Struggling in the Battlefield Borders Book Group

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1. History' The accidental bankruptcy. They went in and then said, Now what should we do?'1 In my perspective, this quote represents the position that one of the of the main global retailers for books, music, movies and gifts, begin to face when nothing went according to plan. A gloomy present, developed into

debts and loss, leading the company to bankruptcy. Borders Group Inc has forgotten the feeling of

success. Its golden years have been left behind and now what could have been a fairy tail for the company

has turned into a nightmare.

1 Denney, Joel, Popular Quotes by Joel Denney <http://www.great-quotes.com/quote/486394> access,02.02.2011.

2 Poggi, Jeanine, The Street, Borders' Mistakes:Chapter by Chapter, 02/16/11<

http://www.thestreet.com/story/10972547/1/borders-chapter-by-

chapter.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed> access,

02.16.11.

3 Ibid

4 About Us- Our History-Borders-Books, Music and Movies.

<http://www.borders.com/online/store/BGIView_bgiabouthistory/>access.01.02.2011.

5 Borders Group: Company Profile. 'Standard & Poor's NetAdvantage.

<http://www.netadvantage.standardandpoors.com> access01.02.2011.

6 Poggi, Jeanine, The Street, Borders' Mistakes:Chapter by Chapter, 02/16/11<

http://www.thestreet.com/story/10972547/1/borders-chapter-by-

chapter.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed> access,

02.16.11.

7 Poggi, Jeanine, The Street, Borders' Mistakes:Chapter by Chapter, 02/16/11<

http://www.thestreet.com/story/10972547/1/borders-chapter-by-

chapter.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed> access,

02.16.11.

First of all, to explain how did the company ended up with debt and crisis; some background

information is needed to explain what caused this situation. Two brothers, Tim and Louis Borders in

1971, founded Borders Group.2 The first bookstore was founded in Ann Arbor, Michigan, and it was

named Borders Book Shop.3 The bookstore was a success and by 1992 Kmart Corporation acquired

Borders and formed the Borders Walden Group. This union is a primordial event since Kmart had

acquired Waldenbooks, which lead Borders and Waldenbooks to become connected to each other. In

1995, the company becomes public, but goes out to the market with the name Borders Group. 4 By the

year 2004, Borders Group signed an agreement with the Starbucks Corporation to offer in every Borders

bookstore Seattle's Best Coffee.5

In addition, Borders Group began to grow in an extraordinary manner, this achievement

provided access to the International market. 'In 1997, it opened the first international store in

Singapore'6. This new market target began to expand, and lead to open 41 stores in the United Kingdom,

Ireland, New Zealand and Australia. In 2005, the company opened its first Franchise store in Malaysia,

and one year later another franchise store was opened in the Mall of Emirates, located in Dubai.

Nowadays, the company manages more than 1,000 stores, and it employs more than 19,500 people

worldwide.7

2. Economical view

Nevertheless, the market in the book industry is so wide that Borders competes with 2 other

main enterprises such as Barnes and Nobles and Amazon. The bookstores are not sufficient enough to

reach all the customers needs. Therefore, Internet has become a tool to offer clients a superior and more

personalized way for acquiring their books. As a result, e-bookstores start to enclose an enormous part of

in the book market. Borders competitors such as Barnes and Nobles and Amazon launched their

electronic bookstores first. For this reason, Borders had to take the example and it also launched its

electronic bookstore. This strategy assure the company an incredible growth in the online market, 'the

company set an ambitious target to secure 17 percent of the digital book market in one year, sending its

shares up more than 9percent.' (Report by Reuters) However, the online bookstores were the first step for

retailers to open a wide-ranged market without even noticing. E-readers were the next innovative

accessory for reading online books. With the appearance of e-readers, iPad, and Kindle reader the e-books

reputation and attractiveness in the market has starting to grow in an extraordinary manner. Now readers

just need seconds to purchase their online books, and with any kind of e-reader they have an amazing

accessibility to read what they want.

2.1 Year 2008 Sales Drop

On the other hand, the book market encloses a very competitive atmosphere. There are hundreds

of book retailers in the world that compete among each other to acquire an important role in the society.

But things do not go in the planned way in a competitive market. Some falls and downs appear from time

to time and for Border Group Inc, the year 2008 was the indication that problems were occurring when

the company noticed that its sales were decreasing. 'The sales experience an enormous decline of 8.8% in

an annual overview varying from $3.55 billion in the year 2007 to $3.24 billion for the annual sales of

2008.'8 This decrease in sales, recalls that the books expenses for consumers were decreasing. During the

same year, out of 12 borders superstores, half of them needed to be closed. By the end of 2008, the total

net loss increased from $400,000 to $16.2 million (Retailer, Daily, 04.01.2009). Consequently, with these

sales drops the company figured out that a quick strategy was needed in order to get some money back.

8 Retailer Daily, Borders Sales Drop Significantly,Published on April 01, 2009

9 Deal Book, The New York Times, Borders Repays $42.5 Million Loan From Ackmanm, March 31,

2010<http://dealbook.nytimes.com/2010/03/31/borders-repays-42-5-million-loan-from-ackman/> access 01.02.2011.

10 Retailer Daily, Borders Sales Drop Significantly,Published on April 01, 2009,<

http://www.retailerdaily.com/entry/12817/borders-sales-drop-significantly/> access.01.02.2011

2.2 Year 2009 Financial Instability

Subsequently, the company faced a great financial instability, and it decided to ask for loans and credits

in order to pay its debts. 'The company borrowed $42.5 million in March from the Pershing Square

Capital Management'9. The sales and economic status did not show any types of improvements, and the

prediction for the next year continued to show a predisposition of deficit and negative sales. All Borders

stores located in United Kingdom close down, and went out of business. The company could not afford to

maintain open some stores that were not generation any type of income. The 45 stores in all U.K. were

closed down. (Retailer Daily, 04.01.2009). Then, with the liquidation of businesses, the company had to

laid off a lot of the employees. 'Roughly 742 employees were laid off.'10 The debts of the company were

so wide that the time given for paying the solicited loan was not enough, therefore Borders ask for an

extension of one year in order to acquire more time to pay the debt and allow the maintenance ownership

6

of its subsidiary Paper chase, a specialty stationery retailer that represents most of Borders' international

presence. Due to the fact that the company was closing a great quantity of stores, the inventory

investment also had a dramatically drop during this year, the percentage of inventory investment dropped

4.5% from year 2008 (Retailer Daily, 04.01.2009). Moreover, the international sector surprisingly

brought good numbers to the company, and was one of the areas which did not suffer enormous loses. In

the year 2009, the total sales in the international area rose 18.5% compared to the year 2008, and they

rounded around $51.2 million 11.

2.3 Holiday Season

Also, the holiday period represents an essential time of the year for most of the companies, for Borders it

was clear how sales continued to weaken. Realizing that sales were dropping still in this period was an

enormous wakeup call for the company. The annual sales holiday period report, by Ann Arbor, showed

negative trends as every year pass. During the year 2007 the total consolidated sales showed and increase

of 3.9% over the same period last year. Then, during the year 2008 the total consolidated sales decline

11.7% decline compared to the same period last year. Finally, for the year 2009 the total consolidated

sales decrease an amount of 13.7% compared to the same period last year.12 Therefore, as the sales

continued to show a negative trend, especially in a season where sales expectations were expected to

show an exponential increase, the company experienced a complete disappointment.

3. Solution

Nonetheless, the company knew that a harsh and immediate solution must be presented since the

negative sales, as mentioned and analyzed in the previous section, just lead to the increase of debts. At

first, Borders wanted to keep in the market and therefore the first procedures the company made was to

begin to close stores, layoff personal. But still these methods weren't satisfactory enough to generate

revenue. Therefore the situation became more intense and the company noticed that solutions were

doubtful and the better way to solve the problems and debts is to leave the market.

Nevertheless, this decision would not only affect the company but its dependency on the book market will

be noticed by affecting probably the rest of popular retailers. In an interview speaking with Ms. Davis

Borders Spokeswomen, NPR's Lynn Neary reports 'So when Borders announced that it was delaying

payments to some of its vendors while it sought refinancing, the book world reeled. Everyone knew

Borders was in financial trouble, but the company's statement painted a grim picture of the situation.

Borders spokeswoman Mary Davis responded: It is hard to determine what lead Borders to bankruptcy,

thee are many factors involved such as, the inadequate form to understand and fit in the new digital

revolution, internal problems of managing and series of strategic missteps.'13

11 Arbor, Ann, Borders Group Reports Fourth Quarter, Full Year 2009 Results, March 31, 2010,<

Taking in consideration

Ms. Davis words, it can be noticed how Borders internal problems and the inability to adapt to the digital

environment at the same level as its competitors, marked the company's future. This clearly proves, that

http://www.annarborbiznews.com/2010/03/31/borders-group-reports-fourth-quarter-full-year-2009-results/> access

01.12.11

12 ibid

13 Neary, Lynn, npr: Borders Books Fights For Survival, Jan 6, 2011<

http://www.npr.org/2011/01/06/132699344/Borders-Books-Fights-For-Survival>access,01.08.11

7

the book industry is a really competitive battlefield, where just the strongest survive. Therefore, any

missteps taken unconsciously can lead to a company's end. By facing deficit, a good question was if

Borders could pay its refinanced credit facilities, the Spokeswoman also responded to this doubt saying:

'Borders stated that there can be no assurance that it will be successful in refinancing its senior credit

facilities, or restructuring its vendor financing arrangements' 14

4. Bankruptcy

. Facing no exit or solution at all, Borders

decided to announce that it was facing bankruptcy.

The arrival of 2011 was not bringing a new start for he company. Still its was burdened with debt, and

crisis. Therefore, at the beginning of the year, Borders had already announced that the payments to book

publishers would be needed to be refinance, since it wasn't able to pay, and therefore agreements were

made in order to refinance the debt.15

Then, on February 16, 2011, 'The Borders Group filed for Chapter 11 in the in United States Bankruptcy

Court in Manhattan.'16 Most of the stores located in United States started to be closed down and the

layoff of people was enormous. But nevertheless, it still is battling for regaining strength and stay in the

market. Therefore, the latest news about Borders situation, in March is that it is attempting to create a

new business plan to propose it to publishers and creditors by the beginning of April17

Now the only thing Borders need to do its wait, in order so find out if its proposed negotiations are

accepted. In an interview with the Wall Street Journal, President Mike Edwards said: 'The final number

of additional store closings will depend on the success of negotiations with landlords and may be closer to

20 to 25 stores, Borders is now receiving a steady flow of new titles from major publishers on a cash

basis, thanks to its recent financing.'

.

18

5. Conclusion

These words reflect the hope, which the company relies on. It is

waiting to be given a second chance to start again and maybe bring new business strategies.

Finally, throughout analyzing and following Borders history, it can be stated that the company has

suffered many changes during the years. Probably these changes weren't made adequately leading the

company to internal fluctuations, instability and staying behind its competitors, which could adapt better

to the market needs. The situation has been a terrible experience for the company starting with the closing

of stores, and laying off an enormous amount of jobs. Borders situation is a battlefield, and it would only

depend if it receives another opportunity of refinancing its debts for it to try to propose a new Borders

model to the market.

14 Neary, Lynn, npr: Borders Books Fights For Survival, Jan 6, 2011<

http://www.npr.org/2011/01/06/132699344/Borders-Books-Fights-For-Survival>access,01.08.11

15 Peterson, Valerie, About.com Guide, The history of the Borders Group: About the Borders Grupo Chain of

Bookstores. <http://publishing.about.com/od/BooksellersAndBookselling/a/The-History-Of-The-Borders-Group-

About-The-Borders-Group-Chain-Of-Bookstores.htm> access. 02.14.2011

16 Ibid

17 Reuters, Borders hopes to exit bankruptcy by September: report. Mar 14, 2011, <

http://www.reuters.com/article/2011/03/14/us-borders-idUSTRE72D1LU20110314> access 03.14.2011

18 Ibid

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