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Retail Autopsy: What Killed Borders, Circuit City and Hollywood Video

By Steve Harmon
Jan 24, 2012 5:00 AM PT

The Borders near me closed the other month. Wasn't surprising. Ditto for Circuit City. Gone. A few years prior to that it was Hollywood Video that rolled its end credits.

Retail Autopsy: What Killed Borders, Circuit City and Hollywood Video

The problem is, none of them had to go. They each died of self-inflicted wounds.

Sure, a lot of their CEOs came out and blamed Iraq, the economy, e-commerce, etc., for their failures. But while these external forces may have played a part, they weren't the death knell. It's like the guy dying from heart disease blaming the doughnut shop.

With some big retailers biting the bullet, I wanted to delve into it and see what the real cause was, not the press release spaghetti. I wanted to see if there was a pattern that could be discerned, sort of like CSI for Retail. Guess what?

The death spiral in each case was kicked off by the company itself. Let's back up the story a bit.

What Happened to the Three Amigos of Retail?

Let's examine the wounds and see if we can determine the weapon.

Even Sears and Kmart went bankrupt before coming back to life by a hedge fund looking for some retail Lazarus act.

How did these three fail? Our handy table shows:

Retailer Price competitive? Complete inventory? Convenient?
Circuit City No No Sometimes
Borders No No Sometimes
Hollywood Video No No Sometimes

Short Circuit

Example: One of the key advantages of in-person retail is salesperson help. If that salesperson is super-knowledgeable, it goes a long way to making a sale. For instance, I recall shopping in Circuit City years back and getting the lowdown on flat-screen TVs. The sales guy spoke about the failure rate of the gas inside the plasma TV screen vs. LCD. I bought an LCD (also so it could hook to a computer).

However, the CEO of Circuit City, in a move to "cut costs" (translation: impress Wall Street), fired most if not all the knowledgeable sales staff nationwide and hired newbies at a lower wage. Guess what happened? These newbies knew close to zero about any product in the store. And so Circuit City's death spiral began in about 2003. This was the main cause.

Broken Dreams

Hollywood Video ... ah, the days. Netflix did some damage to video rentals for sure. No question. But the in-store experience is what did Hollywood Video in. Generic video rental display. No imagination, despite the fact that movies are 100 percent IMAGINATION! The in-store experience needed to capture and compel customers like a DVD mailed to you in an envelope could not.

Instead, what you had were clerks standing behind the counter, not helping anyone really find or enjoy the movie world right in front of them. Should have hired film school students who could have taken customers on a cinematic journey right there in-store. Expert insights. Same thing for Blockbuster.

Block Busted

Blockbuster. I have to mention this. Blockbuster made its biggest mistake in relying on late fees to boost its revenue and earnings. In 2000, the company earned about 19 percent of its rental income from late fees -- US$795.8 million out of $4.16 billion, and it was sued by customers for doing so. Blockbuster's response? Basically, We don't think we've done anything wrong. Everything we've done has been in our customers' interest, and we're not going to change our practices.

In fact, you could argue that Blockbuster's late fees are one of the main reasons Netflix even exists.

Blockbuster today? About bust.

Border Dispute

Borders. One on every corner. A book paradise. How did they fail? Pundits may blame Amazon. But that's incorrect. The move to Internet ordering is partly to blame. The biggest reason Borders failed? Not competitive on pricing. I would walk into the local Borders and see a new hardback listed at $24.95. The same title online could be purchased for $16.95. Borders even placed the 30-percent-off sticker on the book. I asked the sales associate if they price-matched and she looked at me like I was speaking Chinese. One click and two days later the book appeared at my door from Amazon.

Borders thought they could cure their declining book sales with coffee sales and free WiFi. What that triggered instead were throngs of college students lingering in the coffee area all day. Great for studying but not a boost to Borders overall.

The amazing thing is, even with all the great business books right there that talked about the Internet and e-commerce, digital books, e-books, etc., nobody at Borders read them or took them seriously. The first book about AOL in the early 1990s could have clued them in: People are going online for information. It was at that time that Borders needed to say "Hey, we're about selling books, not about selling paper with books printed on them."

In other words, Borders needed to realize a "book" is about the words, not the paper. And today Kindle exists. I've probably ready two dozen e-books at least on Kindle, and a few with Apple's iBooks. Are they still books? Absolutely. Same as a printed book. Held the same story as one written by hand by monks back in the day.

Who's Next?

The reality is that no "real world" retailer is immune from failing. Not Walmart. Not Target.

The other day I was in a Target and inquired about a video game item, a gift I was looking to buy. The item cost $80 at Target. The same item online costs $65. I asked if the store price matched and got a stuffy glare from the salesperson. By the way, I had spent 10 minutes just trying to locate the salesperson in the first place just to open the video game case, since it was locked. The entire Target electronics department had no sales staff in it. The only guy working was a rep from Radio Shack who sold mobile phones inside the store.

That highlights another problem with in-store retail: Lack of staff and unfriendly staff. A further problem with this Target was that it was out of stock of the item that its website said it had in stock at the store.

Yes, despite the desire for "instant gratification," the same problems that killed Circuit City, Hollywood Video and Borders cropped up:

  1. Overpriced vs. alternative retailers
  2. Sales staff absent or uncaring, unknowledgeable
  3. No selection or inaccurate inventory online for in-store buying

With the capital, reach, manufacturing, distribution, brand and other relationships that many retailers have, you would think it would be easy for them to win and keep customers.

The In-Store Experience

One last example: the "buy online, deliver to store" notion. Many retailers have this, including Walmart.

It is convenient, to a point, but it also provides an example of the worst of online and the worst of in-store. Either have it in stock, so when I'm there I can buy it, or, if ordered online, ship it to my home. Why make the customer drive to the store? How is that a benefit? Meanwhile, Amazon, Zappos, and dozens of online sellers ship direct and often for free right to my doorstep.

These are the slow suicide moves by big-box retailers as they don't understand the new world of retail or haven't embraced the reality that a product now is free to be bought from anywhere without the store experience at all.

The remedy is using the in-store experience to have real experts show and demo products and provide friendly service to make you feel great about the retail "experience." The in-store experience needs to have available the entire inventory and more truly "exclusive" items available only at the store. Flash sales sites like Gilt and others exist when in-store retailers could have been buying and selling these sorts of items for years. Pricing in-store needs to meet or beat anything available online. In-store warranty needs to be bundled with every purchase, free. If the TV breaks, I'd rather take it to the local store for repair then ship to an online seller.

In the end, that's what in-store retail has to focus on: the experience. So far it's been the major failure point for many and will be for more to come who want to believe customers are loyal to their store. They are not. Customers are loyal to price and great experience -- in-store, online or on the moon.

Steve Harmon is a veteran Internet industry entrepreneur and cofounder/CEO of Taleee.com, a company that connects consumers to the best local businesses and products.

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