Tuesday, 24 November 2009

UK Borders to close? The declining value of creative goods

More ructions in retail; this time one of the darlings of the out-of-town shopping sector, fast growing bookstore chain Borders, are suffering. Today its former UK subsidiary, which still trades under the name Borders froze new sales via its website while it supposedly finds a buyer; the company is losing money and does not have enough cash to survive until Christmas. Borders were one of the few US based retail chains to come into the UK at the same level of the market as its US based stores, the obvious other examples being WalMart which purchased ASDA in 1999, Safeway, which entered as long ago as 1962 but later sold its UK arm, and Woolworths, which entered the UK in 1909. The US part of Borders has also been finding life tough, having sold its UK operation in 2007, before the worst of the credit crunch hit, to concentrate on reviving its flagging fortunes in the US.

This decline is surely further evidence that diminishing returns in the once high value creative goods sector, that made up of products such as books, music, DVDs and computer games sales remains a serious problem, having already contributed to the decline of the store formerly known as Virgin Megastore, Zavvi and Woolworths in the UK. Competition from internet distributors of physical media such as Amazon has been one problem, and internet distribution via download another. Media can also store more nowadays and that has further driven the real prices consumers are willing to pay down. Physical shops that consumers actually have to visit are at a real disadvantage in this industry as browsing is not always necessary and items can easily be posted or sent digitally. As an example of the falling value of production in the industry, a long-playing album in 1968 cost around £2, which equates to around £25.99 in 2008 pounds using the Retail Price Index. Today its possible to download an album from Apple's iTunes, which probably has more tracks, for £7.99. iTunes' overheads are far lower as they don't have a distribution system or shop infrastructure to maintain, nor do customers have to spent time and money travelling there. It seems likely that the creative sector has a lot more pain ahead of it and pain which is not just a result of the present recession.

Thanks are due to measuringworth.com.


  1. It all about marginal costs. Marginal costs of digital distribution = near zero, or actual zero if you include illegal downloads. Marginal costs of physical media like CDs = low, but crucially not zero.

  2. Agreed. Though surely whoever provides the server for the illegal download is actually bearing a marginal cost but not passing it onto the consumer.

  3. The first part certainly illustrates the so called "liability of foreigness", that is, the travails of foreign firms to enter, develop and maintain competitive advantage in a host economy. It is interesting as the UK (together with Mexico) is one of the most successful foreign operations for WalMart. But in both cases it took over already successful firms.

    But more to the point that you want to discuss, retailers are ultimately intermediaries. What you have is an evolution in the "platform".

    In that process there are implications for the artists as well. I have a couple of links from the music industry that can help. Happy to post if you want.

  4. Indeed, of course in some parts of the music industry the intermediaries can almost be eliminated.

    Links from the music industry? That would be of much use thanks.

  5. The problem for Borders is that if people want books they go to Waterstones (or Amazon). If they want CD's or DVD's they go to HMV (or Amazon). I like Borders but only go there for magazines.

  6. The growing auto market and emergence of the latest designs in the market cars may lead you to sell used car.



About Me

London, United Kingdom
I'm Lecturer in Management at The York Management School, at The University of York, UK. I teach strategic management to undergraduate and masters students, as well as running the masters dissertation module. My research focuses on business and management history.