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

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

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

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

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

The death spiral in each case was kicked off by the company itself. Let’s backup 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 hedgefund looking for some retail Lazarus act.

How did these three fail? Our handy table shows:

RetailerPrice competitive? Complete inventory?Convenient?Circuit CityNoNoSometimesBordersNoNoSometimesHollywood VideoNoNoSometimes

Short Circuit

Example: One of the key advantages of in-person retail is salespersonhelp. If that salesperson is super-knowledgeable, it goes a long way tomaking a sale. For instance, I recall shopping in Circuit City yearsback and getting the lowdown on flat-screen TVs. The sales guy spokeabout the failure rate of the gas inside the plasma TV screen vs. LCD. Ibought 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 staffnationwide and hired newbies at a lower wage. Guess what happened? Thesenewbies knew close to zero about any product in the store. And soCircuit City’s death spiral began in about 2003. This was the maincause.

Broken Dreams

Hollywood Video … ah, the days. Netflix did some damage to video rentalsfor sure. No question. But the in-store experience is what did HollywoodVideo in. Generic video rental display. No imagination, despite the factthat movies are 100 percent IMAGINATION! The in-store experience needed tocapture and compel customers like a DVD mailed to you in an envelopecould not.

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

Block Busted

Blockbuster. I have to mention this. Blockbuster made its biggestmistake in relying on late fees to boost its revenue and earnings. In2000, the company earned about 19 percent of its rental income from latefees — US$795.8 million out of $4.16 billion, and it was sued by customers fordoing so. Blockbuster’s response? Basically, We don’t think we’ve done anythingwrong. Everything we’ve done has been in our customers’ interest, andwe’re not going to change our practices.

In fact, you could argue that Blockbuster’s late fees are one of themain 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 Internetordering is partly to blame. The biggest reason Borders failed? Notcompetitive on pricing. I would walk into the local Borders and see anew hardback listed at $24.95. The same title online could be purchasedfor $16.95. Borders even placed the 30-percent-off sticker on the book. I askedthe sales associate if they price-matched and she looked at me like Iwas speaking Chinese. One click and two days later the book appeared atmy door from Amazon.

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

The amazing thing is, even withall the great business books right there that talked about the Internetand e-commerce, digital books, e-books, etc., nobody at Borders readthem or took them seriously. The first book about AOL in the early 1990scould have clued them in: People are going online for information. Itwas at that time that Borders needed to say “Hey, we’re about sellingbooks, not about selling paper with books printed on them.”

In otherwords, Borders needed to realize a “book” is about the words, not thepaper. And today Kindle exists. I’ve probably ready two dozen e-books atleast 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 byhand by monks back in the day.

Who’s Next?

The reality is that no “real world” retailer is immune from failing. NotWalmart. Not Target.

The other day I was in a Target and inquired abouta video game item, a gift I was looking to buy. The item cost $80 atTarget. The same item online costs $65. I asked if the store pricematched and got a stuffy glare from the salesperson. By the way, I hadspent 10 minutes just trying to locate the salesperson in the firstplace just to open the video game case, since it was locked. The entireTarget electronics department had no sales staff in it. The only guyworking was a rep from Radio Shack who sold mobile phones inside thestore.

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

Yes, despite the desire for “instant gratification,” the same problemsthat 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 otherrelationships that many retailers have, you would think it would be easyfor 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 ofonline and the worst of in-store. Either have it in stock, so when I’mthere I can buy it, or, if ordered online, ship it to my home. Why makethe customer drive to the store? How is that a benefit? Meanwhile,Amazon, Zappos, and dozens of online sellers ship direct and often forfree right to my doorstep.

These are the slow suicide moves by big-box retailers as they don’tunderstand the new world of retail or haven’t embraced the reality thata product now is free to be bought from anywhere without the storeexperience at all.

The remedy is using the in-store experience to havereal experts show and demo products and provide friendly service to makeyou feel great about the retail “experience.” The in-store experienceneeds to have available the entire inventory and more truly “exclusive”items available only at the store. Flash sales sites like Gilt andothers exist when in-store retailers could have been buying and sellingthese sorts of items for years. Pricing in-store needs to meet or beatanything available online. In-store warranty needs to be bundled withevery purchase, free. If the TV breaks, I’d rather take it to the localstore 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 moreto come who want to believe customers are loyal to their store. They arenot. Customers are loyal to price and great experience — in-store, onlineor on the moon.

Steve Harmon

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.


  • What happened to Circuit City?

    So what happened? Was it competition from Best Buy? Was it a change in consumer behavior? Was it a poor business model? Was it the layoffs?

    whatever it is

    they are outta the picture

  • Steve Harmon has written a really engaging article and clearly knows retail in it’s true form; the meeting of customer needs irrespective if your store is made of light or stone.

    One possible improvement..Steve takes for granted that, had the dead and dying created a ginchy buying experience and lowered price [each a margin killer],they could have actually survived. Walmart has been killing competitors with price and selection since b4 Amazon listed it’s first book. There may just be room for x retail business per human being and as Amazon et al come in, somebody must exit.

    Does Steve have any good examples of traditional stores who ARE surviving by "doing it right"? I personally think that, long-term, they are all doomed except for fresh bread, used clothes and the odd 7-11.

    Lowell Hussey

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