What REALLY Caused Borders Demise?

That's the question posed recently by Business Week.

From the article...

When Borders declared bankruptcy in February, more than 200 of its 400 outlets were still “highly profitable,” says its final chief executive officer, Mike Edwards. There’s no question that the book industry is in flux, with digital sales last year making up about $900 million of the $28 billion-a-year market and increasing fast. But a sizable portion of the book business is still taking place in actual stores. Barnes & Noble (BKS), the nation’s largest book retailer, hasn’t been forced to close its 700 locations. Thus, it wasn’t Amazon (AMZN) —or Amazon alone—that sank Borders. “When there’s a massive transition in an industry, the strong players make it through to the other side,” explains David A. Schick, a retail analyst who covers booksellers for Stifel Nicolaus Equity Research (SF). “What gets caught up in the change are the weaker players.”

For the past decade and a half, Borders seems to have been in the business of making mistakes. Consider the company’s efforts to develop an online presence. Amazon was launched in 1995, and Barnes & Noble responded with its own website two years later. It took Borders another year to get started online, and the venture quickly lost tens of millions of dollars. In 2001, Borders made a deal with Amazon to run all of its online business—a partnership, in retrospect, that comes across as tragically shortsighted. Danielle Fox, an equity analyst then covering Borders for J.P. Morgan, says many investors were actually excited about the idea of outsourcing Borders’s online sales to Amazon, which they believed would allow the physical retailer to focus on running physical stores. Amazingly, Borders wouldn’t end the Amazon deal and launch its own website until 2008.