What happened to Borders?

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.

From a single store in Ann Arbor, Michigan, Borders operated 1,249 stores at its peak in 2003 with a presence in the United Kingdom, Singapore, and Australia. 

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. 

Borders was an early innovator in inventory management with passionate store managers who believed in book-selling. Its stores also had extensive selections with adequate browsing space, cafés, and community outreach programs. 

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.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"