Here, I think, are the major problems facing these retailers:
They scaled up. These companies expanded at a time when the economic paradigm was economy of scale: if you are bigger, you can spread the fixed costs (like the rent) over more customers, and each customer returns a slightly higher margin. At the same time, a large store means the average customer is more likely to buy more (think Costco versus 7-11.) Based on this paradigm, mega bookstores can win over small stores because they can sell at lower prices.
But they lost in their own game. The internet is the ultimate economy of scale, because many of the costs are already fixed on the consumer (like your internet connection) and the other costs are spread over a larger nationwide scale (like the Borders.com website.) In other words, these stores were beaten at their own strategy by Amazon.
So what can they do to regain prominence? There are two basic options:
- They can try to win in the same game. Using borders.com, they can try to compete with Amazon and win the online book wars. Trouble is, Amazon has already expanded to other products, making their economy of scale stronger than the combined book sales of Borders and Barnes & Noble. In other words, they can’t win this way.
- They can make the offline experience better. Instead of competing with internet retailers, Borders can focus on competing with small bookstores, their classic nemesis. At the same time, they can grow the offline buying segment by exploiting the weaknesses of the internet.
Thats right, the internet has weaknesses.
Borders should compete with the high tech approach by applying a high touch approach:
- The stores should orient themselves around the cafe. The internet can share ideas but it can’t give you the feeling of meeting someone in person.
- The stores should add servers to the cafe and charge more. Generally speaking, cafes with waitstaff don’t make for inviting places to study with a laptop. Instead, they invite people who want to meet. It seems counterintuitive, but increasing the customer service will increase the purchases.
- The stores should hire experts to curate their local collections of books. If Borders behaves like any other mega retailer, it purchases inventory based on projected demand and then tries to manage inventory to limit costs. Instead of following demand, Borders should create demand, by hiring local experts to curate the inventory. Imagine you have a new interest in Psychology. Would you rather buy a book on Amazon, or go to a bookstore where a local college professor of psychology offers his recommendations?
- The stores should store local reviews of books. Logically, the 500 reviews of a book on Amazon are better than the 10 from locals. But emotionally, I may actually know the locals, so I care more about their opinions. And I know they aren’t fake accounts. The authenticity of someone living nearby commenting on a book is worth a lot more than the unknown masses.
What would this look like? Imagine browsing the shelves, picking up a book, scanning it with your phone, and learning three other people in the cafe have read the book and commented on it. How would this change your perspective?
Bottom line: You can’t out-Amazon Amazon. High touch can win over high tech. Curate your books, become hyper-local, and lead the tribes of voracious readers.