Here is what I told her:
Borders is in an awkward place. They lost a lot of time and ground to B&N. Here is a list of just some of the mistakes they made:
1) They missed their early chance to go digital by ceding their online presence to Amazon.com in April, 2001 because they didn't want to pay the freight required to set up their own online presence. When they finally woke up and took the website back from Amazon two years ago, they had a lot of catching up to do. B&N already had a well-established online presence.
2) They didn't get into a loyalty program when B&N did. B&N started their "rewards" program in 2000. Borders waited until 2/2006. To make up time, they didn't charge for their loyalty program like B&N does. They took a huge hit during the Christmas season in 2006 when customers cashed in their rewards all at once.
3) Borders has made a decision to reduce the amount of stock on its shelves. The typical B&N has 125K to 150K books. Borders is downgrading to around 85K. Say you could travel in one direction to Borders and in the other direction to B&N. B&N has more inventory than Borders. Borders only discounts the best-sellers. B&N's loyalty program discounts all books in the store. Which direction are you going to drive?
4) B&N has a viable public domain printing operation. In most of their stores, the first couple of aisles of books are reprints of public domain books printed by B&N. No royalty expenses; just printing costs. Borders is choosing to go in a different direction. They are releasing exclusive and proprietary books to which they've obtained the rights.
Borders has a long road ahead of them. B&N is bigger, stronger, better funded, and more established. Borders can't hope to compete with either B&N or Amazon on the same turf.
Borders' only hope, IMHO, is to reinvent itself in a unique way so that they are not playing someone else's game. I've said for some time that I thought one of the changes we would see in publishing was unusual agreements and arrangements.
Last month, Borders was the first retailer to agree to a "no returns" contract with HarperStudio. In exchange for a deeper discount on initial orders of books published by HarperStudio--58% to 63% off the cover price, instead of the usual 48%--Borders won’t return any unsold books to HarperStudio.
If they are creative and innovative, they may survive--but not as a smaller version of B&N. They will need to become something completely different.