February 03, 2015

How Could Borderlands Stay Open?

by Alan Beatts

Since April of last year, when it started looking likely that a higher minimum wage ordinance would pass in San Francisco, I've been thinking (racking my brain, actually) about ways to keep the store open in the face of a 39% increase in wages.  I'm going to start with what was my final conclusion and then I'm going to go back and touch on several of the other things that I considered.

First though, the basic facts:

1)  The bookselling side of Borderlands has never been terribly profitable.
2)  Based on current business, the new minimum wage, once fully in effect ($15 per hour in 2018) would move the bookstore from being modestly profitable (roughly $3000 in 2013 before depreciation) to showing a yearly loss of roughly $25,000.
3)  It is reasonable to expect that the best-case, long term sales trend for a brick-and-mortar bookstore is relatively flat.
4)  Making 50-60 hours of work, per week, with no real holidays on my part an intrinsic part of our business plan is neither viable long-term nor something I am going to do.
5)  Any solution would need to have a very good chance of working.  Closing now is a straightforward process and doesn't require any money and a limited amount of frantic work.  Pouring money and / or time into a solution that might work is not something that I'm willing to do at this point in my life.

The only solution that I can see would be to reduce expenses by an amount at least equal to our projected yearly loss.  The only expense that is large enough to reduce by that much is our rent.  So, the only viable solution I can see would be to substantially reduce or eliminate the amount we pay to house the store.  The problem is that I can't see any realistic way to achieve that.  If I had the money, I would buy a building, move the store there and stop paying rent.  It would be a terrible investment, since I'd be losing out on the income from that money, but if I were driven by profits or money, I wouldn't be running a bookstore to start with.  On the other hand, I would own a building that would appreciate over time, even in the current over-heated real estate market in SF, so it wouldn't be a total loss.

However, I don't have even a fraction of the money that would be required for that.  Based on the current market and the sort of building we would need, the price tag would probably be somewhere between 1.5 and 3 million dollars.  So, what it gets down to is -- if someone (or a group of someones) out there wants to buy us a building, I'll be happy to move the store and stay in business.  But, otherwise, I cannot see any solution that will allow us an even half-way reasonable chance to make the business work at a minimum wage of $15 an hour.

Do I seriously think that someone will buy us a permanent home for the store?  Not at all.  I would do it for my store, but I don't think I'd do it for anybody else's.  On the other hand, if I had as much cash as Ron Conway, Mark Zuckerberg or Elon Musk, I guess I might do something like that.  But, realistically, it's not going to happen.

But, if it did, I would keep running Borderlands 'til someone carried me out feet first.  I really don't want to close.  But I can't see any real, sane alternative.

Here's the list of the not-completely-insane things that I considered (I'm leaving out the old-school-bus-as-bookmobile and other, crazier things).  I'll also going to give a thumbnail sketch of the reasons they won't work.

Increase Income
Obviously if we could sell enough books to make up for the higher wages we were paying, that would fix the problem.  My math says we would need to increase sales by a minimum of 20%. We could increase sales in a couple of ways -

1)  Sell a broader range of books
2)  Sell more of the books we already carry
3)  Sell items other than books, with a higher profit margin
4)  Increase the price of the books we are selling now
5)  Raise prices at the cafe to make up the short-fall

Selling a broader range of books is a problem because; first, we'd have to put a lot of money into inventory.  Adding our mystery section meant spending around $8,000 on inventory and we didn't finish the job.  Since there isn't another genre of books that would be a good, logical fit with what we sell now, I think we would need to turn ourselves into a general interest shop.  That would probably cost about $25,000 to $40,000 and we don't have the money (plus I'd be hesitant to risk that much on a less-than-pretty-sure thing).  Second, we don't know the field.  We're excellent at SF and fantasy as well as being damn good at horror and mystery.  But other stuff?  Nope.  As a result, we wouldn't be very good at selling those books, which is a big problem.  Finally, we don't have room.  The store is pretty full now.  Granted we could cut out some of the stuff that doesn't sell so well but we don't have the 20% extra room to increase our sales by 20%.

Selling 20% more of the books we already carry is completely beyond reach.  We do a good job at what we do (wouldn't still be in business if we didn't).  Adding our mystery section gave our sales a nice boost because we actually added customers, but otherwise our sales have been pretty steady for years (economic crash in 2009 aside).  Based on everyone I've talked to, increasing sales by 20% without changing locations, adding inventory, or making some other sort of big change just doesn't happen in the book world (or most any other retail business).

Selling things other than books is tricky for several reasons.  First, what sort of stuff would we sell, exactly?  It would need to be something that goes, in some way, with books -- otherwise it would just be weird.  It would have to be simple so as not to add much to our existing workload.  We already carry things like journals, bookmarks, postcards, and so forth.  We've tried selling DVDs (back when people bought such things) and also jewelry.  Neither of those things were much of a success at all.  Second, I'm not sure that idea really works very well for bookstores -- it certainly didn't work for Borders Books.  One of their last-gasp attempts to recover their business involved selling all sorts of crap other than books.  Finally, we got into this business to be booksellers.  Moving a fifth of our sales to something else isn't something anyone here is very enthusiastic about.  Also, like moving towards becoming a more general interest store, there is the problem of tying up a lot of money in inventory that might or might not sell.

All that I'll say about increasing our prices is that it's already hard to get people to pay the publisher's list price for a book.  How often have I heard people say, "I'll just get it cheaper on Amazon"?  I don't think that enough people to keep us in business would pay a 10 or 15% surcharge to buy books at Borderlands.  Of course, we could increase the prices on our used books, but they only represent about 7.3% of our sales, so that could never be enough.

I did spend a fair amount of time thinking about increasing the prices at the cafe to make up for the increased wages at the bookstore.  But the math said no.  The problem is that I'm going to have to increase the prices at the cafe to make up for the higher payroll at the cafe. It's not possible to raise the prices enough to accomplish that as well as raising them enough to cover the bookstore.  We'd price ourselves out of business that way.

Reduce Expenses
OK, so if we can't get more money coming in, what about reducing the money going out? The catch is that, other than payroll and rent, the bookstore has almost no expenses.  Other than credit card processing (where we have quite a good rate), our highest expense is our PG&E bill . . . which is only about $2000 a year.  In fact, rent, payroll, and credit card processing represent 68% of all our expenses.  There isn't anything left that we could cut to make up $25,000 a year.

As a result, the only thing we could cut would be payroll.  Most of the people who work at Borderlands are part-time, so cutting any single employee doesn't make much of a dent. Based (once again) on ugly math, to get the store on a balanced financial footing, I'd have to lay off almost everyone on staff.  Jude Feldman, the general manager, would remain along with one part-time employee.  Jude would need to work the counter from noon to eight, five or six days a week, while I did all the back office work.  In other words, I would continue doing the job I do now along with taking on about half of the job that Jude does.

That option was one that Jude and I discussed a great deal.  In fact, we went around and around about it.  And finally we decided that it wasn't something either of us wanted to do. When it gets down to it, as much as we both love bookselling, it's more important to us to have reasonably sane, healthy lives.  We have both worked the sort of hours that I just described.  In fact, we've done it many times over the past 15 years.  However, all the times in the past we did it to accomplish a specific goal.  Neither of us are willing to plan on working those hours as a matter of course, just to keep the store open.

Other Ideas
We could, of course, move the store out of San Francisco to someplace that doesn't have as high a minimum wage.  But, I suspect that the sales we would lose because of moving somewhere with a less dense population and fewer visitors would create a financial problem almost as bad as what we're facing.  On top of that, no-one on the staff here (yours truly included) wants to commute a long way to work.  Last but not least, Borderlands is a San Francisco sort of shop.  I don't think it would flourish in deeply alien soil.

I considered selling (or closing) the cafe and sub-leasing that storefront.  In this market, it would probably rent for more than I'm paying right now.  Of course, it would have to rent for $2000 more a month than I'm paying right now, but even that isn't out of the question. However, currently my pay comes from the cafe's income, not the bookstore's.  So, if I did something with the cafe, I'd have to figure out how to get my pay from the bookstore's income.  I don't make much money ($28,000 gross last year), but that's still a big chunk of money and there is no way that selling the cafe or sub-leasing it could produce enough to make up for the added payroll at the bookstore and my salary.

That thought led me, for about ten seconds, to the thought that I could go get a job elsewhere that would pay me enough to support myself.  In that case, my salary from the cafe could go to the bookstore and it would cover the payroll costs.  But, of course, the two problems there are that I would be working one job while still needing to do my job at the bookstore.  The burn-out there would be something to behold.  Besides, do I really want to work some other job just so I can keep owning a bookstore where I never have time to be a bookseller?  Dumb idea.

Without going even further down into crazy-land, there is only one other thought that I had. We could sell memberships to the store, ask for donations to keep running, or in some other way offset the added payroll by relying on the kindness, generosity and support of our customers.  I have two problems with that idea.  First, Borderlands is a for-profit business that I started with the intention of making money.  I don't think that it's right to ask our customers and community to give me their hard-earned dollars so that I can continue to support myself. If I had made the store a non-profit whose purpose was to promote genre fiction, that would be a different matter but -- that's not what I did.  And so I don't think that it's right for me to ask for continual hand-outs so that I can stay in business.  The second problem that I have is that it wouldn't work.  Over the years I've seen many stores try many things to remain in business. Asking your customers and community for support works wonderfully -- as long as it is to accomplish a specific goal.  But I have never seen a success come from counting on that sort of support to maintain a functioning business over the long term.

The last thing I should address is the possibility of selling the store to someone who either has more money to put into it than I or is willing to work the sort of crazy hours I did when I opened.  Or, I suppose, the possibility of turning it into a non-profit by creating a suitable entity, raising money for that entity, and then selling the store to it.

Not going to happen.

There is a very fine and chilling SF story by Tom Godwin called "The Cold Equations".  If you're not familiar with it, you should read it (despite the arguably fair complaint that it depends on good physics and lousy engineering).  The core of the story is that math leads to conclusions that cannot be argued with, regardless of what seems right, fair or just.  And the math about Borderlands says that what we've been doing won't work anymore.

Everyone at Borderlands has seen a slow, sad spiral that a bookstore goes through when the money just doesn't work out anymore.  I'll bet that many of the people reading this have seen it too.  It's heart-breaking and, perhaps worse, it creates a set of memories that overlay the good ones of the store in its prime.

It may be hugely arrogant, but I don't believe that any owner can beat the cold equations that we're facing.  When I first discussed our situation with the staff the feeling was unanimous (and, in a couple of cases, very emphatic) that we wanted to close the store with all the care, class and consideration for our customers with which we had run it.  That is both the reason that the store is not for sale, and also the reason that we're closing now, long before higher wages drag us down the drain.

One footnote before I end this.  It might seem that my suggestion at the beginning of this essay, that the only real solution to the problem is for someone to give us a building, doesn't really match up with my opposition to asking for a hand-out so that I can keep running my business.  Let me clarify that -- if someone wanted to give Borderlands a building to operate out of, I would actually say no because it would be a hand-out.

My counter-offer would be that I would be thrilled to set up (or help set up) a non-profit foundation to own and manage a building with the express purpose of housing a bookstore (or bookstores) as a literary and community resource.  Of course, I'd be thrilled if Borderlands was the first tenant.  The beautiful thing about that idea is that, regardless of Borderlands' financial health (or mine), a place like that could serve as a permanent support for bookselling, no matter how much the world and San Francisco changes.  As I said at the beginning of this post, I don't think that there is a snowball's chance in hell that it will happen.  However, I'm likely to have more spare time on my hands in six months to a year.  Starting that foundation and seeing if it's possible to make it happen for some other store might be a good way to spend some time.


  1. Alan, seems like you've thought it all through and though I am very sad at the thought of your closing, I know it's nothing compared to the mourning that you, Jude and the other employees must be going through.

    You seem like a very competent business owner and I can't imagine I would have any insight that you don't. I am reminded, however, of how a group of folks made a non-profit foundation to keep Scarecrow Video alive in Seattle. They have supporter memberships now, I assume so they can stay in business. I wonder how that's working out in reality-- I believe you when you say you can't depend on philanthropy to stay in business. But when I think about it I just don't want to accept the end.

    Moreover, it feels like you and the Borderlands employees really want to write your own ending, in a way. I was struck by your mention of how the bad memories can overlay the good.

    Wishing I had millions of dollars to buy you a building and a magic wand so people preferred to read paper books over electronic ones...

  2. Just as I was about to go back to sleep an idea struck me. Might be a dumb one for various reasons and probably wouldn't make enough money, but I feel compelled to mention it anyway.

    I just glanced at my email where there was a reminder to pick up my fruit CSA box. What if Borderlands ran their own "CSB" (Community Supported Bookstore)? Every month (or week or something) Borderlands could pick a great new book and send it out to all of the CSB subscribers, along with a short update about the business & sci-fi world (which you kind of already do.) Subscribers pay a premium (1.5x the cost of the book?) which covers shipping and brings in profit. What subscribers are paying you for is your expert recommendations, the convenience of having a book show up at their doorstep and to support the idea of the business, just as I am "over"paying for my fruit CSA for similar reasons, but I don't mind because I get fresh random fruit and a note from the farmer.

    I know there are all sorts of issues with this idea: the CSAs usually use a central dropoff point not straight to doorstep, doorstep shipping might actually be too expensive; people like to pick out their own books; people might have already read the book you pick out for that week/month; etc.

    So there are potentially big problems, but I was inspired by how much I will miss your immense sci fi/fantasy (and more!) knowledge, the fact that I overpay to support agriculture I believe in and, now that I have toddlers, how much less time I have to go to the city and get to your store. Perhaps there are others in the same boat?

    Anyways just throwing that crazy idea out there. I am also cognizant that you opened a bookstore as a place that people *go to*, not so you can ship books out...

  3. You could move to Austin, TX (which people call (both disdainfully and not) "San Francisco, TX"). You certainly wouldn't be alone. There's a reason so many Californians are moving to Texas, lack of ridiculous minimum wage laws being only one.

  4. First off, I'm sad to see the shop go. It was a bit out of the way for me to get to (being north bay, and now sonoma county with weird work hours) but I made the journey when I could, be it for author events or just to get a book (or to see the cats...still have pictures) I had a post with my "spur of the moment 'brilliant' idea" all written up, but Google ate it when I signed in. I'm going to try putting it up again, wish me luck.

    So, no hand outs (unless it was to make a non-profit that would also work for the store) and best solution would be get a building. My thought: crowd-fund the acquisition of a building (not sure how feasible, given the price tag vs number of people who could actually contribute) but instead of it being a 1-shot "got your money okay bye" type thing, have those who contribute have a stake in the building (not the shop) It would be an investment of sorts, everyone pays however much the want, numbers get run, and they effectively "own" some percentage of the building. The biggest thing would be that it wouldn't be an active, everyone has to vote on every decision type thing, but a "gets X% of sale price whenever sold" type thing. It isn't a hand out, property in SF should appreciate (save for an economic collapse) and if there are enough interested parties it could result in the purchase of a building.

    (That last chunk was larger than intended, but I'm just going from memory before I forget any details)

    There would be a contract written up for all contributors/investors/whatever we call them, which would have the various terms of their ownership and what it would mean. I don't know how many people would go in for this sort of thing (I'd like to think at least 1/3 of the mailing list people would, but I have no clue how large the list is, so no numbers to go off of)

    This could (probably is) just be a crazy idea, but if I didn't get it out there, I'd worry that maybe it was the idea that could have kept the store around, or it could have given someone else a spark of inspiration to come up with an infinitely better idea. Either way, it's out there now, I'm sad the store is closing (maybe not, if a good enough idea is found) and regardless of what happens I'll be finding my way down before the end to pickup some books & get a drink.

  5. Liberals think they can keep TAXING and bleeding businesses and they will just take it. Liberals never had to make a payroll so will never know what it takes to pay rent, make wages, pay bills etc. Liberal politicians have all collected government money and have no clue about actually making a profit. But then again PROFIT is afour letter word to socialists.

  6. Yeah, the liberals at Google, Apple, and Facebook, whose employees are pumping so much money into the battle for limited space and resources in SF and thus making the lesser-off want things like "a living wage", know nothing of profits.

  7. I live in Austin and I've never heard it referred to as "San Francisco, TX". Not sure who calls it that. And the suggestion that everyone in SFO just pack up and move to the ATX? No. We're full, please go back to California or Colorado.

    The net-net of the situation with brick-and-mortar everything is that sooner or later the brick-and-mortar businesses have to figure out what value-add they need to provide that brings customers in from the web.

    There's a line in "Other People's Money" about how the last buggy whip company must have made the best buggy whips imaginable, just before they too went out of business. Perhaps if they'd thought about diversifying into leather driving goods they'd have stayed in business.

    The value-add of brick-and-mortar businesses is other human beings actually interacting with each other in meat-space. $25K per year is $100 net after expenses and taxes per weekday, or $500 per week. $500 per week is 50 people @ $10 admission for a weekly event -- book reading, book signing, writers workshop. That's exclusive of added book or cafe sales.

    A Facebook friend put it this way -- you're in the "books" and "venue" business, but only selling "books". Gross margin on "venue" is much higher than what you guys are getting pushing dead trees.

  8. "The beautiful thing about that idea is that, regardless of Borderlands' financial health (or mine), a place like that could serve as a permanent support for bookselling, no matter how much the world and San Francisco changes."

    Don't kid yourself. The political disease that is consuming San Francisco like a cancer will always find a way to destroy businesses like yours. It's not the city itself but the perverted creatures that have, like the pod people, infested its political structure.

  9. Alan, thank you for this post, for going into the detail of your consideration, and for your contribution to the geek community of San Francisco. You and your store are well-loved, and I'm sorry you're in this predicament.

    I wonder if you have run the numbers for an SBA 504 loan? Basically, they are 3-way loans: 10% from the borrower, 40% from the SBA, and 50% from a private bank. There's an organization called TMC Financial in San Francisco that works with small businesses and shops around for private banks to match lending, and they're amazing.

    It might be worth exploring, just to see if the arithmetic works out.

    In any event, I wish you great success, and thanks again for your labor of love.

  10. The odds that you are now facing will eventually put you out of business, if not today then tomorrow for sure! My suggestion, should you accept the assignment, is to buy and sell antiques of all kinds, to prolong your book life! You're Welcome!

    Wild Bill

  11. Hm, thought I posted this already, but I'll try again. I didn't see any indication that you guys sell Kobo eBooks via your web site, the way a lot of successful indies do. If you did, I'd be buying from you and directing people all over the country to funnel their dollars your way.

    But it's not even mentioned in the ways you mentioned here of possibly raising your income, so I have to assume you're already doing it, and that I wasn't smart enough to figure out how to buy an ebook from you. (If you're not making a brisk sale in ebooks that IQ hurdle may be part of why...)

  12. I live in Austin and agree that this may be a viable alternative for you. Texas in general is very business friendly and Austin in particular loves the unique style that is represented by businesses like Borderlands.
    By the way I teach accounting at a college in San Antonio (yes I commute and no it is not that bad -- some other things Texas has going for it are great highways) and have posted a link to your essay for my cost and managerial classes.

  13. I'm really gutted about this, I'm sure not as much as you are. Ignoring the neocons above who think that people earning a living wage is the problem, (Vanderleun is still around?) I can follow your logic as to how there isn't a viable solution, and your math, and I get why the burnout would be too much. You're people too.

    Still, I feel incredibly sad about this. Borderlands was my happy place for over six years. I must have been in there once or twice a week since I've lived here, bought I don't know how many books, spent countless hours just browsing or even sitting with a book open on my lap, soaking up the sun through the window and the sheer...goodness of the books, and the people who love them. I can get all the books and more through Amazon, but it will never be the same.

    I am wondering if there's any way to keep any part of the shop alive through the cafe. I know there are still book clubs that meet there, and I had actually been hoping to start another. I'm wondering if you would somehow at least be able to conduct some kind of online presence as a bookseller? Keep hosting events? Maybe at least sell Lady Churchill Rosebud Wristlet and a few select favorites/new releases/bestsellers at the magazine rack? I don't know how any of it works, admittedly.

  14. Here here Barbara! I love that idea! I too was thinking perhaps Borderlands could sell a few select favorites/new releases/bestsellers at the cafe in honor of the bookstore. Thanks for bringing it up!

  15. I know you said you weren't really interested in relocating, and several folks have already suggested Austin, TX, but..if Texas isn't really your style, we'd sure love to have you in Frederick, MD. We've got a great historic downtown shopping district full of funky small businesses and restaurants. It's very walkable, and they hold regular community events to bring more people downtown to see what's available. Plus, the Historic Haven, Frederick's secret underground club for gamers, reenactors, and other geeky folk, is located in that area. If you set up within walking distance of the Haven, I predict you will not lack for business. :)

    Good luck whatever happens though.

  16. Another thought occurred to me; there was mention of forming a not-for-profit to support the store. This may not be widely known but Comic-Con International in San Diego was started and in fact remains as a 501(c)(3) organization, formed "for the purpose of promoting creating awareness of, and appreciation for, comics and related popular art forms" and I would imagine that science fiction is at the top of the list of popular art forms.
    I wonder if they would have any interest in buying your shop and keeping you to manage it? If so the then the lack of any profit would no longer be a hindrance to the store's continued existence.