The Borders Group Inc. Company - Case Study Example

Table of Contents Table of Contents 2 The Borders Group Inc. Company 4 Introduction 4 The 1980s 5 The Kmart takeover 6 The break-off 6 Restructuring and employees 7 Borders business strategy 8 The Super store concept 9 The Collapse 11 Major reasons for the collapse 12 Reliance on loyalty 12 Management turnover 13 Debt 14 The E-Book advent 15 The Role of Management in Border’s fall 16 Abstract The Border Group Inc. is a household name in virtually all American literary establishments. It boasts of a legacy of stocking virtually all literary and music collections ever published in the world. However, this popularity did not directly result to overall long-term financial stability. The Borders Group Inc. Company T he Borders Group, before its collapse, was America’s biggest end-seller of paperbacks, songs, and other diverse learning, informational, and leisure merchandise. In particular, its Waldenbooks bookshops had a physical presence in excess of 1,000 mall premises by the end of the year 1995. In addition, the company owned the once drastically growing Borders Books & Music super shops as well as the Planet Music retail shops. All over the nation, the Borders brand was linked with shops that exclusively served all book and song enthusiasts. This was because the company possessed an extensive collection of limited and extinct titles and albums in addition to a significant variety of diverse forms of electronic literature (Aspen, 33). The company outlets, which had grown to 116 by the end of 1996, all offered consumers wide and comfortable sitting and browsing chambers, a informed client care band, and coffee counters that had live leisure activity. Thesis statement: this paper seeks to examine the Borders Company comprehensively. It will expound on its inception, history, and the events that finally led to its collapse in late 2011. In particular, the paper will focus on the role of the company’s top management in its eventual demise from the literature and publishing arena. Introduction The Borders Group Inc. appeared on the scene after breaking off from its mother corporation, Kmart Corporation, in early May 2005. However, the original Borders brand was in existence from 1971. The advent of the Borders name happened due to the ingenuity of two brothers, Tom and Louis, who decided to open a single second-hand bookshop in Ann Arbor, in Michigan. The store’s initial target market was the then growing academic fraternity that schooled at the University of Michigan. In addition, the store enjoyed frequent patrons from the area’s smaller institutions of learning. Within a short time, the shop became popular, both as a literature store and as a hip hangout. As time passed, the store grew, and the brothers managed to acquire two more shops. One was in Michigan, whilst the other was in Indianapolis. Furthermore, the brothers also invested in a promising wholesale venture, which they named the Book In venture Systems (B.I.S.). This venture also caught on well and performed well. For a long period, the brothers had been contemplating on starting their own superstore. In the year 1985, they finally started their initial trial superstore. The trial version performed so well that, in combination with the growing level of competition, it revolutionized the retail paperback business, and influenced it to vacate mall-based business and invaded the crowded urban sections. By the end of 1988, the Borders stores had grown in number to five, and their BIS business already had 14 customers. In total, the company was raking in net revenue of $ 1.9 million dollars. This came from its business sales that amounted to about $ 32 million. However, the brothers itched for more (David 209). The 1980s The brothers, in their pursuit of nationalizing their shops, the brothers employed the services of Robert DiMuraldo, who was a Drexel Technology Institute Alumnus, in 1988. In addition, Robert also held a Harvard MBA. Robert had immense experience from Acme Markets and Little General Stores in marketing, and as the former head of Hickory Farms, which was a popular food company. Robert came on board at a time when the book industry was ready for radical revolution. The late 80s and early 90s marked a previously unprecedented expansion for book end-sellers. In particular, the total industry net sales for the top two super shops amounted to about $ 1.3 billion from 350 outlets in 1994, up from the paltry $ 59 million from the existing 31 outlets. This was an increase amounting to about 86% in compound yearly rate. Robert, who became president in late 1989, embarked on opening an additional 14 shops during the subsequent three years. Within a short time, Robert had successfully increased the fortunes of Borders, and had elevated it to a popular household brand in the Midwest region. In the 1990’s the Borders Company was the best bookstore franchise according to surveys. The Kmart takeover By the end of the year 1992, the Borders venture had drastically increased in magnitude, and had already commenced on the tedious procedure of turning public. It was at that period that the company attracted Kmart Corporation’s interest. Kmart had previously acquired the Waldenbooks shops in 1984, and was on a major offensive with the purpose of further augmenting its retail section. In October of 1992, the Borders siblings disposed their business to Kmart, and subsequently hung on as mere investors. Due to this move, the Borders Company became a full Kmart auxiliary. As a result, its net sales in 1993 jumped tremendously to about $ 224 million dollars, a figure that signified a 15 % increase from its 1993 sales. In addition, Kmart instigated further changes in the existing operation systems of Borders. Kmart introduced sophisticated cash counters, formed a novel human resources sector, enrolled all workers in in-house official training, and, in addition, introduced the idea of selling music items in the store. The break-off However, in 1994, the Borders and Walden books joined to form a novel venture that they named the Borders Group Inc. the involved management did this with the main aim of finally getting out from Kmart’s business stranglehold. Robert combined with George McKonic, who had been responsible for the supervision of Kmart’s specialty outlets segment for close to four years. He had greatly contributed to Kmart’s phenomenal success as a leading book and usic retailer. By the end of 1994, the Borders Inc. had bought out five CD outlets and one Planet Music store. Subsequently, the venture successfully managed to get an additional 4 Planet shops and opened 32 fresh Borders super shops. The Group's general transactions value for the same year amounted to about 1.5 billion. Due to the acquiring of the sector’s most intricate computer-aided register administration and sales structure, the Borders Group Inc. not only now owned the premier sales-per-foot quotient in the whole business sector, but also was now capable to position and place appropriate music sales according to their relevant high-selling seasons. In addition, the venture had recognized up to fifty-five independently defined cyclic sales outlines and had subsequently programmed them into the company’s computer database. This now helped the company to monitor sales in different seasons and correctly forecast what stocks to offer in the coming seasons. In addition, this also aided the company in maintaining delivery and supply of all song and book titles with ease, and without interrupting their sales system in whatever way. Restructuring and employees Though the Kmart' corporation’s utter control of the Borders and Waldenbooks subsidiaries was destined to cease with the construction of the Borders Group, Inc., all the financial aspects regarding the break-off deal were finally paid of after the Borders company went public and sold some of its stock in 1995. About two months later after going public, the Borders group publicized its intention to buy off Kmart’s 13% stake in its stock shares. Because of the move, Robert became chief head and chair, whilst McKonic took on the responsibilities of the company’s president and deputy chair’s offices. after the settling of about $ 182 million dollars in an immense one-time payoff, the company realized in excess of $ 364 million in sales during the second period of its 1994 financial year. This figure marked the improvement of the company’s sales during 1993 by about 11.5 % (Laurie,104). Although numerous milestones and challenges rocked the company’s long journey from a small-scale retailer to a nation-wide force in the industry, most of the company’s permanent workforce had stuck with the company. As a result, after the Kmart acquisition they enjoyed numerous benefits and rewards as the company’s show of gratitude for their dedicated service. However, in 1994, the company management engaged in a serious discussion concerning the pioneer outlet of the company. This arose due to the proposal to move it to a rehabilitated mall. Though the store was to be significantly larger and was to offer much more than the existing one, critics argued that the new location would never be able to imitate the honey feeling that customers got from the initial store. In addition, the new outlet was to stock both song and book supplies, whilst the existing one was a books-only outlet. This was a major point of conflict even among the workers. Borders business strategy Nonetheless, the group’s current format of executing business was primarily to satisfy the customers’ diverse tastes and needs. The company, which already possessed a distinct and intricate registration and order format, strived to exploit its employee system to its maximum benefit. It restructured its employee base in a way that numerous workers were on a full-time and permanent status. In addition, the majority of its workforce was highly educated, with a minimum college education as the major employment stipulation. Furthermore, all employees undertook intense tests regarding their innate knowledge in the music and literature fields of study prior to appointment. The bookstore conglomerate also adopted a culture of always striving to provide top-quality client service. The group managed this by providing customers with a diverse scope of additional services that ranged from in-house searching of extinct materials on order to a wide range of communal services that included narrative schedules for young children and poetry familiarization classes. The company also sought to diversify its current platforms of learning and news media. Subsequently, they invested in CD-ROMs and video DVDs. It also embarked on improving the interiors of all its outlets in order to provide customers with leisure-inclined and comfortable surroundings, in addition to coffee counters. This move greatly influenced potential clients to hang around the outlets after purchasing items. This was an unprecedented move in the book business, and its rivals had to adopt it quickly to ensure their continued relevancy. These ideas brought immense revenue to the company. The outlets’ coffee business turned from an initial company overhead expenditure to a noteworthy $ 20 million dollars annual profit-generating business. By the end of the year 1995, the company had installed the coffee counters in 82 of its total 85 bookshops, and had laid down strategies that supported the installation of the counters in all its existing and future outlets. The Super store concept In 1996, the company’s superstore pilot shop boasted of about 30,000 sq feet in floor space. This was significantly larger than the biggest outlet of Barnes & Noble, which was its main rival at the time. Though the initial costs of setting up a single super store was about 130,000 different books and close to 57,000-recorded songs, which amounted to about $2.5 million dollars, the majority of its stores turned in profits within a year of operation, having covered the initial investment costs. As most of the group’s outlets came up in the early 90s, the company was able to realize immense and swift success by the end of 1996. In that year alone, the company’s total revenue, bordered on about $ 1.6 billion dollars for its total ventures (Jack,233). Its books and music departments brought in about $ 620 million dollars in revenue, which was a marked increase in comparison to its 1994’s sales worth. On the other hand, the superstores raked in a handsome 40% of the total business revenue. This figure amounted to a 12% increase comparing to its performance in the year 1994. These monumental accomplishments influenced researchers to project the company’s revenue figures to exceed $2 billion dollars in the coming financial year. in addition, they predicted that the groups super stores division to reach $ 950 million in sales revenue by the end of the 1996 financial year. Through this performance, the market critics ranked the business second only to the Barnes and Noble company sales wise. However, the Borders super stores division won in terms of the extent of diversity of the products on offer. This led numerous analysts to predict that the company would soon overwhelm its rival in all other sectors regarding the industry. In addition, the Borders Company intended to exploit Waldenbooks’ financial superiority in order to fund its planned nationwide expansion strategy. The venture had already started plans to open an additional 35 superstores in 1996 and the coming years. The company, at the time, aimed to be the nation’s top bookseller franchise by the close of the decade (Bessie, 120). The Collapse As the decade neared its close, the Borders Company began to lose track in all sectors. From late 1999, the company started experiencing top management woes. From that year until its collapse, the venture underwent six changes concerning its top managerial chief head. Furthermore, no one of the new chiefs enjoyed enough time to make things work. These changes later proved to be among the factors that influenced the company’s downfall. In the year 2008, the group introduced 14 new outlets that based their operations on a concept that was to enable customers to undergo a hither-to unseen shopping experience. According to the new system, the clients had to visit the company outlets physically in order to use the company’s downloading stations to find their preferred books and song titles. This system of exploiting e-commerce proved very unpopular, as it worked differently from the already established avenues of e-commerce. Thus, it failed terribly, and at a high cost to the group. By the advent of 2010, the company had already lost the operating values and principles that had previously led them to success through misinformed ways of embracing new technology. Other similar attempts at luring customers back were unsuccessful. In 2008, the company management decided to sell of the company. However, the market, having analyzed its financial and relevancy status, was not interested. As a result, the company finally filed for bankruptcy in February. In the same month, it shut down close to 200 of its outlets. In addition, it embarked on a massive discount sale in order to sell off all the present stock items in all its stores, offering a massive 90% reduction in the price of most items. Finally, in September 2011, the company finally closed all its operations and liquidated for all time (Plunkett, 174). Subsequent analysis has revealed that the eventual fall of the company was not unexpected. In addition, most of the blame behind the company’s demise is linked to the numerous misinformed decisions and strategies that the venture’s management undertook from the mid 1990s. Major reasons for the collapse Reliance on loyalty In its early years that led to its success, the venture provided its clients with knowledge materials and an autonomous feel whilst in the premises of its stores. The company had successfully managed this through equipping its stores with unique structural designs, comfortable seating settings, and reading corners. The outlets possessed of highly professional workers, who enjoyed excellent remuneration and health benefits. In addition, the business awarded its personnel with an extravagant monthly product vouchers. For a long time, the Borders stores had successfully built a reputation of being the only location that one was sure of finding any literature or music title regardless of the popularity or era of the author or musician. According to its clientele, the company was the prime retail outlet that provided them quality service that was free from frenzied sales aspects and sub-standard products. This is one of the reasons behind the factor that, though the venture has already collapsed, its rivals have been unable to imitate its store architecture. However, in this time and age, the market conditions are aggressive and emotionless. Customers are increasingly shunning the traditional adage of flocking the same shops every time regardless of its prices in comparison to other shops. Management turnover Ever since the company fortunes took a negative turn, the company experienced a very high rate of top management change. The venture’s board, after it appointed new chief executive officers, did not give them ample time for them to implement their strategies and see them through. This proved costly to the company in numerous ways. In the current times, executives looking for work in the field possess heavy titles and have influential references. Once appointed, they usually take over using drastic moves, including enormous layoffs and employee turnover within a very short time. However, due to the pressure implicated on them, they tend to implement policies that favor short-term results that, though they produce some slight positive results, on the overall, they negatively affect the long-term strategies of any establishment. The Borders group put so much stress on its top management that they produced conflicting strategies that, in effect, exhibited the desperation of the company in the pursuit of positive results. As a result, from the period that lasted from the year 1999 to 2008, the company took on numerous and varying policies that had many negative effects. All the processes took up a lot of the company operating cash that was used in heavy investments, which were expected to produce immediate results. However, the company’s management did not consider that the time they had on their hands was much smaller than the time it would have taken for the new policies to take root and produce positive results. In addition, the company management did not put into consideration that the current market status does no longer enable the realization of immediate results. In the present market, the growth of any business is usually gradual, tactic, and takes time to transform into physical and monetary results. Furthermore, the current market conditions consist of ruthless factors in every sector that is intricate and intimidating. They do not allow for any misconceptions in all matters regarding company fiscal policy and direction in terms of business activity and overall strategy. Thus, the actions of the Borders group management were completely misinformed and irresponsible in light of the fact that, even after all these, the company still eventually went under. Debt Prior to its fold up, the Borders Group Inc. was heavily immersed in debt from all major financial establishments, and had already used up all its available operating funds. In the current industrial situation, debt is now regarded as a potential deathtrap. In fact, debt has been one of the main factors behind the collapse of numerous institutions and corporations since the year 2000. In the mid 1990s, loans and grants were readily available from numerous fiscal houses. The reason behind this statement is that, at the time, the economies of most regions were kicking healthily, and all forecasts and projections intimated a significant growth in all sectors. As a result, most major companies and conglomerate that were looking to expand their business activities heavily borrowed from the institutions, banking heavily on the fact that, as the fiscal situation got better, sales would rise, and thus they would be able to repay their debt easily. However, as the decade neared its and recession hit most major fiscal systems, sales figures in virtually all industrial segments swiftly took a downward turn. As a result, all companies that had engaged in borrowing suddenly found themselves under undue stagnation that resulted from excessive loans. In addition, the institutions, due to the drastic fall of sales figures, could not get ample funds to sustain their respective debt interests. The Borders company debt had already reached close to $350 million dollars by the time recession hit the American fiscal market. This amount proved too excessive for an institution that currently had only about $3.5 billion from its yearly sales. In addition, prior to the recession phenomena, the venture had lost steadily lost money in its business activities for about five successive years. The venture had gotten the debt in order to help it open and stock up its foreign book and music outlets, in addition to its other various expansion plans. Due to this looming disaster, the venture’s management board had no other option but to dispose a number of its stores in order to sustain its massive debt-offsetting program. However, the loans, coupled with the downward turn of the franchise’s business activities, finally influenced the eventual demise of the company. This is another piece of evidence detailing the lethal effects that can arise from the mistakes of management boards in the correct analyzing the present and future projections concerning any market situation and fiscal circumstances. The E-Book advent The advent of the E-Book materialized in the mid 1990s. This came mainly due to the breakthroughs that the computer industries were accomplishing in regard to internent and online sharing of diverse materials. However, most players in the literature industry, including the Borders Corporation, continued to ignore the massive potential that the digital awareness possessed. Though researchers had already projected the imminent move of the publishing industry from the current print-based material to the digital platform, the actual sales regarding digital materials were not adequate enough to convince most major players to shift focus towards the technology. However, in the early 2000 era, all industries, and in particular the print industry gradually started to consider shifting their operations in order to embrace the digital platform in a comprehensive manner. This was mainly because the players had realized that the digital platform held numerous direct and indirect advantages. The overall costs in the production of digital materials were far cheaper than the print alternative. In addition, the print industry was now considered to have numerous negative attributes, the main one being environmental harm due to the felling of trees and the increased use of crude oil energy in the manufacture of paper. In addition, the internet provided a much cheaper platform to both authors and publishers alike in enabling them to venture into large market bases in numerous regions without having to be physically involved. Whilst Barns & Nobles, the main rival of Borders embraced the digital platform as soon as it appeared, the management of Borders were reluctant to follow, an instead opted to sustain their investing plans in the print sector and related activities. When their fortunes began to falter in the early 2000s, the company finally realized that it would have to actively engage in the digital platform to avoid redundancy in the market. Thus, it embarked on a massive restructuring process in order to incorporate the digital factor in their processes. However, the measures proved too late as its rivals had already taken the storm in the market, and thus the company could now not make any significant headway in the field (Laura 132). The Role of Management in Border’s fall In the current age of fiscal globalization, the particular roles of company management sectors have grown significantly complex. They have to incorporate the fluctuating market conditions, changing client preferences, and unsteady economies before making any decisive statements and policies (Ernst 37). In addition, they also have to be very keen on all technological breakthroughs before dismissing them as irrelevant. The Borders management failed terribly in all these sectors. They failed to decipher correctly the role of the internet in their business. In addition, they also failed to assess the financial forecasts of the late 1990s accurately. These two major mistakes influenced them to commit major negative decisive actions that in combination ultimately cost the company its solvency. Work cited Aspen Publishers. Directory of Corporate Counsel 2011-2012. New York: Aspen Publishers, 2011. 31-760. Bessie, L. 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