Economies: discretionary spending crisis looms

It would be interesting to hear what psychologists say about why the first major retail casualty of the USA's looming financial crisis has been a bookshop. And not just any old bookshop - Borders.

Borders has weathered the storm of on-line book retailing better than most - or so it appeared. With the largest bookshops in markets such as Singapore and Malaysia (albeit with a policy of shipping American editions of books - including those by English authors - to countries that use English English) the company was banking on markets where internet sales were not so rampant.

And, of course, Borders has its own on-line shop - but appears to encourage only US purchasers.

Outside the USA, there are twenty shops in Australia, three in Malaysia, one in Singapore, four in New Zealand, one in Dubai and forty in the UK - where a number are in out of town retail parks. Borders also owns the chain "Paperchase" in the UK which sells cards, writing paper and gift wrapping. In addition, it owns the "Books, etc." chain which holds a lower market positioning.

But a year ago, on 23 March 2007, The Guardian said that Borders was to dispose of its UK holdings to concentrate on its "struggling" US market. A sale of the UK operations eventually took place in September last year - but not to any of the purchasers suggested six months earlier - they went to Luke Johnson, the founder of Pizza Express who sold that business several years ago and became chairman of Channel 4 TV.

Now, the US struggle has become a crisis and it has borrowed ( not taken investment of) more than USD40 million from its largest shareholder, Pershing Square Capital Management. Pershing may have taken the view that a loan was a better option that investment after Border's share price plummeted 25% last week - and Borders suspended its dividend but not its shares.

The company has called in investment bankers JP Morgan and Merrill Lynch - both of which are themselves battered and bruised by the US credit crisis - to review all available options for the companies.

"The company determined that additional capital was required to execute our operating plan, and as a result we began to explore various financing options. The current credit crisis has made many of these alternatives prohibitively expensive or entirely unavailable," said George Jones, Borders' CEO in an announcement on Friday. The chain has more than 500 shops in the USA. It's policy of large comprehensive outlets depends on rapid sales of popular titles to support the stocking and relatively slow sales of a wide range of academic, professional, special interest and minority books. But those popular sales are precisely those that are most likely to be bought over the internet or as impulse buys in supermarkets.

Worse, across its range, its sales of music CDs and DVD films have all but collapsed.

Here's the psychology question - why do sales of books, CDs and DVDs provide an early indicator of falling retail sales? From an untutored eye, it would seem to be quite simple: people like to keep up appearances. In the North West of England, it's known as "fur coat and no knickers." So the car, the clothes, the expensive brands in the shopping trolley in Sainsbury's are the last to go: no one sees if you are reading, listening to the latest CD or watching the latest DVD. But the packaging for the 42 inch Sony TV sitting by the dustbin says "We are still doing well." Parents don't want to be seen denying their children the snack foods that are bad for them.

Until bookshops' carrier bags achieve the same cachet in the shopping mall, common sense will say, the shops will continue to find that they are the first to be cut when discretionary spending tightens.

However, Borders may have a new market - browsing for dates. This advert recently appeared in the UK's Gumtree.Com website: "Hi, I am looking for the pretty girl with curly hair and glasses I saw in borders bookshop in cambridge on sunday afternoon. I saw you at the bottom of the stairs in Borders, and then again when you came up to the history section where I caught your eye and we exchanged a smile. I was the tall guy in my early 20s. I wish i had come over to talk to you. If you see this and fancy a chat please email me."

Ah.....