Is Borders' Bankruptcy the End of Brick and Mortar Stores?
Stores that only a few years ago were thought to be stalwarts of the shopping world are giving way to the Internet. Businesses that specialize in music, movies, office supplies and even tools are moving more to the Internet, where the costs are lower and where its easier to display everything. Just look at a website like Amazon.com. It's the Sears Roebuck catalog of the 21st Century, selling everything from books to clothes to power tools.
Other retailers are on the brink of bankruptcy this year, although not all because they're losing business to the Internet. What will the retail landscape look like in 10 years, and is the Borders bankruptcy the beginning of the end for brick and mortar stores? WalletPop talked with retail experts and business owners for their ideas on the future of physical stores.Goodbye Content
If it can be delivered fast through the Internet, there will be fewer stores selling it: photos, newspapers, movies, music and games, among other products, are all available cheaper and in most cases faster, on the Internet.
Borders and other bookstores are great places to gather and read a book or drink coffee with friends, but it doesn't work as a business, says Jerry McLaughlin, CEO of Branders, which sells promotional products online. Amazon and Walmart, for example, have more efficient supply chains that get books and other products to consumers faster and cheaper, McLaughlin said.
"I think what this comes down to is what's the most efficient way to get the customer what the customer wants," he said.
While not all places that sell content -- movies, music, newspaper and books -- will go out of business within 10 years, many will likely lessen the number of storefronts and offer more online, said Lorcan Sheehan, vice president of marketing and strategy for ModusLink, which helps high-tech companies design better supply chains.
Customers making large purchases will still want to go into a store and touch and feel what they're buying, but more choices will be offered online by the same company, such as Best Buy, Sheehan said.
Some content companies have already gone out of business or are scaling back. Tower Records went out of business in 2004 as more people started buying music online. Blockbuster's bankruptcy has been linked to Netflix. In New York, the small music and video chain FYE is closing 160 stores, partly due to more people using digital downloads.
Another issue is real estate, which can be expensive to rent, especially downtown. Borders cited a lease issue as its reason for closing its Michigan Avenue store in Chicago two years ago, but what may have led to the closure just as much was shoppers only browsing there, then going home and finding cheaper prices online. Sarah Nicoli, co-founder of the dotmine day planners sold at Borders bookstores, saw the end coming for Borders when it closed its store on busy Michigan Avenue.
If you can't keep a store open in one of the busiest shopping areas in the country, Nicoli surmised, you've got problems. While she doesn't wish Borders ill will and hopes it comes out of its Chapter 11 bankruptcy filing as a healthy company after closing 200 under-performing stores, the move does raise the bigger question of how brick and mortar bookstores can survive in an economy where e-books and iPads are gaining ground.
Nicoli, who had been selling her company's day planners in Borders for 10 years, said that Borders owes her money and that she won't be selling in its stores when her new day planners come out at the end of 2011. "They've been a fabulous business partner for the past 10 years," she said, but she has been worried about bankruptcy for two years. A year ago Borders gave her 80% of her business, but now she's pushing into smaller retailers and focusing on online marketing.
As Borders restructures itself and tries to reposition for long term success, the end of brick and mortar bookstores is a long-term issue that it and other retailers face. E-book sales grew 366% from 2007 to 2009, according to the Association of American Publishers, as reported by the Christian Science Monitor, while sales of adult hardback titles dropped 7%.
"I think that there will be a 50% reduction in bricks-and-mortar shelf space for books within five years, and 90% within 10 years," said Mike Shatzkin, chief executive of Idea Logical Co., a New York consulting firm, in a Wall Street Journal story quoted by the Christian Science Monitor. "Book stores are going away."
Amazon for Everything
On Feb. 22, Amazon started offering free video streaming for its "Prime" members, who pay $79 a year for two-day shipping. This gives Netflix some competition and gets your impulse purchases to your door quicker, making the company what it wants to be: Everything to everybody.
Amazon already has more customers than traditional book stores. It is eclipsing Borders and Barnes & Noble, with 81.6 million adult customers, almost double the 40.9 million for Barnes & Noble and 27.3 million for Borders, according to a large-scale survey of consumers by MetaFacts, which researches retail buying trends.
The smartphone is making buying at sites such as Amazon even easier, and that includes for items such as groceries and sundries. Buying maple syrup at a grocery store today may be cheaper than buying it at Amazon, but someday it may not be. Within 10 years, it might be cheaper to buy it from Amazon, says Tim McLaughlin, president of interactive agency Siteworx.
Office Supplies and Other Commodities
"Printing businesses, too, like Kinkos, are going to face difficult times as online and in-home solutions become cheaper and easier," McLaughlin continued. "But Kinkos may have an opportunity to reinvent itself over the next 10 years by embracing the burgeoning 3D printing market."
Cameras, GPS devices and other consumer electronics, can be found on smartphones and some people may no longer want separate devices.
Other commodities, such as office supplies, can be bought cheaper online.
As more Baby Boomers leave the workforce, fewer people will buy office supplies at stores like Staples and Office Max because they're used to buying online, said Jeff Christian, 55, who owns RevenueBeast.com, a company that helps build brands. "The world's going to be changing anyway and the stuff that business supply companies sell won't be needed," Christian said.
Darwinism in retail isn't new. In New York, local hardware stores were once pushed out by Pergament Home Centers, which eventually went bankrupt after the bigger chains Home Depot and Lowe's pushed them out of business. Online tool sellers such as Harbor Freight are now giving them competition.
Stores that carry everything will either be dead in 10 years or have many fewer stores as shoppers go to specialty stores or online, Christian said.
"I thought Woolworth's would stay in business forever," he said. "It was the greatest, coolest place. They had a little bit of everything."
He foresees fewer stores for Walmart, Sears, jcpenney, Target and other places that sell a wide-range of items. Some, such as Sears, may revert to an electronic catalog, or just stick to what it's known for the best -- appliances and tools. He doesn't see how Target stores can beat online prices.
"How are they going to compete on price when you have a whole generation that likes to buy online?" Christian said.
Only 8% of clothing is sold online, but Fits.me CEO Heikke Haldre expects that to substantially increase through his site's robotic assimilation. "Customers can enter their measurements and a shape-shifting robot will contort to these measurements, allowing shoppers to see how different sizes of a garment would drape on their bodies," Haldre wrote in an email to WalletPop. "This computer-controlled robotic mannequin can replicate 100,000 different body shapes. At the click of a button, customers can then command the robot to try on a shirt in size 'Small' to see how tight it fits, or change the shirt to size XXL. Shoppers are able to view front and side view, zoom and examine which size of clothing fits them best."
As more people download movies to stream at home, the DVD business that stores such as Walmart rely on could eventually fail, said Bob Gingras, vice president at Acquity, a digital services firm that helps retailers get online in different ways. Stores such as Hollywood Video went out of business, and Blockbuster is in bankruptcy because of streaming video, and the movie industry must adapt, Gingras said.
Adding a new type of DVD -- the BluRay HD DVD player -- isn't enough. Redbox and Netflix are replacing DVD sales. Movie theaters are learning that they're competing with movies on demand at home by adding more 3D and Imax movies in theaters, and showing classic films, he said.
"In-store movie purchases will be gone within three years, and companies like Best Buy need to brace themselves for losing that business," McLaughlin wrote in an email to WalletPop. "I've already eliminated DVDs in my house, and that's going to be the norm in 2-3 years."
Retailers used to be able to thrive just by offering products in stores that customers want. But that's not enough anymore, with more customer engagement needed, Gringas said. Having the lowest price isn't enough, but must be supplemented with services such as an online concierge, direct pickup or delivery, and having gift cards embedded in cellphones, he said.
If retailers don't adapt, they could end up like Hollywood Video, Borders, Blockbuster or Woolworth's -- no matter how much of "everything" they have.
Aaron Crowe is a freelance journalist in the San Francisco Bay Area.