Borders Group, Inc.

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Borders Group, Inc.

founded: 1995

Contact Information:

headquarters: 500 washington st.
ann arbor, mi 48104 phone: (313)913-1100 fax: (313)913-1965 url: http://www.borders.com

OVERVIEW

Borders Group, Inc. owns two of the nation's top bookstore chains. Since 1992 Borders has been the number two bookseller in the nation, second only to Barnes & Noble. In 1998 Borders' consolidated sales reached $2.26 billion. This number represented a 15-percent increase over 1997 sales of $1.95 billion.

Each Borders Books & Music superstore stocks and sells hundreds of thousands of books, music, movies, foreign language tapes, and CD-ROMs. In addition, each superstore provides customers with coffee bars where they can read and socialize. Sales for the superstores in 1998 were up, rising to $1.26 billion. In contrast, sales for Waldenbooks were down to $968 million. The three retail stores under Borders Group, Inc. include Walden-books, Borders, and Planet Music, a CD superstore. As of 1998 there were 923 Waldenbooks, 203 Borders stores, and 3 Planet Music stores.

COMPANY FINANCES

Borders Group, Inc. earned 1997 revenues of $2.26 billion, up from 1996's $1.9 billion. The company's net income rose from $58 to $80 million over the same period. Approximately 56 percent of the company's revenues were generated by its Borders Books & Music superstores; 43 percent was generated by the company's mall stores; and the remaining 1 percent was derived from miscellaneous "other" sources. Sales for the first quarter ending April 26, 1998 were $545.3 million, an increase of 17.6 percent over sales of $463.6 million during the same period in 1997. Sales at Borders stores increased to $335.0 million, 27.1 percent more than first quarter revenues of $263.5 million in 1997. Waldenbooks sales were down from $197.3 million in the first quarter of 1997 to $191.7 million in first quarter 1998.

Borders stock was priced around $36.00 per share in mid-1998. Its 52-week high was $37.63, and the 52-week low for Border's stock was $21.88 per share. In fiscal year 1997 (ended January 31, 1998), Borders earned $.98 per share, a significant increase from 1996 earnings per share (EPS) of $.70. Analysts expected the company's earnings for the current fiscal year to rise to $1.22 per share and up to $1.52 per share in 1999, according to Zack's Investment Research. First quarter earnings for 1998 were $.05 per share, compared to $.04 per share for the same period during 1997.

ANALYSTS' OPINIONS

"What started as a 5,000-square-foot secondhand bookshop in 1971," wrote John Marks in U.S. News & World Report, "has grown into a $412-million chain of superstores that has profoundly altered the $17.5-billion book business. Big booksellers like Walden, B. Dalton and Crown have occupied real estate in shopping malls for years, but Borders and its chief rival, Barnes & Noble, offer readers massive selections in larger retail spaces. Borders's huge operations have become anchors for malls nationwide, a destination for shoppers rather than a digression. And alongside bestsellers, they display just about any title a book lover could want—from obscure works of religion by mystics like Meister Eckhardt, to new poetry by unknown authors, to a host of works from university presses."

However, this same company, with its origins as an independent bookseller, has been lambasted for the "chaining" of national book retailing, as small independents are unable to compete against the corporate giants that Barnes & Noble and Borders Books & Music have become. Regardless of the criticism, investment analysts were confident in Borders ability to earn profitable returns for shareholders. As reported in The Detroit News in 1997, "Book industry analysts on Wall Street have been issuing a stream of glowing recommendations. Amongst the most startling is the Borders' stock price, now near $44, will jump to as high as $69 within 12 months." "We consider Borders to be in the very elite group of high-quality retailers," said Linda Farquhar, a securities analyst for Alex Brown in New York. While stock has not risen quite that high in the year since that report, the company was performing well and was still considered a good investment by industry analysts. At least half of the analysts at Zack's Investment Research recommended a "strong buy" rating for the company, with remaining analysts recommending a rating of "moderate buy."

HISTORY

Borders Books was founded in 1971 as a used and "serious" bookstore by Louis and Tom Borders in Ann Arbor, Michigan. The store evolved into a funky iconoclastic bookstore with a reputation for a wide and deep selection of books, as well as knowledgeable staff and excellent service. Fueled by the Ann Arbor store's success, Borders expanded into new markets, targeting the untapped suburban market. Eventually the company was opening stores nationwide. The company also founded Book Inventory Systems to assist them and other independent booksellers in tracking stock, but abandoned the software to concentrate on the opening of more retail stores in 1985.

In 1992 Borders was acquired by Kmart Corporation and consolidated with Waldenbooks, which Kmart had purchased in 1984, and Planet Music (purchased by Kmart in 1994 as CD Superstores) under the Borders Group. In April 1995, Borders bought its stock back from Kmart and took the company public as Borders Group, Inc.

The U.S. Justice Department began investigating Borders Group, as well as competitor Barnes & Noble, in the late 1990s on the grounds that both companies were conspiring to renegotiate contracts in malls where they had stores so that these two chains would be the only bookstores allowed in the mall.

STRATEGY

Borders reportedly owes its success to "one man's hard work and vision [that] had irrevocably stamped the store's bibliophilic culture." The manager of the original Borders, Joe Gable, is credited with infusing his passionate love of books, dedication to his customers, and business acumen into a standard retailing practice employed now throughout Borders stores. As of 1995, Gable had managed the Ann Arbor bookstore for 21 years.

"To this day, Gable's ideas about marketing books resonate throughout the Borders chain," says Rich Flanagan, Borders president and CEO, according to a 1995 U.S. News & World Report article. "Gable doesn't like to display books face out on the shelf, for example. He believes that just one cover of a bestseller should be sufficient to let the customer know what the book is about. And he likes to place a table at the front of the bookstore and fill it with as many obscure books as bestsellers, so that lesser-known authors get a shot at the reader's attention, too."

The company's overall strategy during the late 1970s was to continue its growth and profitability through expansion of its superstores (in the United States and internationally), focusing on core operations and cost reduction in Waldenbooks stores, and strategically combining certain books and music operations. In the early 1990s Borders expanded stock to include music. Customers are able to listen to samples of selected items before purchasing. Also added to Borders stock were CDROMs and software programs. And for customers' pleasure, the company provides in-store coffee bars and hosts in-store appearances by authors, musicians, and artists.

INFLUENCES

A good deal of Borders' success, and why it continues to grow, is its focus on customer service. As syndicated columnist Jeffrey Gitomer reported about his experience at the bookseller, "What Ms. McCarter [sales associate] did in all three situations was select the option that was the most trouble for her—the most work for her—and the most satisfying for me. There's a correlation there, a Law of Service that should be the credo of every service driven organization in America: The more you do for the customer, the harder it is on you, but the more pleasing and the more memorable it will be to the customer. And the more loyal the customer is likely to be, the more they are likely to tell positive stories about you, read word-of-mouth advertising."

FAST FACTS: About Borders Group, Inc.

Ownership: Borders is a publicly owned corporation traded on the New York Stock Exchange.

Ticker symbol: BGP

Officers: Robert F. DiRomualdo, Chmn. & CEO, 52; Bruce A. Quinnell, Pres. & COO, 48; George R. Mrkonic, VChmn., 44; Kenneth E. Scheve, Sr. VP Finance & CFO, 51

Employees: 24,300

Principal Subsidiary Companies: Subsidiaries of Borders Group, Inc. include Borders Online, Inc. (Borders.com); Borders Inc.; Waldenbooks; Planet Music; Borders Singapore PTY, Ltd.; and BGI (UK) Ltd.

Chief Competitors: As a major retailer of books, video, audio, and other education and entertainment media, Border's primary competitors include: Amazon.com; Barnes & Noble; Blockbuster; Books-A-Million; Camelot Music; Crown Books; Media Play; and Musicland.

CURRENT TRENDS

Borders Books is at the crux of Borders Group Inc.'s operations. The company opened 41 of its superstores in 1995, another 41 stores in 1996, and 40 more in 1997. Each of these has an average of 30,000 square feet of both books and music.

Waldenbooks, still surviving in the 1990s, also had its own publishing company, Longmeadow Press. The 175 classics, special-interest books, and calendars published by the company each year generates about 2 percent of Waldenbooks' sales because of the high profit margins on these products, according to a 1995 report by Knight-Ridder/Tribune Business News. Waldenbooks also had better name branding that year than Borders Books and Music, which was predicted to help its sales. Despite this, the company closed 110 Waldenbooks in 1995 and an additional 31 stores closed in 1996. Additional closings were planned—by the year 2000, the company expected to run between 800 and 850 stores. As of 1998, there were 923.

Borders latest venture, scheduled for full-scale launch in Summer 1998 was Borders.com, run by subsidiary Borders Online, Inc. This web site, the company's online book store, was launched in direct competition with established online booksellers Amazon.com and chief rival Barnes & Noble. Amazon and Barnes & Noble had been offering online services for more than a year when Borders finally made its unofficial debut on the Web in May 1998, with its official "opening" scheduled for a couple of months later. According to Joe Nickell in Wired, analysts at Forrester Research attributed the delay to the company being caught "with its pants down." He implied the company was not ready with the technology necessary to compete or it would not have waited so long to do so. Scott Wilder, Borders.com's director of online services, seemed confident that the company would be able to compete on a level playing field despite its late entrance to the industry. He claimed that Borders.com would, by the time of its official launch, bring together more titles in many different media than its competitors, specifically referring to the ability to search the books, movie, and audio databases simultaneously for titles that could be found in all three areas.

PRODUCTS

Products sold by Borders Group, Inc. include books, music, videos, and other media. Products are marketed through Borders Books & Music, Waldenbooks, Planet Music, and Borders.com.

CORPORATE CITIZENSHIP

Borders works to support the arts and education. Each store has a staff member committed to community relations. They provide children's programs, educational lectures, readings, and music performances. According to the Borders, Inc. site on the World Wide Web, "Community Relations Coordinators also work with local groups on projects to benefit their communities. For example, each CRC works with local nonprofit organizations—particularly schools, libraries, and literacy organizations—to assist their fundraising efforts. And all Borders stores schedule Borders Benefit Days through which Borders donates to a nonprofit group a portion of sales to its members." Also in support of education, Borders offers additional discounts to teachers of students from pre-school though high school. Additionally, in 1995 Borders contributed $1,000 to the National Endowment for the Arts for every new Borders store opened.

CHRONOLOGY: Key Dates for Borders Group, Inc.

1971:: Borders is founded by Louis and Tom Borders as a single used book store in Ann Arbor, Michigan
1985:: The Borders brothers open the first prototype superstore
1988:: Robert DiRomualdo joins Borders to help the store expand
1992:: Kmart Corporation purchases Borders
1994:: Waldenbooks, another Kmart subsidiary, and Borders join to form Borders Group, Inc.
1995:: Borders buys back its stock from Kmart and goes public

GLOBAL PRESENCE

Borders was shifting its focus during the late 1990s to international expansion. As of mid-1998, the company had operations in the United Kingdom and Singapore. The store in Singapore opened November 1, 1997, and met with a level of success the company did not anticipate. Though the country had been experiencing an economic slump and retail sales were at historic lows, Borders found itself faced with a different problem. The 130 employees hired to run the store weren't enough to cope with the new store's business volume. According to Ben Dolven, "The place was usually packed by the afternoon, lines lengthened in front of the cash registers, and by the end of most evenings, staff were scrambling to reshelve the piles of perused books scattered all over the 31,000-square-foot store." Borders hired 70 new employees, including a "shelving crew" to handle the volume, which has since stabilized but remains higher than Borders stores in the United States.

EMPLOYMENT

Since opening, Borders has hired educated and knowledgeable book and music lovers who can offer exceptional service to their customers, including help locating hard-to-find titles and free gift wrapping. The company's hiring process includes initial considerations of education, experience, and customer service abilities. However, Borders also analyzes applicants' performance on a written examination testing their knowledge of material found in the stores.

Borders Books has had its share of problems in attempting to keep a uniform, yet independent corporate culture intact, evidenced perhaps best by its union woes. Attempts by various retail stores to unionize labor have been met with varying degrees of success. Similar organizing efforts at a Borders Books & Music store in Chicago under the auspices of United Food and Commercial Workers International Union (UFCW) in the fall of 1996—and with the support of Roger & Me director and TV Nation creator Michael Moore—met with success. A total of three stores were unionized as of 1997.

SOURCES OF INFORMATION

Bibliography

"borders group announces first quarter results." borders group, inc. press release, 13 may 1998.

dolven, ben. "find the niche: borders and starbucks find success in singapore." far east economic review, 26 march 1998.

elmer, vickie. "borders plays hero, waldenbooks the victim in bookstore suspense story." knight-ridder/tribune business news, 14 may 1995.

ewell, christian. "workers accuse borders books & music workers of firing union supporter." knight-ridder/tribune business news, 28 june 1996.

gitomer, jeffrey. "when confronted with service options, go for the hardest way," june 1997. available at http://www.bordersgroupinc.com/4.0/index.html.

kinsella, bridget. "borders chicago store goes union." publishers weekly, 7 october 1996.

marks, john. "how borders reads the book market." u.s. news & world report, 30 october 1995.

——. "union drive grows at borders - with push from author moore." publishers weekly, 25 november 1996.

nickell, joe. "quietly opening the borders." wired, 4 june 1998. available at http://www.wired.com/news/news/business/story/12718.html.

preddy, melissa. "borders is a best seller on wall st.: analysts wild about retailer." the detroit news, 16 february 1997. available at http://www.bordersgroupinc.com/4.0/1997/4.3.1.html.