Borders, Revisited: Was Their Death Really Amazon’s Fault?

My post attributing the death of Borders to Amazon’s sales tax advantage raised some hackles among commenters and fellow bloggers alike. Matthew Nisbet over at Age of Engagement countered that the reasons for Borders’ downfall “go much deeper and broader than simply blaming Amazon.” Book Think commenter Chip Douglas agreed:

“In fact, Borders’ gross revenues soared to $4 billion in the 2000s while their overhead diminished because of increased digital consumption. Today, gross revenues are in the low $2 billions and sinking, having been nearly halved. This decline, which started in about 2007, was not chiefly due, as you claim, to a 1992 Supreme Court decision. Otherwise they would not have been rip-roaring through most of the 2000s…Borders was an inflexible 1979 company who wasn’t ‘digital’ enough to simultaneously weather the recession and a soaring preference for ebooks.”

Fair critiques and relevant data points all. On a second reading I found my own argument to be too simplistic and emotionally charged—grief can make us lash out, and Borders was one of my favorite stores—so I’ll try to refine it a little.

My first mistake was in calling the sales tax issue “the primary reason” for Borders’ demise. This claim doesn’t wash; the company’s overexpansion and technological inflexibility played a much greater role. What I meant was something more like “the factor that sealed their fate.” In other words, the sales tax disadvantage—which contributed to the wide price gap between Borders and Amazon merchandise—virtually ensured Borders’ inability to recover from their own series of unforced errors. When a rival has you backed up against a wall, a price difference you can’t slash leaves you little room to maneuver in other ways.

My second mistake was in setting up a dichotomy between Amazon and Borders (in recent years, a well and poorly managed company, respectively), rather than between Amazon and brick-and-mortars in general. As I explained in the comments section:

“I focused my argument on Borders because they just went kaput, but really we’re talking about the death of bookstores altogether. Most indies are hanging on for dear life, and even B&N is in danger, Nook and all. I enjoy both brick-and-mortars and Amazon, but the two customer experiences are so qualitatively different that it really seems as though the market should be able to support both. Absent, that is, a huge price difference, which in this case seems to me unfairly inflated…I guess my question would be, if Amazon is so secure in its other advantages, why is it fighting tooth and nail to uphold this one?”

I would still ask that question, and I’ll pose a related one also. Consider the case of Barnes & Noble, a company that (like Amazon) offers online retail and an e-book platform, but also (unlike Amazon) maintains brick-and-mortar stores. Could even an idealized version of B&N—the leanest, most tech-savvy B&N imaginable—compete with the Amazon juggernaut as long as the sales tax gap persists?

I’d like to think so, but I have my doubts. Physical bookstores offer real benefits in terms of atmosphere (coffee, music, etc.) and even, in some ways, convenience (no shipping lag on print book purchases, a less constrained browsing experience). For consumers like me, these benefits justify slightly higher prices, which factor in overhead costs such as rent and store maintenance. But as things stand, the prices aren’t slightly higher; they’re significantly higher, in part because of the sales tax gap. That makes prospects pretty bleak over the long term.

All of which should prompt us to ask: are we comfortable with an economy that seems to favor virtual over traditional retail? An economy in which not only bookstores, but a wide variety of brick-and-mortar stores, are endangered?

These aren’t purely rhetorical questions; I’m happy to see readers bring new data and arguments into play, and I’m willing to eat a little more humble pie on this issue.

One thing I doubt I’ll be swayed from, though, is my basic stance on the tax gap. Particularly at a time when state governments are facing severe budget shortfalls, it seems crazy that online retailers should be effectively (if not technically) exempt from charging sales tax in most states. Changing the law here may not be enough to save brick-and-mortar bookstores, but it can’t hurt and it’s worth a try.