Mark Evans, a Borders insider, speculates about why the chain went under. Some of his reasons are speculative, some are 20-20 hindsight, and some seem quite damning -- such as Borders' relatively inefficient re-ordering process. I worked at a small bookstore that had a problem with re-orders and inventory, and it nearly destroyed the store: we'd be too slow at re-ordering and so we'd miss sales, then we'd order too many to compensate and end up sitting on more inventory than we could shelve. Also interesting in the list is in the insight into Borders' initially profitable excursion into music sales, followed by the too-slow response to the collapse of the CD market, leaving the stores with too much floorspace. Pre-Amazon, that would have been a blessing: Borders could have expanded its selection and sold itself on having more titles than the competition, but Borders would never have more titles than Amazon (and Borders.com had already been outsourced to Amazon, for that matter).
# Failure to build efficient systems and processes - While Borders legendary "expert system" was considered cutting edge and an advantage early on, the company failed to successfully build upon this foundation and create new, better assortment, replenishment, and supply chain systems and processes to keep pace with the changing state of technology and efficient retail operations. B&N invested considerable time/energy/money through the 90's in systems and processes. To provide one example, a lower ranked title that sells out in a B&N will be replenished from a central warehouse within 2-3 days. The same process could take up to 16 weeks for Borders. Borders sought to upgrade systems with two large efforts in the 00's: first one was a home grown effort called Common Systems. Second was a "buy and integrate" project to implement Retek and E3. Both failed spectacularly. The Retek effort dramatically hurt the Walden chain, the only business unit that was managed by the system. With both of these efforts, large sums of money and, perhaps more importantly, human resources and time were squandered.
(via Making Light)