Borders Group Inc. was a book and music retail chain founded by brothers Tom and Louis Borders in 1971. Acquired by Kmart in 1992, Borders was slow to react to the boom in eCommerce and it continued to open new stores with high overheads as Barnes & Noble developed an online presence and e-reader. It also sold books through the Amazon platform for seven years instead of developing its own site.
Background
Borders Group Inc. was a book and music retail chain founded by brothers Tom and Louis Borders in 1971.
No more than eight years later, Borders filed for Chapter 11 bankruptcy protection and was unable to find a buyer. The last stores closed in September 2011 with rival Barnes & Noble acquiring Borders’ trademarks and customer list.
So what went wrong? Many will assume Borders was just another victim of the Amazon juggernaut. But the story of Borders’ downfall starts much earlier and is more complex.
Kmart acquisition
Borders was acquired by Kmart in 1992 for $125 million, with the Borders brothers leaving the book business for good.
This is when the trouble started for the company. Kmart had purchased the mall-based book chain Waldenbooks eight years previous but was struggling to make it profitable. Essentially, Kmart hoped that Borders senior leadership could somehow turn Waldenbooks around.
Waldenbooks and Borders were not a good fit culturally or commercially, and many senior Borders staff resigned as a result. This further exposed Kmart, ill-equipped to deal with a division experiencing competitive pressure from Barnes & Noble and Crown Books.
Borders was eventually spun out in 1995 and renamed Borders Group.
Store merchandising
As the eCommerce movement gathered momentum, Borders Group continued to open new brick-and-mortar stores. The company also added CDs and DVDs to its stores just as iTunes and file-sharing networks became popular.
At the same time, Barnes & Noble began focusing on its online presence and developed an early e-reader called the Nook. The failure to develop an e-reader would prove to be a significant missed opportunity for Borders.
Amazon affiliation
Borders eventually started selling online by outsourcing its operations to Amazon. Essentially, visitors to the Borders website would be directed to the Amazon store.
As a seller of books itself, partnering with Amazon did not make sense financially. When customers were interviewed outside a West Virginia store, one reader admitted she browsed books in Borders stores and then ordered them straight from Amazon.
Too many stores and too much debt
Borders operated hundreds of stores at its peak but they were big and had high overhead costs. This left the company financially exposed at a time when consumers were moving online. Furthermore, an estimated 70% of all Borders stores were in direct competition with a Barnes & Noble outlet.
Debt was also a problem for Borders, with the company restructuring twice after the GFC to manage the $350 million it owed.
Bankruptcy
In its February 2011 bankruptcy filing, the company cited its expansion strategy as one of the key reasons for its demise.
Borders noted that many stores were simply unprofitable and that it had signed too many 15 to 20-year leases which made them difficult to sell.
Key takeaways:
Borders was an American book and music store chain founded in 1971 by brothers Tom and Louis Borders. After almost 40 years in business, Borders filed for bankruptcy in 2011.
Borders was acquired by Kmart in 1992 and joined Waldenbooks under the Kmart Umbrella. Borders executives were then instructed to resurrect Waldenbooks, but the two subsidiaries were not a good cultural or commercial fit.
Borders was slow to react to the boom in eCommerce. It continued to open new stores with high overheads as Barnes & Noble developed an online presence and e-reader. It also sold books through the Amazon platform for seven years instead of developing its own site.
WeWork is a commercial real estate company providing shared workspaces for tech start-ups and other enterprise services. It was founded by Adam Neumann and Miguel McKelvey in 2010. WeWork’s business model was built on complex arrangements between the company and its landlords. There were also several conflicts of interest between Neumann and WeWork, which provided the impetus for the failed IPO and significant devaluation that would follow.
Netscape – or Netscape Communications Corporation – was a computer services company best known for its web browser. The company was founded in 1994 by Marc Andreessen and James H. Clark as one of the internet’s first and most important start-ups. The Netscape Navigator web browser was released in 1995 and became the browser of choice for the users of the time. By November 1998, it had been acquired by AOL, which tried unsuccessfully to revive the popularity of the web browser. Ten years later, Netscape was shut down entirely.
Musically, or Musical.ly as it is officially known, was a Chinese social media platform headquartered in Shanghai. After passing 200 million users in May 2017, the platform was shut down by tech company ByteDance in November. After its acquisition, ByteDance suggested Musical.ly would continue to operate as a standalone platform. Company representatives noted that it would be able to leverage ByteDance’s AI technology and enormous reach in the Chinese market. Musically was ultimately absorbed into TikTok in June 2018, with the app no longer available in August of the same year. Existing users were offered technical support and several new features as a sweetener.
Vine was an American video social networking platform with a focus on looping video clips of six seconds in length, founded by Dom Hofmann, Rus Yusupov, and Colin Kroll in 2012 to help people capture casual moments in their lives and share them with their friends. Vine went on to become a massively popular platform. Yet by 2016, Twitter discontinued the mobile app, allowing users to view or download content on the Vine website. It then announced a reconfigured app allowing creators to share content to a connected Twitter account only. This marked the end of Vine.
CNN Plus was a video streaming service and offshoot of CNN’s cable TV news network that was launched on March 29, 2022. The service was ultimately shut down just one month after it was launched. Trouble began for the platform when parent company WarnerMedia merged with Discovery. The latter was unimpressed with paltry viewer data and, with $55 billion in debt to clear, was not interested in funding CNN+ moving forward. Other contributing factors to CNN Plus’s demise include a lack of compelling content and streaming service market saturation.
Clubhouse is a social app that allows thousands of people to communicate with each other in audio chat rooms. At one point, the company was worth $4 billion and boasted users such as Mark Zuckerberg and Elon Musk. Clubhouse declined because it rode the wave of pandemic lockdowns and suffered when people resumed their normal routines. The decision to remove the invite-only feature also caused a rapid influx of new members and removed any exclusivity. Clubhouse management also failed to define a business model and was unaware of the components of a successful social media site.
Carvana is an American online used car retailer headquartered in Tempe, Arizona. The company – which sells cars in unique vending machines – was the fastest-growing used vehicle retailer in the United States, with revenue of $3.94 billion in 2019. Yet by 2022, on $12.8 billion in revenue, the company reported almost $2.9 billion in net losses.
Houseparty was an app-based group video chat platform for mobile and desktop. Released in February 2016, the platform rapidly grew to hundreds of millions of users and was the #1 social app in 82 countries by May 2020. Less than 18 months later, however, owner Epic Games announced that it would be shutting down the app in October 2021. Let’s explain the reasons for Houseparty’s demise below.
ChaCha was a human-guided search engine founded in 2006. The platform provided a valuable service at a time when traditional search engine algorithms were unreliable and less developed.
When algorithms did become sufficiently developed, they provided answers to questions for free and much more rapidly than ChaCha could. The ChaCha business model was also unscalable, with employees overworked as the company tried to stay ahead of innovation.
ChaCha’s demise was also compounded by the smartphone, which provided another avenue for consumers to find information. A belated attempt to restructure and cut costs followed, but the company could not service its debt past 2016.
RadioShack is an American electronics retailer founded by brothers Milton and Theodore Deutschmann in 1921. The company enjoyed market dominance in the 70s and 80s but faded fast after a slew of missed opportunities.
RadioShack operated over four thousand stores in the USA, but many were placed too close together which caused sales cannibalization. These stores were also often small and had a confusing inventory mix.
RadioShack sold the first mass-produced personal computer with much success. However, the company saw no future in personal computers because of the high cost of hardware. It then instructed sales managers to intentionally keep PC sales under a certain threshold.
Compaq was an American developer and producer of computer products and services. After strong initial success, the company was acquired by HP in 2002 with the Compaq brand retired in 2013.
Compaq’s short-sighted acquisition of DEC provided the catalyst for its decline. While the company was dealing with the ramifications of the acquisition, competitors such as Dell and Gateway increased their market share.
Compaq also experienced a loss in revenue after the dot-com bubble burst. This was exacerbated by the standardization of chipsets and motherboards by Intel.
Kodak is an American photography product and service company founded in 1892 by George Eastman and Henry A. Strong. After dominating the photographic film industry for decades, the company filed for bankruptcy in 2012.
Kodak was not ignorant of digital camera technology. But it did fail at various stages to commit to digital products entirely despite overwhelming evidence that the technology would prove profitable.
Kodak was also the victim of the changing retail landscape and consumer sentiment toward foreign products in the United States. Blind in its devotion to printing, it also missed an opportunity to create a Facebook-style photo-sharing website three years before Facebook itself was conceived.
Friendster was a social networking site that then transitioned to a gaming platform. Ultimately, Friendster failed to capitalize on its early success as one of the first social media platforms to experience mass uptake.
When Friendster became a gaming platform, it failed to notify its user base. This set in motion the migration of users to Facebook which would continue for some years.
Friendster’s decision to raise funds via venture capital funding populated its board with investors who were not interested in technology or innovation. The company was acquired by MOL Global in 2009 who then sold its patents to Facebook soon after.
xStumbleUpon was an early social network founded by Garrett Camp, Geoff Smith, Justin LaFrance, and Eric Boyd. At one point, the platform was responsible for half of all social media traffic in the United States.
StumbleUpon suffered intense competition from the likes of Pinterest, Digg, and Reddit – both in terms of site functionality and monetization strategy. After a failed partnership with eBay, Camp bought back the company and instituted a major redesign to limited success.
The StumbleUpon user experience became outdated as consumers preferred to waste time scrolling through news feeds. Upon this realization, Camp shut down the service in 2018 to focus on a more modern iteration called Mix.com
Altavista was a pioneering search engine developed by a group of Digital Equipment (DEC) researchers. It was originally created to showcase the power of a then-revolutionary DEC supercomputer.
After an ominous partnership with Yahoo in 1996, AltaVista underwent a series of acquisitions and format charges as several companies tried to make it profitable. In the process, the search engine lost market share to up-and-comer Google.
Yahoo acquired AltaVista in 2003 and absorbed the technology behind the search engine into its own platform. AltaVista was formally put to rest ten years later.
Blockbuster was an American movie and video game rental chain. The company went from industry leader to filing for bankruptcy with $1 billion in debt in less than a decade.
Blockbuster relied on late fees to drive a high proportion of revenue. This strategy proved uncompetitive after Netflix offered fee-free movie rentals by mail. Blockbuster lost significant market share to Netflix in the ensuing years and experienced a decline in profit after abolishing late fees in an attempt to remain competitive.
Blockbuster’s demise is mostly due to an inability to innovate. Although passing on the offer to purchase Netflix is noteworthy, the company failed because of a myopic focus on its outdated rental franchise model.
Napster was a peer-to-peer music-sharing software application. It was the first such platform to provide free access to the full history of recorded music online.
Napster quickly attracted the attention of music artists, with Metallica instigating court proceedings against the company for copyright infringement and the distribution of unreleased music.
Napster was forced to shut down after the Recording Industry Association of America won a court injunction. Mounting legal fees and compensation costs led to the company filing for bankruptcy in 2002.
BlackBerry is an iconic smartphone brand owned by Canadian company BlackBerry Limited. The company enjoyed first-mover status in the smartphone industry, but ultimately squandered its advantage.
BlackBerry was ignorant and in some ways disrespectful of competitors in the industry. It was more concerned with protecting its proprietary technology than innovating to stay relevant.
Though profitable to some extent, BlackBerry’s focus on enterprise customers came at the expense of the far more lucrative consumer market. Government opposition to censoring information also eroded one of the core strengths of the company’s smartphone.
Nokia is a Finnish telecommunications, consumer technology, and information technology company founded in 1865. It enjoyed 51% of the global market share for mobile phones in 1998.
Nokia’s device-based hardware system was cumbersome and outdated, but the company persisted with it while competitors developed the software-based iOS and Android operating systems. By the time Nokia phones offered Android, the company had been left behind.
Corporate mismanagement within Nokia was rife and culture suffered as a result. Internally and externally, the company failed to acknowledge its diminishing relevance and market share.
Xerox is an American corporation selling print and digital document products and services worldwide. The company failed to capitalize on revolutionary research performed at its PARC R&D center.
Xerox was visited by Steve Jobs in 1979 who gained access to PARC in exchange for Xerox receiving shares in Apple. He then purchased the rights to a Xerox GUI and used it to produce the Apple Macintosh.
Xerox released the Xerox Star personal computer in 1981 in a rare example of the company selling an innovative product commercially. However, the Star was prohibitively expensive, targeted the wrong market, and was a decade ahead of its time.
Quibi was an American short-form streaming service for smartphones. Unfortunate timing with the onset of the COVID-19 pandemic is at least partly responsible for the failure of the platform.
Despite billions being invested in securing high-end talent and production studios, Quibi content was generally poor quality. In any case, there was no way for consumers to share or engage with the content they did enjoy.
Quibi was not helped by its pricingstrategy and the presence of established competitors offering more for less. It was also improperly and inadequately marketed.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
