Why Did The #1 Rated Firm In Customer Experience Go Bankrupt?

How can you be so good to your customers, yet lose so much money?

A few weeks ago, bookstore chain Borders filed for bankruptcy.  Unlike many of the other companies that have succumbed to recent economic pressures, Borders was unique in one important respect:  It was recently rated as having the best customer experience of any company in any industry.


That, at least, was the conclusion reached by Forrester Research in their fourth annual Customer Experience (CxP) Index study.  They surveyed consumers for opinions on their experiences with over 150 brands, and Borders came out on the very top.  Ahead of Amazon.  Ahead of Apple.  Ahead of lots of storied brands.


How on Earth did the top-rated company for customer experience end up in bankruptcy court?  Did Forrester miscalculate their survey results?  Are they asking the wrong questions of consumers?  Or, even worse, could this be some sign from the heavens that customer experience excellence doesn’t really pay any dividends?


There definitely is a lesson to be learned from Borders’ downfall, but it doesn’t have anything to do with the merits of Forrester’s CxP Index or the fundamental value of great customer experiences.


There’s no industry-wide survey of customer experience that’s perfect.  Forrester’s take on this exercise is as respectable as any of the other measures commonly used to rank companies on the customer experience spectrum.


Plus, as I’ve reported in prior posts, in the four years since Forrester first started compiling its Index, an interesting pattern has emerged, suggesting a linkage between Forrester’s rankings and corporate stock performance.  Similar patterns have been observed with other prominent customer experience ranking studies.  Borders notwithstanding, there’s plenty of evidence out there suggesting that differentiated customer experiences do indeed lift business results.


No, the lesson to be learned from Borders is not about research failure, nor is it about stoking the fires of customer experience skepticism.  The lesson is that while the quality of a company’s customer experience is a critical driver behind long-term business success…  it’s not the only driver.


There are basic elements of business management that, if not capably executed, can derail the prospects of even those firms with the most revered customer experiences.


In Borders’ case, the fall from grace can be traced back to a variety of management missteps:


·         Poor profitability oversight.  Hundreds of Borders outlets were just plain losing money, yet it’s taken a bankruptcy filing to get the chain to significantly narrow its footprint and remove this financial albatross.


·         Unfavorable lease terms.  On average, Borders stores had 15-20 year leases, limiting the chain’s flexibility to respond to local real estate developments (such as a new, high-traffic mall opening down the street).


·         Ill-advised outsourcing.  Until just a few years ago, Borders outsourced its online book sales to Amazon.  Talk about letting the fox guard the henhouse.


·         Imprudent expansion.  Instead of grasping the significance of Internet retailing to its business model (and doing something about it), Borders chose to focus on an ill-fated international expansion that took attention away from its core U.S. business.


·         CEO turnover.  Borders has run through four CEOs in three years.  Guiding a large retail chain out of a tailspin is difficult enough – imagine trying to do it with this level of turnover in the executive suite.


Even though consumers (at least those surveyed by Forrester) praised Borders for its customer experience, lurking beneath the surface were a variety of issues that – while not always visible to the public – still compromised the company’s performance.


And, as Borders has sadly discovered, there are some management missteps for which even a spectacular customer experience can’t compensate.