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Blockbuster, Borders, Chapter 11

March 21, 2011

In the last month two of entertainment-media-retailers biggest names have declared bankruptcy, Blockbuster and Borders. Both for the same basic reason: the internet. Wall Street Journal reported stated that, “Battered by competition from Internet retailers and burdened with too much debt, Borders Group Inc. filed for Chapter 11 protection Wednesday with plans to close about 30% of its stores and emerge with a new focus on e-books and non-book products…While in Chapter 11, Borders plans to close about 200 of its 642 stores it ‘cannot afford to keep.’ It had already closed hundreds of locations in the past few years. In 2005, it operated 1,329 stores.” Similarly, Ann Arbor columnist Nathan Bomey notes that, “Blockbuster is suffering because it clung to an outdated business model, while competitors — namely Netflix — capitalized on the emergence of rent-by-mail and video-streaming segments. Borders is suffering for a variety of reasons, including its failure to establish a strong online sales operation and a slow embrace of electronic books. Meanwhile, both companies are stuck with a network of physical stores that consumers are progressively abandoning.” I think that last sentence is key: consumers are abandoning the physical marketplace, as crazy as that sounds.

So what does that say about our world?

  1. The retail world has become highly (maybe an understatement) competitive with the dawn of e-commerce.
  2. Wherever possible, physical goods are being exchange for electronic goods (books for e-books, DVDs for Netflix, etc etc).
  3. Smart phones have created a major breakthrough in consumer spending, as they have allowed the consumer to check prices on whatever they want and find the cheapest one, which is often online.
  4. Pricing is everything. You don’t have to be a rocket science to understand that a t-shirt isn’t actually worth $20.
  5. Not having a physical warehouse full of overhead, utility costs, employees and other miscellaneous costs, allows a business to save tons of money, and bring you lower costs on goods. (Not saying all e-commerce businesses are without a warehouse)
  6. Small business, for the most part, cannot compete. They are at the mercy of the consumer, who can find better prices virtually anywhere else (pun intended).

We live in crazy times. It will be interesting to see how similar companies handle the dawn of the e-world. Twenty years ago we would have had a hard time just imagining all the possibilities that the internet has given us. Has it helped in the long run?

One Comment leave one →
  1. vickie permalink
    March 21, 2011 10:41 am

    Makes me wonder if this is going to be the way of the church–just get online, watch or listen to a sermon, don’t have to serve, don’t have to deal w/ people. I guess some are already doing this.

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