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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<
4 About Us- Our History-Borders-Books, Music and Movies.
5 Borders Group: Company Profile. 'Standard & Poor's NetAdvantage.
6 Poggi, Jeanine, The Street, Borders' Mistakes:Chapter by Chapter, 02/16/11<
7 Poggi, Jeanine, The Street, Borders' Mistakes:Chapter by Chapter, 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
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,<
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
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.
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
13 Neary, Lynn, npr: Borders Books Fights For Survival, Jan 6, 2011<
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
. 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.'
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<
15 Peterson, Valerie, About.com Guide, The history of the Borders Group: About the Borders Grupo Chain of
About-The-Borders-Group-Chain-Of-Bookstores.htm> access. 02.14.2011
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