Macro Environmental Factors-Pestle Analysis - Case Study Example

? Macro Environmental Factors-Pestle Analysis Essay Submitted [Pick the Borders Group has been a renowned when it comesto brick and mortar stores in bookstores industry mainly in western countries. With hundreds of bookstores opened worldwide, Borders group had managed to emerge as one of the market leaders in this industry. The group was originally an amalgam of Borders bookstores and Walden reality segment which made it have its operations extended in music retail industry as well. The reality segment itself consisted of airport stores and other small stores opened at various locations in US, Europe, Australia and Singapore. This structure was a result of various acquisitions that have taken place over the period of time. Detailed analysis of the history of Borders Group and its subsequent liquidation indicated that failure to adapt to market changes and technological advancement coupled with faulty investments and financial decisions lead to the demise of this once glorious chain of bookstores. The founders of this group are also the pioneers when it comes to superstores in published books industry after Barnes & Noble (Peterson, 2011). The traditional image of small-scale alley shops was replaced by Tom and Louis Borders in 1971 when they opened major stores in different states. In addition to many published books available under one roof, their Book Inventory System which was originally designed to support their sales and inventory management, also formed a major part of the products that they were offering. Following Borders group’s stake in published books market, it was purchased by Kmart however the deal was not as successful as expected and later on lead to divestment in 1995. After this separation, Borders group expanded its operations internationally in Europe, Australia and Singapore (Fundinguniverse, 2011). With over 500 stores working in United States only, Borders group aimed on capturing a major share of books industry. However, with arrival of e-books, online versions and other electronic devices coupled with online libraries, the landscape of global published books industry changed in late 1990s. Although Borders group attempted to retain its original stature through franchising and establishing self-owned stores however due to excessive market competition in physical book stores and also other market players like Amazon, Borders group faced aggressive competition. Due to this market condition, Borders group sustained immense losses and filed for bankruptcy in United States followed by subsequent closure of over 30 stores only in UK. As of now, all the directly or partly owned stores of Borders groups have been sold or closed down (Fundinguniverse, 2011). It is important to note that Borders group’s problem was not the changing market space and consumers’ demand but its rather sluggish approach towards the adaptation of changes. With major capital invested in physical stores, the cost of running the stores became extremely high. It did try to create an online presence in 2001 after emergence of Amazon.com and other e-book retailers however the results were not encouraging enough. Where Amazon was in the market after 1995 and had a stable establishment by 2000, it was already too late for Borders group to compete with the diverse and highly personalized nature of service offered by it (Wasserman, 2012). After being unable to have a successful presence, Borders group formed an alliance with Amazon which proved fatal in the long-run. The alliance ended in 2007 with another attempt of forming online presence in 2008 however increasing overhead, operations and interest expenses along with many changes taking place in organization’s management, the group was struggling to stay liquidated which further resulted in further bankruptcy of the group in 2011. Although over the period of time, Borders group added many features to its stores in the form of espresso bars and personalized service of its employees (who were already learned individuals with sufficient knowledge of literature and art) however with emergence of spacious stores, the original identity of homey store was hard to keep. In addition to that, where leading names in the books store industry were embracing technology, Borders group appeared to follow the same approach. As a result, the prior buyers who visited physical stores opted for Amazon’s kindle and Barnes and Noble’s online products. The group did offer Sony’s e-reader but the product met a little success. Critical analysis revealed that the given situation had a major disadvantage for the stakeholders that included its management, investors, employees, publishers and of course the customers. Decreasing profits and unplanned ventures made investors lose their trust in the management which lead to many changes in it making it more vulnerable. Being a public listed company, its stock prices sunk greatly which further hampered investors’ interest. In addition to that, continuous shut downs caused separation of over 10, 000 employees in a period of three to four years (Fundinguniverse, 2011). The loyal customers of Borders group who opted for its physical stores due to its homely ambiance also lost interest when the store became too ambitious regarding expansion making it more corporate like. Furthermore, the diversity, options and convenience offered by services like Amazon and e-retailers was not possible for a physical store to keep up with. As far as publishers are concerned, they did support the group by providing inventory before actual payment and sustained multiple delays when the group was going through turbulent times however group’s ultimate failure to stay liquidated hampered their interest as well (Peterson, 2011). Followed by examination of stakeholders of the group, PESTLE analysis can be helpful in identifying the factors that contributed to the demise of this business entity. Political analysis of the bookstores industry indicates that bookstores were under undue pressure due to censorship policies regarding books on salacious matter however there are no visible factors that can be considered as a direct political influence leading to closure of the book stores. On the other hand, economic analysis can be considered as one the major contributors behind the fall of this group. With heavy investments made in retail division and physical existence with increasing payroll and other administrative expenses, Borders group attempted to capture maximum market on the model of Starbucks. On the other hand, at the same time other key market players like Barnes & Noble were pulling back and focusing on their e-existence (Noguchi, 2011). Secondly, seasonal nature of this industry i.e. beginning of academic year and holiday seasons, summer vacations etc., also affected the performance of this group greatly. Failure to market properly in these seasons made it more vulnerable to economic collapse. Further analysis indicates that although Borders Group failed to embrace technology on timely basis and made some fatal partnership decisions i.e. with Amazon, it had a major hit due to economic recession beginning in late 2007. Since retail items like books and DVDs do not form part of necessities therefore sales curtailed greatly after 2007 which later on reflected in the sales of Borders group (Peterson, 2011). It is also the time when the group chose to delay payments to its publishers in order to stay liquidated. Since the group attempted to have an international presence in different regions in the form of fully owned stores, competition from the established local names and the respective economic conditions of those regions also affected its sales. As far as social factors are concerned, Borders Group also tried to focus on various niche segments but failed to follow this segmentation regime. The store had an opportunity of presenting co-products and merchandise that could have corroborated with juvenile literature i.e. merchandise of Harry Potter etc., but instead it attempted to build its capacity of selling music. Changing technology can be considered as a key player behind the closure of its stores. Like stated earlier, it was too slow to embrace changing technological landscape. Amazon was in the market after 1995 and captured major share really quickly due to boom of worldwide internet. Failure to be a market leader and even an efficient follower of this trend, presenting a poorly maintained website in 2001 was too little and too late. This was also precisely the time when other books sellers were working on presenting devices for-e-reading. Amazon presented its Kindle in 2007 whereas Barnes & Noble presented theirs in 2009 (Wasserman, 2012). Using incompatible Sony readers made it lack originality and failed to win customer’s loyalty. In addition to these factors, legal elements also played their role. In 1998, the American Booksellers Association (ABA) and 26 independent booksellers filed suit against Barnes and Noble as well as Borders claiming that the big chain stores were receiving better terms and discounts not offered to the rest of the bookseller industry. The lawsuit uncovered that the industry had been using practices favourable to the big chains and subsequently placing the independents at a disadvantage (Rodriguez, 2007). The lawsuit also damaged the goodwill of this group. Environmental factors also appeared to be playing role in the demise of bookstores including Borders group. With increasing emphasis on saving environmental resources and consumer’s awareness regarding consumption of natural resources and their depletion due to manufacturing of paper, consumers are opting for replacement of paper (Springer, 2000). As a result, regimes like recycling and online resources are gaining more fame. Furthermore, conservation of energy resources that are used in manufacturing and publishing of books can also be performed if an online version is available instead of a printed one. It can be said that e-books are slowly replacing printed ones which were the main products of Borders group (PwC, 2010). Decreasing consumers’ demand also resulted in reduced sales of Borders Group. In the light of these findings, it can be said that there were several options that Borders Group could have utilized in order to remain in the industry. According to the report of Price Water House Cooper, only US industry is forecasted to be of $37 billion by 2015 (De Prato and Simon, 2011). This market is big enough to allow entities like Borders Group utilize their core competencies. US market also forms more than 57% of the e-books market that illustrates the success of Amazon and other market players (PwC, 2010). Given this rate, it can be said that going digital was one of the better options for Borders Group. Following the lead of Amazon by being a fast follower could have been the most suitable approach. Also, purchasing exclusive rights of the published material could have made it have competitive advantage over other market players. Since development of successful online presence is a time taking process therefore instead of closing down the website in 2001 altogether and later on re-launching it in 2008, it would have been more convenient to let to run in a pilot mode and debugging it at same time which would have saved time and investment along with fighting off competition. Secondly, going international through online or virtual distribution could have curtailed major costs that were required for administration of physical units (PwC, 2010). Timely disposition of physical stores and retaining speciality stores only for the sake of securing Borders’ heritage along with franchising instead of private ownership could have been a viable option. Due to consumers’ preference for dematerialisation, Borders Group could have adopted on-demand mechanism. This mechanism would be based on prior booking by customers and expedient delivery to them by forming strong alliances with publishers. The given approach could have been supported through limited stores leading to savings on inventory management. Thirdly, in the later years, there were various legislations passed that restricted search engines to provide free access to online books (De Prato and Simon, 2011). These legislative reforms could have supported Borders group maintain its existence in the bookstores industry by limiting availability of free or lost-cost books. Since it was evident from the performance of Borders group in late 1990s that the consumers’ preferences are changing and physical stores are requiring major capital, selling of these stores on timely basis would have allowed it to remain liquidated and save more on depreciation expense head as well. Leasing and rentals were the lesser costly methods available allowing ample capital to be available for research and development, and marketing. Critical analysis of Borders Group’s history indicates that organizations are required to be aware of consumers’ preferences and current market norms. Failure to identify these changes and adapting to them can make organization sustain heavy losses which can also threat their going concern. In Borders Group’s case, it was found that early management was highly ambitious towards gaining share in bookstores industry. However with arrival of e-commerce, other technological advancement, consumers’ preference for compact devices, the way bookstores industry operated changed rather quickly. Due to massive structure and sluggish approach, Borders group failed to adapt to these changes. In addition to that, economic, legal and environmental factors also reduced demand for books overall causing many bookstores to leave the industry. This analysis indicated that only approach which could have helped Borders Group was to stay alert and informed. Ability to foresee industry’s changes and future can help organizations have a competitive advantage over other market players. References De Prato, G., and Simon, J., 2011. The Book Industry, [online] Available at: http://is.jrc.ec.europa.eu/pages/ISG/MCI/documents/09.GDepratoMCI271111bookv32.pdf [Accessed 5 May, 2013]. FundingUniverse., 2011. Borders Group Inc. History, [online] Available at: http://www.fundinguniverse.com/company-histories/borders-group-inc-history/ [Accessed 5 May, 2013]. Noguchi, Y., 2011. Why Borders Failed While Barnes & Noble Survived, [online] Available at: http://www.npr.org/2011/07/19/138514209/why-borders-failed-while-barnes-and-noble-survived [Accessed 5 May, 2013]. Peterson, V., 2011. Borders’ Group History, [online] Available at: http://publishing.about.com/od/BooksellersAndBookselling/a/The-History-Of-The-Borders-Group-About-The-Borders-Group-Chain-Of-Bookstores.htm [Accessed 5 May, 2013]. Price Waterhouse Cooper Inc., 2010. Turning the Page: The Future of ebooks, [online] Available at: http://www.pwc.com/en_GX/gx/entertainment-media/pdf/eBooks-Trends-Developments.pdf [Accessed 5 May, 2013]. Rodriguez, V.G., 2007. Bookstores NAICS Code: 451211,SIC Code: 5942, [online] Available at: http://www.sbdcnet.org/small-business-research-reports/bookstores [Accessed 5 May, 2013]. Springer, A.M., 2000. Industrial Environmental Control-Pulp and Paper Industry, Michigan: Tappi. Wasserman, S., 2012. The Amazon Effect, [online] Available at: http://www.thenation.com/article/168125/amazon-effect# [Accessed 5 May, 2013]. Read More