-book reader, the Nook. It secured a prized partnership with Starbucks for the coffee at its cafés. It lost $59 million last quarter, but it’s still standing.

Government exists in an entirely different plane, characterized by stasis and the lack of market or any other kind of discipline. USA Today reports that “federal employees’ job security is so great that workers in many agencies are more likely to die of natural causes than get laid off or fired.” Washington is locked in a debate over whether health-care programs designed in the 1960s can ever be reformed to account for new realities.

If Borders were a government agency, its budget would have been fattened up during the past few years, and it’d survive in perpetuity, whatever its merits.

And there’s one more factor at work.  I call it Belladonna’s Law of Returns, and it states that any store that makes it difficult to return lawfully-purchased, unused goods, especially absent a receipt, signs its own death warrant. Customers are human and, as such, are prone to lose receipts.  A 21st century store’s technology can tell a cashier if the book was purchased at Borders or elsewhere.  Borders was hell on loyal customers who wanted to return spotless, unopened merchandise.  It’s just a short jump from the nasty returns desk to the dust heap of commercial history.  Borders made that step flawlessly.