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Borders Group Inc.: Analysis Research Paper

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Updated: Nov 18th, 2021

Introduction

Borders Group Inc is an international Company registered in United States with its headquartering based at Ann Arbor, Michigan. It specializes in selling books, CDs, DVDs, and Magazines. The company was started in 1971 by two brothers Tom and Louis when they were still undertaking their undergraduate and graduate studies at the University of Michigan. Borders Group is the second largest international bookseller in the United States after Barnes & Noble

During its inception stage, it opened up a bookshop in North of Theater along State Street consisting of two rooms where it manly sold used books. As time went by the two brothers moved to a nearby business premise just opposite to Maynard House Apartment adjacent to William and Maynard streets. Their first heavy capital investment was in 1971 when they bought stock of Wahr’s, an 80-year-old bookstore which was concluding its business operation at 316 South State and eventually moved in. this was the culmination of major events and in a matter of time they changed from selling used books to new books.

The company first established an international store in Singapore that became the largest in the region during the year 1979, and continued to open numerous stores in the United Kingdom, Ireland, Australia and New Zealand. In 1998 the company established Borders UK Ltd as its main subsidiary that has hitherto become among the leading booksellers in the country. Due to the intense competition in the industry the company is planning to reduce its bookstores in order to cut operation costs to position itself strategically in the limited market place.

Borders Culture

Borders culture remains that of expansion and partnerships. The company believes in aggressive and ambitious expansion programs. This is seen by the manner in which it approaches and penetrates into the international as well as regional markets. These markets include Singapore, United Kingdom, Malaysia, and Australia. Borders has entered into a partnership with the Malaysian Company known as Berja books Sdn to open up more markets for its book store products in the region.

Business strategy

Due to the current global credit crunch Borders Group is climbing a tall mountain. There are pressures exerted by other giant players in the industry both domestic and international. Customers are also repositioning themselves in order to adjust to the prevailing economic circumstances, current global customer needs and preferences and many others have undergone a complete metamorphosis.

With the increasing creativity and product design competition has gone overboard forcing even some of the world class companies crying wounded. However despite all these forces Borders Groups has devised anew strategy that has ensured its continued survival and still has valuable options which are not only long-term but also strategic for its current activities.

In order to keep up to its classic customer service Borders introduced a customer reward scheme where clients perceived to be loyal to the company benefit from rewards. This has also helped the group to get in touch with its potential clients on a regular basis thus dispelling fear that the company may lose its customers to the competitors. It has also ensured that the company keeps track with sales therefore stabilizing its profitability. This can also be viewed in the wider perspective as locking customers to this specific organization. Remember where your competitors are ever eying on your top clients it’s only important that care is taken and the necessary steps are taken to remedy the situation before matters go out of hand.

Another strategy used by this group is selling and closing down the under performing stores.

This is seen when it announced a plan to sale its bookstores in the UK and Ireland. The reason behind the disposal was to allow time for maximum revitalization of businesses in the United States and further reduce its operational costs. It also emerged that it was in the process of reducing its bookstore to 300 from 564 book stores. The company also sold its paper chase business to Pershing Square Capital management at $65m, and Ireland business of 42 bookstores and 28 books sold to a private Equity Group Risk Capital partners at 20m pounds.

All these were done in order for the Group to position itself well in the industry. The asset disposals were meant to inject more cash flow to the business to finance its short term operations. The groups have also borrowed a loan from a bank to finance its long term projects mainly international market expansions. Currently Borders group is indebt and the company needs to work with speed to record reasonable profits that will take into account the high interest rates charged on the borrowed loan.

Another strategy adopted by the group was the development of a concept store; this comprised the implementation of destination business which strategically distinguishes the company’s domestic superstores from competitors. This feature also included best coffee café and a paperchase shop which seeks to double profitability by increasing sales. The company has also reduced inventories and relocated floor space in its stores in order to address the problems associated with the declining sales in the music industry. The company is also capitalizing on the brand name Borders which has an international goodwill. They believe that franchising business through their brand is so potential to be ignored and plans are underway to utilize it in capturing international markets.

The company is also planning to enhance its current system environment that forms the framework on which domestic superstore business rests. This include merchandise buying, replenishment, supply chain and technology enhancement.

Market Niches

The group runs both international and domestic businesses. International business is franchise in nature and is managed by a Malaysian company called Berja. This implies that Borders Group has both domestic and international market niches. The domestic markets includes mainly superstores situated in the bulk of united States and are Ann Arbor, Michigan, Novi, Denver, Colorado, Las Vegas, Nevada, Panama City Beach, Florida, and Indiana.

International market niches include United Kingdom, where it has the largest subsidiary called Borders UK Ltd and Malaysia, Ireland, Australia, and New Zealand. However the company has announced a plan to discontinue its operations in some of the regions. With good client base Borders recorded annual sales revenue of $3.821 billion in 2007 despite the then prevailing harsh economic environment.

Borders Group Management Team

This company is headed by Mr. Ron Marshall as the chief executive officer and Mark Bierley who is the chief finance officer. Ron Marshall brings in a rich financial and retail experience to Borders Group. Before his appointment he was the chief executive officer of Wild ridge Capital for eight years where he was responsible for quadrupling profitability for a six year period. Ann Kubek is the Executive Vice President, merchandising and marketing. Dan Smith is the current chief Administrative Officer. Generally this is a great team comprising rich talents of individuals with strong track of professions, competent and qualified relevant industry knowledge. The chief executive has been given option to buy 1.8m shares in the company and additional attractive package in commensurate with the employee’s benefits.

Current stores/ location

Borders currently run 564 bookstores. Although it has announced to reduce the number to 300. Most of these stores are located in the United States. These include California, Denver, Michigan, Novi, Colorado, Panama City Beach, Nevada, Florida and Las Vegas. International book stores include, Australia, Ireland, Borders UK ltd and Malaysia.

The major characteristics of these bookstores is that they all stock books, CDs, DVDs, Maps and Magazines. They are situated in busy places along the city streets. Borders major industry competitor includes Barnes and Noble.

Recent news

The recent news is about management changes where borders appointed the new chief executive, chief finance officer, and the vice executive President marketing and merchandising divisions.Another thing is that the company wants to change its strategy by adopting a new technology that will ensure that it changes its current internal system infrastructure on which its superstores businesses rest.It is also considering increasing its effort on franchising business (Oswald,2008).

Conclusion

With the current management changes I believe that Borders will be able to maintain its competitive advantage and go back on its original industry performance. However the current team must move with space to avert the financial crisis that the company is currently facing. Borders financial leverage is likely to put the management into test considering the fact that the interest charged is costly i.e. at 12.5% p.a.

The ambitious capital expansion program should also be delayed as the company is likely to run into more troubles in the short-term. This is because the sales in some of these stores have begun declining i.e. 8% compared to 2007 performance. If this trend continues then the firm is headed for a big cash flow problem and may not survive in the near future. If these steps are taken then there is no doubt that Borders will continue being the leader in selling books both domestic and international capacities.

List of References

Oswald,D.(2008) Boarders Return to online sales,Drop Amazon. Web.

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