Saturday, February 19, 2011

Closing Borders

Britain's Borders went months and months ago; earlier this week the Australian flavour closed down altogether, and in the US the company sought protective bankruptcy and announced the closure of a number of stores.

To be fair, when we read through the list of closures in Colorado, we were going "What? they had a store there? Why?" so there is an element of genuine consolidation possible here. Borders seem to have had a policy of opening branches in new malls but leaving branches operating in nearby, declining malls, which does leave a bit of room to take out some stores without the network collapsing. (The American mall market is different to the UK one, where HMV is hoping that people will travel five or six miles extra to the next High Steet store.) The 200 closures and Chapter 11 could bring $2billion back into play that otherwise would be spent on rent.

But what does the protective bankruptcy mean for the music industry? Billboard have some interesting figures which shows the size of the bath the majors might take:

The site also lists Borders' 30 largest creditors, beginning with Penguin Putnam, which is owed $41 million. The first music vendor to appear on the list is Sony Music at no. 14, which is owed $4.3 million. It is followed by Universal Music Group at no. 17 ($3.75 million), WEA at no 18 ($3.4 million) and EMI Music at no. 26 ($1.7 million).
Unpleasant sums, but not the sort of hit that would even take out EMI right now.

And even if the stores vanish, it's not going to be more than a final drying of a sales source that has been in decline for years:
The company, which only carries music in 500 of its stores, was once a significant force in music, but its SKU count has steadily declined as U.S. music sales dropped during the past decade. In 2000, when music sales was at its U.S. peak, the typical Borders store was carrying 50,000 titles, but that dropped to 29,000 by 2003, 14,000 in 2006, and 9,500 by 2009
The real worry for the music industry seems to be not so much what they'd lose directly if Borders close, but what the knock-on effect might be:
If Borders pulls out of music or the chain goes away, the question of whether Barnes & Noble will continue to stay in music looms large as a future worry, according to executives.
This seems to be a tacit admission that both chains are only using CDs as a loss leader, doesn't it?

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