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Borders Crisis Management

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Submitted By sgodoy86
Words 1120
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Running Head: Borders

Crisis Management Report: Boarders

Crisis Background
Borders Group, Inc. is an international book and music retailer based in Ann Arbor, Michigan, and employs nearly 19,500 throughout the U.S., primarily in its Borders and Waldenbooks stores ("About us,"). Borders operates 511 Borders superstores in the United States and Puerto Rico as well operates 175 stores in the Waldenbooks Specialty Retail segment ("Border group,").
The last time Borders made a profit was in 2006. The company had intentions to sell off its chains due to these financial difficulties in March of 2008. When this was not enough the chain tried to relieve its financial instability by borrowing 42.5 million from Perishing Square Capital Management, a major stockholder, but this move had put the company into a debt crisis (Clark, 2008). Border need to post significant profits in order to have enough revenue to pay off its obligations and launched its business plan.
Borders partnered with Amazon, with Amazon operating the online store, and Lulu Press to help Borders launch its self-publish tool for authors to self-publish their work. These were not the only actions Borders launched but a new leadership change with a new CEO, Ron Marshall, announced in 2009 and the replacement of five of the eight Board of Directors Border also the closing of some Waldenbooks stores to improve profitability("Border group,").
These efforts did not improve Borders profitably as expected; instead the sales dropped 14.7% from last year’s sales ("Border group,"). These events, along with the resignation of Ron Marshall in January 2010, negatively impacted the Border stock to a value under a dollar ("Border group,"). The stock did recover to $2.78 per share but this did not prevent the inevitable, Borders would file for bankruptcy and liquate its assets in February 2011.
Borders filed for Chapter 11 bankruptcy protection. The filing lists that Border has 1.275 billion in assets and 1.293 billion in debts (Bomey, 2011). Direct Brands was a prospective buyer of the company however, creditors rejected the proposal and insisted on an auction. On July 17, 2011 the auction did not have any bidders ("Borders closer to," 2011). Operations are expected to cease September 2011 ("Border group,").

Market Demand/Supply Issues

There are two theories that suggest the market demand and supply issue within this industry on focuses on a substitution effect and the other focus an imbalance of the supply and demand in the industry. The substitution to the book would be the e-book and the inability of Border to capitalize on this substitute. The imbalance of supply and demand is comparable to the recent real estate crisis.
The substitute to the book is the e-book. What makes the e-book a favorable to a traditional book is the convenience of not going to a book store and the price(Spector, & Trachtenberg, 2011). A lot of the overhead costs are minimized because the e-book is electronic. This also creates new competitors in the industry such as Amazon, Apple Inc., Google Inc (Spector, & Trachtenberg, 2011). Border realized this treat and in response did enter the electronic realm. However, this action was done in 2008 which was too late and made entry very difficult (Spector, & Trachtenberg, 2011). The chart below illustrates the a downward trend of demand for traditional book and an upward demand for e-books. This is not the only theory, there is a comparison to the book industry and that of the real estate industry.

Nazaryan suggests that the book industry is comparable to the real estate industry in its failure to read demand. He suggests that demand for book fell but bookseller kept too much supply. Some reasons to explain the decrease of demand is the outrageous price of books, such as case with real estate (Nazaryan, 2011). This author would like to assume this as a bubble but because of the few competitors in the industry, only Border was impacted. The industry leader, Barnes and Nobles did have a decrease in profits like Borders (Nazaryan, 2011).

Costs/Revenue/Operations Strategies
The article from Clark (2008) interviewed CEO George Jones and in the piece, it was stated that sales were being taken by low cost competitor, WalMart and Costco. There was no reference of the e-book. However, Borders did partner with Amazon to enter the digital market place and even introduce an e-book reader. These efforts were executed in 2008 which is considered too late.
Boarder was unable to saturate the market this way to make a profit. Under the new CEO Ron Marshall, downsizing was the next option. January 2009, 182 Waldenbooks stores were closed in order to cut costs and hope for profits. This was not the case. Under Marshall many executives resigned. Management was being rebuilt but he then resigned January 2010. Mike Edward would later become the CEO but no significant changes has occurred in this tenure other than the Chapter 11 filing.

Conclusion and Recommendations
While Borders is still considered the number two bookseller in the market, it is not a viable company due to its inability to interpret demand and the incompetence of management of focus on strategies to sell to the correct markets. Management need to identify its true competitor, online book stores. Additionally, Borders was late in selling a very important product, the e-book. I am limited with recommendation due to the fact that Borders already filed for bankruptcy and is under control of a trustee, who is looking out for the creditors but I would recommend that Border follow what Merril Lynch did and find a buyer who can “bail them out”. Borders has been doing this but has not been allowed by the trustee.

References

About us. (n.d.). Retrieved from http://www.borders.com/online/store/BGIView_bgiabouthistory

Bomey, N. (2011, February 16). Ann arbor bookstore chain files for chapter 11 bankruptcy. Retrieved from http://annarbor.com/business-review/borders-bankruptcy-ann-arbor-books/

Border group. (n.d.). Retrieved from http://en.wikipedia.org/wiki/Borders_Group

Borders closer to liquidation; deadline passes without bidder. (2011, July 18). Retrieved from http://www.ibtimes.com/articles/182132/20110718/borders-liquidation-bankruptcy-books-a-million.htm

Clark, A. (2008, March 21). Us book chain borders faces funding crisis. Retrieved from http://www.guardian.co.uk/business/2008/mar/20/useconomy

Nazaryan, A. (2011, February 18). Bankruptcy of borders proves flooding the market with books doesn't work. Retrieved from http://articles.nydailynews.com/2011-02-18/news/28628768_1_borders-bookstore-barnes-noble

Spector, M., & Trachtenberg, J. (2011, July 20). Borders succumbs to digital era in books. Retrieved from http://online.wsj.com/article/SB10001424052702304567604576456430727129532.html?mod=googlenews_wsj

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