User 283977

Is Borders Cutting Inventory Too Much?

This is a classic example of what is wrong with executive management teams in many companies today. The discussion focuses entirely on the economic benefits of reducing inventory costs which results in cash flow increases. In other words, they want to reduce the average shelf time for their titles. They also want to reduce their order cycle times, and even mention the business buzz term "just in time" inventory system. This all sounds wonderful… but what is glaringly missing from the discussion is what do the Borders customers think of these changes?

What are the customer centric consequences of reducing in-store inventories to mostly best selling titles? If less traffic enters the store, how much impulse buying will be reduced? Many people don't go into a books store to purchase a specific title, they go in to browse, they go in to look at shelves of books in specific areas. Many of the more expensive books carried by book stores do not blow off the shelves. My guess is that the average profit per sold title would drop as a result of only carrying a limited selection of "best sellers". If I can't get my hand on the title today, why not just buy it on Amazon?

Just in time supply systems works well in manufacturing because you know how many units you plan to build. With the exception of books such as the Harry Potter series, its very difficult to know the demand for most book titles in advance, so you run the risk of missing a portion of the first wave of sales for a surprise best seller. The second goal of reducing the shelf time for titles means they intend to mostly carry books that inherently move rapidly. That pretty much eliminates a good portion of highly expensive, highly profitable titles that move slower, and who's sales are highly dependent on the presence of a substantial number of IN-STORE titles in the same subject area.

Amazon is killing these guys with inventory. The challenge to Borders and Barnes & Noble is to INCREASE store traffic. They need to increase the number of eyes and wallets in the store. Local stores have huge advantages over Amazon because of zero shipping costs, the ability to hold and touch the books, the ability to make an impulse purchase and take it home NOW, and the presence of knowledgeable and personable sales staff. Having a great snack bar with comfortable seating and low priced goodies also brings people in the store, and that is the name of the business in retail sales. Add to that an inventory of books oriented to needs and wants in their selling area, and stores designed to increase social meetings in particular subject areas and you have a business strategy oriented towards maximizing customer satisfaction. If you manage to maximizing customer satisfaction in each selling area, profitability will increase. Cutting inventories is an inherently defensive business strategy and will very likely result in a spiral of lost customers and ultimate bankruptcy.

I used to spend a lot of money in Borders on technical books. They reduced their inventories, and as a result, I have not been in a Borders for quite some time.