The Rise and Fall of Borders Bookstore
By the mid-90s, Borders was expected to overtake its biggest rival, B&N. Instead, it ended in bankruptcy just ten years later. So, what happened? Get the full story here.
Two Young Brothers With an Idea
The original “Borders” store was founded by two college-age brothers, Tom and Louis, near the University of Michigan in 1971. While Tom’s background isn’t super well-known, Louis studied mathematics there and at the graduate level at MIT.
They set out to create an independent used bookstore for their fellow peers at the original address of 209 South State Street in Ann Arbor. It would soon become a popular hangout for many young adults in their collegiate community.
In 1975, a few years after opening and doing well for themselves, the two brothers bought out the stock of a nearby bookshop called Wahr’s, no more than 1 block down the road from them. They were going out of business after 80 years and would soon be stocked with rare books under the management of two new members: Michael Hildebrand and Harvey James Robin. Michael had experience managing a rare and used book store in East Lansing for years, while Harvey James was a local restorer of rare books.
A New Way of Doing Things
It was around this time that the two brothers, Tom and Louis, began playing around with the idea of creating a “superstore”. They would eventually move into a more spacious shop just 150 feet up the road where an old men’s clothing store used to be. Little did they know that with this decision, they would eventually become pioneers of the megastore business.
Many shops at this time were held in malls, a phenomenon that had been quickly growing in popularity throughout the 50s and 60s. Borders actually went against this by primarily targeting bustling suburban areas, which many other stores and shops would soon begin to notice. Even at their peak, many Midwesterners would be able to find a store in their local shopping center without having to travel into the city.
Fast-forward to the late 80s; the Borders brothers’ business was doing exceptionally well with three new locations in various states, and they just started a wholesaling business that they called Book Inventory Systems, or “BIS” for short, that had 14 new bookstore clients. With their combined skills in mathematics, this would go on to become an incredibly sophisticated system for their future chains that would ultimately be capable of tracking trends and “seasons” of sales. In total, the brothers were bringing in over $30 million in sales, or roughly $80 million in today’s numbers.
Even more fortunately, the late 80s and early 90s would prove to be a time of unprecedented growth for bookstores. This would ultimately create the perfect environment for the Borders brothers to scale their business astronomically over the next 20 years. This is when they began to think even bigger.
Catching the Attention of Kmart
Robert DiRomualdo would soon join the team as their eventual President and Chief Executive. He was a graduate of the Drexel Institute of Technology, carried a Harvard MBA, and had a successful work background in merchandising and marketing.
Tom and Louis Borders chose him because of the new heights he was able to take previous businesses of his, namely Hickory Farms, a prominent food shop chain that had expanded to more than 1,000 stores and kiosks across the US and Canada.
His first order of business was expansion, so over the next three years, he would go on to open 14 stores across the Midwest (approx. 4-5 stores each year). By the early 90s, Borders had quadrupled its size and had really begun to make a name for itself.
This caught the attention of a popular retailer of the time, Kmart.
After acquiring Waldenbooks nearly a decade earlier, a mall-based bookstore chain, Kmart had been looking for a way to make them more profitable. They had attempted to expand their book inventory without much luck, so they saw the up-and-coming Borders as an opportunity to catapult Waldenbooks into their stratosphere.
In October of 1992, the Borders brothers had sold their 20-year business to Kmart but remained investors.
Onward and Upward?
After this, big, big changes were immediately made to the bookstore chain, including modernized cash registers, an HR department, formal training programs for employees, as well as the introduction of music to the store. The next year, sales skyrocketed to nearly $225 million (or over $467 million today)—a 16 percent increase in net sales since the acquisition, indicating the store now had the highest sales-per-foot ratio in the industry. Not only that, but Borders had fine-tuned their inventory management system so much that it could identify up to 55 separately defined seasonal patterns and program these into their computer system without disrupting prospective sales.
Things were also going extremely well on the ground floor as well: Borders was frequently chosen over other competitors, including Barnes & Noble, because of its:
Wide variety of products, including alternative educational and informational media
First-rate customer service
Community events
Relaxing and comfortable environment
Not only this, but the superstore chain employed majority full-time, college-educated staff whose knowledge of literature and music was vetted during their job interviews.
Though despite their success, the merger proved to be a huge point of contention for both companies; Borders and Kmart were not seen as a good cultural and commercial fit, and as a result, many senior Borders staff resigned. Kmart was also viewed as ill-equipped to deal with the intense pressure from other competitors, like B&N and Crown Books, which would eventually be absorbed by Penguin Random House after filing for bankruptcy in the late 90s.
So almost immediately after Kmart’s acquisition of the store, President Robert DiRomualdo of Borders and George Mrkonic, who ran Kmart’s specialty stores, including Waldenbooks, made plans to form their own business, called “Borders Group” and, essentially, buy themselves out of the deal.
This was eventually accomplished through a highly structured stock-purchase plan.
The Beginning of the End
By the mid 90s, Borders was expected to overtake its biggest rival, Barnes & Noble, in the near future. Its end-of-year figures, after separating themselves from Kmart, was over $1.5 billion, setting itself up nicely to open between 30 and 35 new stores within the next year.
Ironically, this also happened around the time the eCommerce movement was becoming more popularized. Amazon, originally an online bookstore, had just began to take off and Barnes & Noble was fine-tuning their online presence and first e-reader device, the NOOK.
Despite this, Borders would begin rapidly opening up new stores over the next six years with high overheads, while outsourcing all of its online sales to Amazon. This would prove to be one of their biggest mistakes, in addition to stocking high volumes of CDs and DVDs in the midst of iTunes’ debut.
Borders reached its peak in 2003 with over 1,200 new stores across the US, UK, Singapore, and Australia. Due to its massive overhead, they began taking on debt to continue maintaining its stores, many of which had 15- to 20-year leases. It was also estimated that roughly 70% of Borders locations were in direct competition with a B&N outlet.
2007, right before the start of the Great Recession, would be the last time Borders would turn a profit.
The Death of Borders
The onslaught of this great economic crisis is when debt became a huge problem for them, especially after they restructured their operations twice to help manage the $350 million it owed to various entities. They would also clue-in to their fatal flaw in outsourcing all online sales to Amazon, and would publicly announce the end of their partnership, as well as the launch of their own online business, including a self-publishing press.
By this point, though, it was too late. Borders was struggling to stay afloat and keep itself relevant among the financial crisis and new wave of technology. They tried to sell their chain to potential investors, even approaching B&N with a buy-out option, but this would be unsuccessful. In a final attempt, Borders took on an additional $42 million loan with an interest rate of 12.5% to help cover their costs.
Inevitably, on February 16, 2011, the company had filed for Chapter 11 bankruptcy, also known as "reorganization" bankruptcy. This would allow Borders to get their affairs in order, restructure themselves once more, and alleviate some of the pressure around their debt.
In the end, Borders would eventually be sold off for parts to various companies, like Books-A-Million, and private-equity firms. Barnes & Noble would eventually acquire its brand trademarks and customer list. In fact, if you google “Borders” today, the first thing you’ll see pop up is a “Welcome” link for customers of Borders, Waldenbooks, and Brentano’s.
Within 7 months, Borders had closed all stores.
Borders’ Biggest Mistakes
When the company filed for bankruptcy in 2011, it had listed their “expansion strategy” as one of their main faults. While this may be true, many would be inclined to note that this was only one of their faults.
High Overhead: As previously mentioned, Borders had over 1,200 brick-and-mortar stores at one point. They acknowledged the high cost associated with these, not to mention the decades-long leases they signed, yet continued to push for “expansion” at a point when shopping was rapidly becoming more digitalized. While they were expanding, B&N had launched its online store and created the NOOK, something Borders should have taken note of early on.
Outsourcing Online Sales: In my opinion, this was one of their dumbest mistakes. I would bet that they were so focused on opening up new stores that they put what could be their online marketplace on the back-burner, letting Amazon temporarily handle online sales. They might as well have handed the keys to their business directly over to Bezos.
Ignoring eCommerce: The NOOK, e-retailers, Netflix, iTunes, and file-sharing networks were becoming increasingly popular while Borders was still acquiring high volumes of DVDs and CDs. Simply put, they just didn’t adapt to the times.
Credit:
FourWeekMBA: https://fourweekmba.com/what-happened-to-borders/#:~:text=Borders%20was%20an%20American%20book,Waldenbooks%20under%20the%20Kmart%20Umbrella
Wikipedia: https://en.wikipedia.org/wiki/Borders_Group#:~:text=History,-Borders%20No.1&text=The%20original%20Borders%20bookstore%20was,Street%2C%20Ann%20Arbor%20in%201971
Company Histories: https://www.company-histories.com/Borders-Group-Inc-Company-History.html
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