22 July 2011

The Chain Is Dead

... long live the chain.

The demise of Borders is far from unexpected. The initial bankruptcy filing demonstrated all of the seeds of it — including, but not limited to, well-above-average-interest-rate terms offered for debtor-in-possession financing. There remain a few issues to consider, as lessons learned in general and for authors/publishers/those who give a rat's ass about books, that are sneaking under the radar.

The first, and perhaps most obvious, is that books are not boxes of macaroni and cheese... and that whatever "brand loyalty" exists in publishing is not to the publisher(s), but to authors. This is the real problem with management in both publishing and in distribution today. If one actually looks at the data and mathematical models behind everything that gets taught in American business schools; and that gets taught to and imposed upon financiers; and that underlies virtually every successful derivative securities lawsuit — it is the struggle over fungibility. Because dealing with fungibility is something that can be mathematically modelled, and therefore is (at least somewhat) reproducible, that's what gets published, and taught, and imposed as internal standards, and imposed as "behavior of a prudent investor or author." And, of course, that is the very opposite of the definition of "art" or "culture" or "literature" or "authorship"... or, in a more general sense, "intellectual property." The entire point of "intellectual property" as a meme is that individual pieces of IP are not fungible, and that copies of those individual pieces of IP are only partially fungible in that the pieces must maintain an identical fit. In short, the Borders failure is almost entirely the fault of "efficiency" as a measure of managerial competence, acceptability... and access to finance and markets.

A second issue is the unstated presumptions built into the bankruptcy system in favor of interests in real property over just about everyone else. The impact of the landlords on this mess is obvious when comparing the anticipated return from sale of inventory and the amount that would return to the vendors (my back-of-the-envelope calculations indicate it would be between 70 and 80 percent), even after allowing for payment of nonmanagerial employees, and the estimated total return of around 22 percent to all creditors. And, sadly, this isn't just the physical-property landlords; it also includes landlocked tax authorities, utilities, etc. Lurking behind all of this is the assumption that returns from ownership of real property interests must always increase over time, even in declining economic circumstances. Once again, exploring the data sets and the math actually used to manipulate those data sets becomes extremely interesting, particularly in light of "too big to fail" presumptions (more formally, diseconomies of scale).

Geography also plays a side role in this, strongly related to (but independent from) the role of real-property interests. The physical distance between Ann Arbor, Michigan (Borders' longtime headquarters) and Dallas, Texas, is greater than that between Paris and Moscow physically, and about the same culturally. There's a reason that Books-a-Million is being so careful about not expanding too far beyond its southeastern-US base for those stores it is buying/considering buying, with a couple of exceptions as possible brand-name footholds: BAMM's management is smart enough to know that it doesn't know market conditions (or landlord assumptions, or damned near anything else) more than a comfortable day's drive from its headquarters... that is, the distance from Paris to Berlin.1 When Borders was a successful chain, its locations were within a day's drive of its headquarters in Ann Arbor; indeed, few of its locations were more than a day's drive from each other. That compactness led to certain distributional efficiencies that management assumed would continue as the chain expanded beyond that, for lack of a better term, event horizon... so that management really did need to be worried about whether what "played in Peoria" would make for the appropriate stocking decisions in New York. Or Los Angeles. Or Seattle.2

Last, for now, and far from least, is the cultural disjuncture between decisionmakers inside of publishing and its distribution arms and its potential/actual customer base. This is epitomized by the whitewashing problem that I've discussed here several times before. Put as baldly as I can, it really doesn't matter how much interest one can generate among one's culturally-homogeneous peers inside the industry and inside the distribution channels; what matters is interest among the people actually putting their money on the line for it. An example from Borders' history might help understand this. In the early 1990s, I was stationed in Washington, DC, and frequently shopped at a Borders on Rockville Pike. This particular store was staffed with intelligent book people who not only knew their stock, but had at least some familiarity with what was not in stock but otherwise available. I visited the same store again a few years later, after the Kmart takeover, and noted the severe changes. The military affairs section had shrunk (in DC!) in favor of a considerably larger generic-romance section, and similarly for politics/current events giving space away to celebrity/memoirs; the staff seemed as if it would have been more comfortable asking if I wanted fries with my order; and so on. In short, it had become an outlet, not a store. And I, with my personal library and general book acquisitiveness, am precisely the customer that a bookstore should want to appeal to. Borders didn't; and their loss became... their loss.

  1. Or, as is historically more common, the other direction, with tanks/cavalry.
  2. Management — particularly management installed by Kmart and later by those from that culture — didn't worry about these things. Once again, the fate of Kmart itself made this entirely predictable... as does the saga of Martha Stewart, cobranding, outsourcing, and so on, but that's for another time (however applicable it is to publishing with the J___ P_____n phenomenon, since the industry learned nothing from F____ W. D___n.).