Thursday, February 24, 2011

Borders: Was Bigger Better?

What happened to Borders? It is a classic American business tale of rags to bankruptcy in little more than a generation. Their classic marketing plan, “Let’s Get Big,” made it happen. Here are some of the key details concerning it US operations.

Brothers Tom and Louis Borders founded their first bookstore in Ann Arbor, Michigan, in 1971. With its book wholesaler sister company, Borders primarily serviced more independent book stores than its own book stores until 1989 when company management decided to expand. It did and it got bought.

Kmart had owned the mall-based book chain Waldenbooks since 1984 when it bought Borders in 1992. But not long after, Kmart faced management and stockholder problems with its acquisition, not to mention fierce competition from rival Barnes & Noble. So Kmart spun off Borders and by 2003 the new Borders Group had grown to 1249 stores using the Borders and Waldenbooks names, worldwide.

In 2004, Borders reached an agreement with Seattle's Best Coffee to operate cafés in its domestic superstores. In 2007, Borders installed digital video monitors in select stores and in 2009, it offered customers a free WiFi network.

Borders went international in 1997 with expansion into Asia and the UK. However, by the end of 2009, all of Borders directly owned overseas locations had been sold or closed. Only the franchise stores in Dubai, Malaysia and Oman remain open.

The company showed its last profit in 2006. On February 16, 2011, Borders announced that it had filed for Chapter 11 bankruptcy protection and that it would be closing up to 275 of its 642 bookstores. All of the stores to be closed would be superstores. Borders listed $1.275 billion in assets and $1.293 billion in debts in its filing. It employs approximately 19,500.

It can be argued that Borders failed to respond correctly as the retail book selling industry has evolved. It is also true that as book sales have been in decline, books and other media have become more available online.

But the real deal is perhaps more like consummate book buyer and college professor June Sullivan told me, outside of the closing Borders in Union City, California, “They began specializing in best sellers, put in easy chairs, and offer coffee and free Internet. So now they’re like a public library where you pay to buy used books.”

A similar fate happened to Circuit City, whose core business included knowledgeable sales people, but its corporate management decided to replace them with wage-and-hour clerks to cut overhead. As the retail electronics industry evolved, the competition, Best Buy, clobbered Circuit City.

From my point of view as a management consultant, Borders’ failure reflects the faulty business plan of “Let’s get big.” One can do that as long as one is true to the core business that made it successful in the first place and resists growth, even though the money looks good. Bigger isn’t always better.

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originally published on Blogcritics as Borders: Was Bigger Better? February 20, 2011

1 comment:

Tommy "Mack" McEldowney said...

You may have noticed that you cannot go to an brick and mortar store. Additionally, Amazon is one of the survivors of the original dot com bubble of the late 90s. They did so by reinvesting their profits in and sticking to what they did best.

"Let's Get Big" works when two things happen: first, a company steadfastly sticks to its core business by not trying to be all things to all people; second, a company resists growth, that is, grows only at the demand of the market [and not at the demand of the marketers].

By the way, as an aside, there is no brick and mortar Kelly Blue Book car store, either. Many consumers quote Kelly Blue Book to auto dealer sales people, but you cannot buy a car from Kelly.