A chapter closes for Borders

Last week’s announcement that Borders, the US bookstore group, is pulling the plug on its UK operations, once again casts doubt on the future of high-street bookstores facing a blizzard of competition from online retailers and supermarkets.

After reporting falling profits, Borders plans to concentrate on the US market and is carrying out a "strategic review" of its Borders Group International division. The overseas operations posted losses of more than £250,000 last year. The international division represents 16% of group sales, 70% of which comes from its 72 Borders and Books Etc stores in the UK and Ireland.

Online competition
HMV, the music retailer and owner of both the Waterstone’s and Ottakar’s bookstore chains, is experiencing similar problems. The company recently announced it was closing up to 30 Waterstone’s stores as part of a three-year plan to revive the ailing group’s fortunes.

Mike Godliman, retail analyst at Pragma Consulting, does not believe these issues are unique to high-street booksellers. "I think there’s a big question mark over anyone in retail who specialises in the entertainment market with music, DVDs, books and games," he says. "You have to offer what the public can’t get online, but retailers have really struggled with that."

Stores are facing stiff competition from online retailers such as Amazon and, increasingly, the large supermarket groups are undercutting traditional booksellers by more than 50% as they concentrate on stocking the top 10 or 20 bestsellers.

By contrast, stores such as Borders and Waterstone’s have to give shelf space to titles with a relatively low stock turnover. Furthermore, Amazon and Tesco, for example, can make cost savings by paying low rents and not needing a high-street presence.

"It is a difficult market and the biggest cost is certainly the rent," says Nick Gladding, senior retail analyst at Verdict, a Datamonitor company. "You need a lot of space to sell books, and supermarkets can do a lot of damage by selling cut-price Harry Potter books. They can inflict damage by having a limited offer."

Survival instincts
But experts do not accept that this latest move by Borders sounds the death knell for bookshops. Gladding insists they can retain their "solid market", providing they evolve. For Godliman, survival on the high street means fewer bookshops, each aiming to become a "destination store" such as the Waterstone’s in London’s Piccadilly. "Lots of high-street stores in provincial towns are going to struggle and they are going to have to specialise more because people will use Amazon," says Godliman.

For stores to thrive in this crowded market they will need to become more individual, according to Godliman: "If they have a lot more character and are more individual, you are going to get people coming in," he says.

He insists there is scope for "entertainment stores" on the high street. "Although Virgin tried it and HMV are struggling at the moment, I think there’s a place for an entertainment store on the high street where you can purchase books, music, films and games in one place," he adds.

But Gladding is not convinced. "I think they appeal to quite definite customers. Book buyers are very different from music buyers," he says.

The question now is whether Borders can sell its ailing UK business before it is forced to close it.