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Borders Group, Inc.

Borders Group, Inc.

100 Phoenix Dr.
Ann Arbor, Michigan 48108
U.S.A.
Telephone: (734) 477-1100
Fax: (734) 477-1965
Web site:http://www.bordersgroup.com

Public Company
Incorporated:
Borders Group incorporated 1994
Employees: 30,000
Sales: $3.27 billion (2001)
Stock Exchanges: New York
Ticker Symbol: BGP
NA1C: 451211 Book Stores; 45122 Prerecorded Tape, Compact Disc and Record Stores; 551112 Offices of Other Holding Companies

Borders Group Incorporated is the second of the three largest bookstore chains in the United States, based on sales and number of stores. It is the fastest-growing bookstore chain. It operates 354 superstores under the name Borders Books and Music. The superstores feature books as well as special events, including live music, story times, and appearances by artists and authors. The Borders Group subsidiary, Waldenbooks, leads all other book companies in the world in the mall-based book business. Waldenbooks operates stores in over 862 malls and airports. In addition, Borders Groups efforts at international expansion has led to the establishment of Borders bookstores in the United Kingdom, Australia, Singapore, New Zealand, and Puerto Rico. Borders Group, Inc. also has 32 bookstores in the United Kingdom operating under the name Books Etc.

Early History

Borders Group, Inc. came into existence following the spinoff from its parent Kmart Corporation in May 1995. However, the Borders name dates back over two decades. Borders began as an independent used bookstore in Ann Arbor, Michigan. The shop was founded in 1971 by Louis and Tom Borders. Serving the bustling academic community of the University of Michigan and Ann Arbors smaller colleges, the store held its own and became a popular neighborhood hangout. Within the next several years, the Borders brothers opened two more bookstores in Michigan, one in Atlanta, and another in Indianapolis. In addition, Louis and Tom started a wholesaling business they called BIS (Book Inventory Systems), which experienced healthy growth.

Toying with the idea of a superstore, the brothers opened their first prototype large-scale retail store in 1985. Its success and the rise of similar competing stores set the retail book industry on its ear. The superstore model shifted sales from small, indoor-mall-based chain stores and independent booksellers to the new chain superstores. By 1988, with their five Midwest bookstores and BISs bustling service numbering 14 bookstore clients, the brothers enterprise was bringing in a net income of $1.9 million from sales of $32.3 million. But the brothers wanted to expand in a big way.

To achieve their dream of taking the Borders name national, Louis and Tom put their faith in a young man named Robert DiRomualdo. DiRomualdo had a Harvard MBA, and was a graduate of the Drexel Institute of Technology. DiRomualdo had worked his way through several merchandising and marketing positions at Acme Markets and Little General Stores before becoming president and chief executive of Hickory Farms, the prominent food shop chain.

When DiRomualdo joined the Borders brothers enterprise in 1988, the industry was ripe for the kind of expansion Louis and Tom had hoped for. The late 1980s and early 1990s were a time of unprecedented growth for book retailers. Industry sales mushroomed from $59 million in sales for the top two superstore chains with only 31 units in 1989, to nearly $1.4 billion by 1994 from 350 units; this represented an astounding 87 percent compound annual rate. Taking advantage of these circumstances, DiRomualdo, who was named president and chief executive in 1989, opened 14 new stores in the next three years. Within a few short years, DiRomualdo had turned Borders into a household name in the Midwest, and analysts considered Borders the premier book superstore chain of the 1990s.

National Status

By 1992, Borders had quadrupled its size and was beginning the complicated process of going public. Around the same time, the retailer attracted the attention of the huge Kmart Corporation, which had bought Waldenbooks in 1984 and was looking to expand its book retailing segment even further. In October of 1992, Louis and Tom Borders sold their business (though they remained investors), and Borders became a wholly owned subsidiary of Kmart. Sales from Borders operations for 1993 reached $224.8 million, a 15.8 percent increase in net sales over the previous year. Several changes were implemented in 1993, including modernized cash registers, a human resources department, formal training programs for employees, and the introduction of music to the stores stock.

In August 1994, Borders and sibling Waldenbooks formed a new company called Borders Group, Inc., with plans to eventually break free from Kmart. DiRomualdo joined with George Mrkonic, who ran Kmarts specialty stores division for four years (which included Builders Square, The Sports Authority, Pay Less Drug Stores, Waldenbooks, Borders, Kmarts in-store Readers Market shops and others) and had jumped over to the Group in November. He had helped shape the company into a mechanized book and music mecca. By the end of the year, Borders had acquired five CD Superstores and one Planet Music outlet. The company went on to add four Planet stores and 32 new Borders superstores.

The Groups overall sales for 1994 reached $1.5 billion. With what some analysts have called the industrys most sophisticated computer inventory management and sales system, Borders not only possessed the highest sales-per-foot ratio in the industry, but was able to track popular titles by selling season. Borders had identified as many as 55 separately defined seasonal patterns and programmed these into the computer system to keep better track of seasonal and regular bestselling titles, and to help maintain a supply of such titles with little or no interruption in prospective sales.

Though Kmarts ownership of Borders (and Waldenbooks) was to end with the formation of the Borders Group, Inc., finances were settled with the proceeds of a public offering of the new companys stock in May 1995. Two months later, Borders announced it would purchase Kmarts 13 percent stock share. DiRomualdo was installed as chairman and chief executive, while Mrkonic became vice-chairman and president. After a one-time write-off of $182 million, the Borders Group announced second quarter (1994) sales of nearly $364 million, representing an 11.7 percent gain over the previous years posted sales of $327 million.

Though Borders transition from small retailer to national chain wasnt completely smooth, many long-time employees remained with the company and were rewarded for their loyalty by generous benefits worked out during the Kmart acquisition. One sore point arose in 1994 with the proposed closure of Louis and Toms original Borders store in Ann Arbor, set for relocation into an old department store building. Not only was the new store slated to be a Borders Books & Music (the previous was books-only), but its spacious 45,000-square foot interior (four times the size of the original) could in no way maintain the homey atmosphere of the first Borders book shop, despite the added benefits of much more space and extras like the popular new espresso bars.

Nevertheless, Borders new format was obviously giving customers what they wanted and needed. In addition to its unique, state-of-the-art inventory and ordering system, Borders employee base was another of its major boons; most employees were full-time and college-educated, and all were tested for their knowledge of literature and music prior to hiring. Additionally, the bookstore chain prided itself on first-rate customer service, offering patrons a wide range of services, from locating out-of-print titles to community activities like childrens storytelling hours and poetry readings.

Rounding out Borders offerings were growing varieties of alternative educational and informational media, from videos to CD-ROMs, a relaxing and comfortable environment that encouraged customers to linger, and the ubiquitous espresso bars. An industry-first that was quickly copied by competitors, Borders espresso bars grew from a store add-on and overhead cost to a $20 million profit per year venture. In 1995, 82 of the companys 88 superstores had espresso bars, and all new stores were scheduled to have them.

The Borders superstore prototype in 1996 was 30,000 square feet of space, substantially larger than major competitor Barnes & Nobles megastore. Averaging 128,000 book titles and about 57,000 prerecorded music titles at an initial cost of $2.6 million, most Borders superstores became profitable within 12 months of business. Since the majority of Borders superstores were built following the early 1990s, the companys success by 1996 had been swift and immediate.

Revenue figures for year-end 1995 were just shy of $1.6 billion for the Borders Group as a whole, with Borders Books & Music stores contributing over $622.6 million (a 63.4 percent increase over 1994s sales). The superstores contributed a healthy 39.6 percent slice of the Groups overall sales, a welcome and expected 12.2 percent increase from their share in 1994. Sales in 1996 reached more than $2 billion, with Borders superstores division hitting $950 million.

Company Perspectives:

The goal of Borders Group, Inc. is to be the best-loved provider of books, music, video and other entertainment, as well as educational and informational products and services. Borders strives to be the world leader in selection, service, innovation, ambiance, community involvement, and shareholder value.

Second only to Barnes & Noble in sales, industry analysts chose Borders superstores over Barnes & Noble as having a better variety of products, and most expected the bookseller to overtake its rival in the near future. Additionally, Borders planned to take advantage of Waldenbooks status as a cash cow to finance expansion across the nation. Scheduled to open between 30 and 35 new Borders superstores in 1996 and to continue the trend (from 35 to 40 new superstores per year) until the end of the 1990s, Borders hoped to not only prove its mettle but to become the countrys top book-retailing chain.

Late 1990s and Early 2000s

The late 1990s and early 2000s posed significant challenges to the book industry, in general, and Borders Group specifically. Stock prices were down, online businesses suffered losses, and shareholders questioned Borders management. Independent booksellers went to court with charges that the big chains had made unfair deals with publishers, thus discouraging competition. Borders was ordered to pay the American Booksellers Association (ABA) a settlement of $2.5 million in June 2001.

Financially, the year 2000 was a gloomy one for book retailers. Borders Group, Inc. stock price dipped 28.1 percent during the year, though sales and earnings during the last quarter increased 18 percent and were up 9.9 percent for the year. Annual sales at superstores increased 14 percent over the previous year.

The Companys Web site, Borders.com, launched in 1998, was the big loser for the Company. Though sales were up in the fourth quarter, total annual sales were down $27.4 million. The site posted losses in the fourth quarter of both 1999 and 2000, with an annual loss of $18.4 million for the year 2000. Borders became an online bookseller later than its major, already well-established, competitors. Business losses were also attributed to a general retreat in the industry from discounting online purchases, and subsidizing book sales by selling below operating costs. As Borders and other online sellers stopped discounting and offering other incentives to purchasers, online sales were reduced substantially. Borders Group, Inc. closed the doors on its online store and turned it over to Amazon.com in April 2001. Amazon.com planned to provide inventory, content, and customer service for the new Borders.com, and Borders Group planned activities to boost sales for the site.

In December 2000, Borders management faced heavy criticism from shareholders Alan and Barry Lafer, who controlled approximately two percent of the Company shares. The Lafer brothers had previously asked the Company to consider strategic options, including a possible sale of Borders Group, Inc. The Lafers accusations were fueled by the Companys slow growth during the previous fiscal year. During summer 2000, Merrill Lynch had been hired to evaluate the options. Subsequently, the Company resolved to remain independent. In renewed criticism, the Lafers charged that the half-time employment contracts of top executives weakened the Companys management capabilities. Part-time management leads to part-time results, they claimed.

The Lafer brothers also accused management of errors in handling the Companys online expansion and the acquisition of the retail toy store. All Wound Up. The Company had acquired All Wound Up in March 1999 and, by January 2001, planned to discontinue its operations.

In March 2001, Borders announced that Greg Josefowicz, the president and chief executive, would become chairman at the end of the year, replacing Robert DiRomualdo.

After the realignment of online commitments and internal review of options and management, Borders Groups strategy in the new millennium was to continue growth and increase profitability by focusing primarily on its superstores and continuing to develop mall and kiosk bookstores.

Principal Subsidiaries

Borders, Inc.; Waldenbooks.

Principal Competitors

Barnes & Noble; Books-A-Million; Amazon.com.

Key Dates:

1971:
Original Borders bookstore is founded by Louis and Tom Borders.
1985:
Prototype superstore opens.
1992:
Borders becomes subsidiary of Kmart.
1994:
Borders and Waldenbooks merge and form Borders Group, Inc.
1995:
Company purchases Borders stock held by Kmart; Borders Group, Inc. makes initial public offering.
1996:
Company closes more than 100 Waldenbooks locations; focuses on superstore development.
1997:
Borders Online, Inc. created to establish electronic sales operations; stores open in United Kingdom and Singapore.
1998:
Company launches Borders.com Web site.
1999:
Management begins aggressive expansion and opens more stores in England, Australia, and New Zealand.
2001:
Company teams with Amazon.com to launch a co-branded Web site.

Further Reading

Amazon.com and Borders to Relaunch Borders.Com, EFE World News Service, April 11, 2001.

Barnes and Noble and Borders Group to Pay American Booksellers Association settlement, Chain Store Executive with Shopping Center Age, June 2001, p. 24.

Borders Group, Billboard, January 20, 2001, p. 71.

Borders Group, Billboard, March 31, 2001, p. 55.

Borders Group, Inc. Announces Year-End Results, PR Newswire, March 11, 1996, p. 311.

Borders Group, Inc.: Booking Profits, United States Equity Research: Retailing, June 22, 1995.

Kmart Sells Remaining 13% Stake in Borders Group, New York Times, August 17, 1995, p. C3.

McKenna, John F. and Buchanan, Robert F., Strategic Assessment: Borders Group, Inc., NatWest Securities, October 9, 1995.

Milliot, Jim, Chain Sales Rise 9% to $7.2 Billion, Publishers Weekly, April 2, 2001 p. 9.

, Industry Stocks Stumbled in 2000, Publishers Weekly, January 8, 2001, p. 10.

Mutter, John, Beyond Borders: Trimming Walden, Publishers Weekly, February 7, 1994, pp. 28-32.

Taking over Borders.com, Display & Design Ideas, May 2001, p. 10.

Taryn Benbow Pfalzgraf

update: Elizabeth Shé

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Borders Group, Inc.

Borders Group, Inc.

500 E. Washington Street
Ann Arbor, Michigan 48104
U.S.A.
(313) 995-7262
Fax: (313) 995-9405

Public Company
Incorporated:
1971 as Borders Books
Employees: 10,000
Sales: $1.74 billion (1995)
Stock Exchanges: New York
SICs: 5735 Recorded & Prerecorded Tape Stores; 5942 Book Stores

Borders Group, Inc. is the nations second largest retailer of books, music, and other educational, informational, and entertainment products. Its Waldenbooks bookstores were in over 1,000 mall stores by 1995. Furthermore, it owned the rapidly expanding Borders Books & Music superstores and Planet Music stores. Throughout the country, the Borders name is associated with superstores catering to book and music lovers, with a wide selection of hard-to-find titles and tapes as well as a growing number of varied forms of electronic media. These superstores, which numbered 116 in early 1996, provided customers with plentiful sitting and browsing areas, a well-versed customer service team, and even espresso bars featuring live entertainment.

Borders Group, Inc. came into existence following the spin off from its parent Kmart Corporation in May 1995. But the Borders name dates back over two decades. Borders began as a single used bookstore in Ann Arbor, Michigan. The shop was founded by Louis and Tom Borders in 1971. Serving the bustling academic community of the University of Michigan and Ann Arbors smaller colleges, the store held its own and became a popular neighborhood hangout. Within the next several years, the Borders brothers opened two more bookstores in Michigan, one in Atlanta, and another in Indianapolis. In addition, Louis and Tom started a wholesaling business they called BIS (Book Inventory Systems), which experienced healthy growth.

Toying with the idea of a superstore, the brothers opened their first prototype in 1985. Its success and the rise of similar competing stores set the retail book industry on its ear, shifting sales away from mall-based stores and into busy suburban areas (the areas that the Borders bookstores had always targeted). By 1988, with their five Midwest bookstores and BISs bustling service numbering 14 bookstore clients, the brothers enterprise was bringing in a net income of $1.9 million from sales of $32.3 million. But the brothers wanted to expand in a big way.

To achieve their dream of taking the Borders name national, Louis and Tom put their faith in a young man named Robert DiRomualdo, a graduate of the Drexel Institute of Technology with a Harvard MBA. DiRomualdo had worked his way through several merchandising and marketing positions at Acme Markets and Little General Stores before becoming president and chief executive of Hickory Farms, the prominent food shop chain.

When DiRomualdo joined the Borders brothers enterprise in 1988, the industry was ripe for the kind of expansion Louis and Tom had hoped for. The late 1980s and early 1990s were a time of unprecedented growth for book retailers, as industry sales mushroomed from $59 million in sales for the top two superstore chains with only 31 units in 1989, to nearly $1.4 billion by 1994 from 350 units; an astounding 87 percent compound annual rate. Taking advantage of these circumstances, DiRomualdo, who was named president and chief executive in 1989, opened 14 new stores in the next three years. Within a few short years DiRomualdo had turned Borders into a household name in the Midwest, and analysts considered Borders the premier book superstore chain of the 1990s.

By 1992, Borders had quadrupled its size and was beginning the complicated process of going public. Around the same time, the retailer attracted the attention of the huge Kmart Corporation, which had bought Waldenbooks in 1984 and was looking to expand its book retailing segment even further. In October of 1992, Louis and Tom Borders sold their business (though they remained investors), and Borders became a wholly owned subsidiary of Kmart. Sales from Borders operations for 1993 reached $224.8 million, a 15.8 percent increase in net sales over the previous year. Several changes were implemented in 1993, including modernized cash registers, a human resources department, formal training programs for employees, and the introduction of music to the stores stock.

In August 1994, Borders and sibling Waldenbooks formed a new company called Borders Group, Inc., with plans to eventually break free from Kmart. DiRomualdo joined with George Mrkonic, who ran Kmarts specialty stores division for four years (which included Builders Square, The Sports Authority, Pay Less Drug Stores, Waldenbooks, Borders, Kmarts in-store Readers Market shops and others) and had jumped over to the Group in November. He had helped shape the company into a mechanized book and music mecca. By the end of the year Borders had acquired five CD Superstores and one Planet Music outlet. The company went on to add four Planet stores and 32 new Borders superstores.

The Groups overall sales for the year reached $1.5 billion. With what some analysts have called the industrys most sophisticated computer inventory management and sales system, Borders not only possessed the highest sales-per-foot ratio in the industry, but was able to track popular titles by selling season. Borders had identified as many as 55 separately defined seasonal patterns and programmed these into the computer system to keep better track of seasonal and regular bestselling titles, and to help maintain a supply of such titles with little or no interruption in prospective sales.

Though Kmarts ownership of Borders (and Waldenbooks) was to end with the formation of the Borders Group, Inc., finances were settled with the proceeds of a public offering of the new companys stock in May 1995. Two months later, Borders announced it would purchase Kmarts 13 percent stock share. DiRomualdo was installed as chairman and chief executive, while Mrkonic became vice-chairman and president. After a one-time write-off of $182 million, the Borders Group announced second quarter (1994) sales of nearly $364 million, representing an 11.7 percent gain over the previous years posted sales of $327 million.

Though Borders transition from small retailer to national chain wasnt completely smooth, many long-time employees remained with the company and were rewarded for their loyalty by generous benefits worked out during the Kmart acquisition. One sore point arose in 1994 with the proposed closure of Louis and Toms original Borders store in Ann Arbor, set for relocation into an old department store building. Not only was the new store slated to be a Borders Books & Music (the previous was books-only), but its spacious 45,000-square foot interior (four times the size of the original) could in no way maintain the homey atmosphere of the first Borders book shop, despite the added benefits of much more space and extras like the popular new espresso bars.

Nevertheless, Borders new format was obviously giving customers what they wanted and needed. In addition to its unique, state-of-the-art inventory and ordering system, Borders employee base was another of its major boons; most employees were full-time and college-educated, and all were tested for their knowledge of literature and music prior to hiring. Additionally, the bookstore chain prided itself on first-rate customer service, offering patrons a wide range of services from locating out-of-print titles to community activities like childrens storytelling hours and poetry readings.

Rounding out Borders offerings were growing varieties of alternative educational and informational media, from videos to CD-ROMs, a relaxing and comfortable environment which encouraged customers to linger, and the ubiquitous espresso bars. An industry-first that was quickly copied by competitors, Borders espresso bars grew from a store add-on and overhead cost to a $20 million per year venture. 82 of the companys 88 superstores had espresso bars in 1995, and all new stores were scheduled to have them.

The Borders superstore prototype in 1996 was 30,000 square feet of space, substantially larger than major competitor Barnes & Nobles megastore. Averaging 128,000 book titles and about 57,000 prerecorded music titles at an initial cost of $2.6 million, most Borders superstores became profitable within 12 months of business. Since the majority of Borders superstores were built following the early 1990s, the companys success by 1996 had been swift and immediate.

Revenue figures for year-end 1995 were just shy of $1.6 billion for the Borders Group as a whole, with Borders Books & Music stores contributing over $622.6 million (a 63.4 percent increase over 1994s sales). The superstores contributed a healthy 39.6 percent slice of the Groups overall sales, a welcome and expected 12.2 percent increase from their share in 1994. Analysts predicted 1996 sales to reach more than $2 billion, with Borders superstores division hitting $950 million.

Second only to Barnes & Noble in sales, Borders superstores were chosen over Barnes by analysts as having a better variety of products, and most expected the bookseller to overtake its rival in the near future. Additionally, Borders planned to take advantage of Waldenbooks status as a cash cow to finance expansion across the nation. Scheduled to open between 30 and 35 new Borders superstores in 1996 and to continue the trend (from 35 to 40 new superstores per year) until the end of the 1990s, Borders hoped to not only prove its mettle but to become the countrys top book-retailing chain.

Principal Subsidiaries

Borders Inc.; Waldenbooks; Planet Music, Inc.

Further Reading

Borders Group, Inc. Announces Year-End Results, PR Newswire, March 11, 1996, p. 311.

Borders Group, Inc.Booking Profits, United States Equity Research Retailing, June 22, 1995.

Kmart Sells Remaining 13% Stake in Borders Group, New York Times, August 17, 1995, p. C3.

McKenna, John F. and Buchanan, Robert F., Strategic Assessment Borders Group, Inc., NatWest Securities, October 9, 1995.

Mutter, John, Beyond Borders: Trimming Walden, Publishers Weekly, February 7, 1994, pp. 28-32.

Taryn Benbow Pfalzgraf

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Borders Group, Inc.

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.


For an annual report:

email requests to: c[email protected] or fax to: (734)477-4538 or write: borders group, inc. investor relations, 100 phoenix dr., ann arbor, mi 48108


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. border's primary sics are:

5735 book stores

5942 record and prerecorded tape stores

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Borders Group, Inc.

Borders Group, Inc.

100 Phoenix Drive
Ann Arbor, Michigan 48108
USA
Telephone: (734) 477-1100
Fax: (734) 477-1965
Web site: www.bordersgroupinc.com

THIS SEASON, IT'S THE ORIGINAL THOUGHT THAT COUNTS CAMPAIGN

OVERVIEW

Borders Group, Inc., the second-largest American book retailer after Barnes & Noble, Inc., adjusted to a trend of dwindling mall traffic by erecting more and more superstores, which tallied 435 by 2003. Hoping to dissuade consumers from shopping for books, CDs, and videos over the Internet, Borders strove to provide at each of its stores a customer-friendly setting equipped with cafés, furnished with comfortable seating, and set up so that customers could preview books and music before making a purchase. In April 2003 Borders ended its relationship with the Campbell-Ewald Company, the agency that had created Borders' "Find Out" campaign. Shifting away from price-oriented advertising and focusing instead on the meaningfulness of gift-giving, Borders released its "This Season, It's the Original Thought That Counts" campaign for the 2003 holiday season.

Borders awarded Crispin Porter + Bogusky's Venice, California, office its first account, estimated at $15 million, in September 2003. On November 30 Crispin Porter + Bogusky launched "This Season, It's the Original Thought That Counts" across print and outdoor advertising, with all advertising displaying the campaign's title as the tagline. The print ads, which appeared as inserts in newspapers nationwide during the weeks before Christmas, featured copy on one side that described the joys of receiving books as gifts. The insert's other side looked and felt like holiday wrapping paper. In addition to the book-themed newspaper inserts, DVD-themed wrapping paper was placed in Rolling Stone Magazine to suggest that movies made thoughtful gifts. With the same sentiment in mind, images of CD cases appeared in the New Yorker. All inserts could be removed and used to gift wrap a regular-size book, CD, or DVD.

The campaign garnered a plethora of ad-industry awards, including a Silver Pencil and a Best in Show recognition at 2004's ATHENA Awards competition, sponsored by the Newspaper Association of America. Borders saw a 3.78 percent sales growth in 2003, with 35 percent of its sales occurring during the quarter in which the campaign ran.

HISTORICAL CONTEXT

Prior to Crispin Porter + Bogusky's involvement, Borders had run a long campaign titled "Find Out," launched by Campbell-Ewald in the mid-1990s and lasting until April 2003. The campaign, which borrowed from earlier work done by ad agency Perich + Partners, focused on the experience of browsing in a bookstore. During the duration of "Find Out," Borders held promotional events such as book readings, author signings, lectures, and local-musician showcases. By April 2003 the campaign only appeared across print.

The company also cross-promoted with Children's Books & Toys, Inc., the parent company of FAO Schwarz. Borders recommended and delivered its books, music, and movies to Children's Books & Toys stores. In return the toy stores provided products for Borders and Waldenbooks, a mall-based bookstore chain owned by the Borders Group. But Borders, along with other book-selling superstores, tended to lack strong advertising outside the stores themselves. Mike Spinozzi, chief marketing officer for Borders, explained in Adweek that the company's marketing had in the past depended largely on "competitive square footage." He later referred to the approach as an "if you build it, they will come" model.

Hoping to build the emotional content of its brand, Borders hired the Zyman Group (consultants) in March of 2003. Spinozzi told Adweek that Borders assigned Zyman the task of defining the "functional and emotional benefits of the brand." A few months later Borders settled on Crispin Porter + Bogusky to handle its advertising, largely based on the quality of the agency's advertising for IKEA and on its vision about how the Borders brand should be developed. Tim Roper, creative director at Crispin Porter + Bogusky, commented to Adweek that if America's two book-superstores were on a college campus, "Barnes & Noble would be the law library, and Borders would be the smaller, funkier, cooler place." Roper, who also wrote copy for "This Season, It's the Original Thought That Counts," wanted to convey the idea that there was at least one item at Borders that was a perfect fit for everybody.

TARGET MARKET

The campaign targeted holiday shoppers within all age, income, and cultural parameters. Roper explained that its goal was "to intervene in the robotic buying patterns that usually result in catch-all gifts like sweaters, toasters or stainless-steel pen sets. We're talking to virtually anyone who aspires to give a gift that is truly meaningful and can be tailored to the individual recipients' personality and tastes." Borders hoped to connect gift-giving's meaningfulness to the Borders brand. To facilitate this connection, the "This Season, It's the Original Thought That Counts" campaign associated wrapping paper with the Borders logo. Massive retailers such as Wal-Mart and Costco could offer CDs, DVDs, and books at lower prices than Borders, which meant that Borders could not target consumers from a price orientation. "Borders has the opportunity to be a really cool brand," Roper told Adweek. "They know the need for differentiation and identity. Why buy the Tom Clancy book there rather than 15 other places?"

Borders offered consumers an informed staff and information centers that provided insight into books, CDs, and DVDs. "This is the beginning of our conversation with the consumer about the meaningfulness of content," Roper continued to explain to Adweek. He later pointed out that mass merchants did not offer much insight into products similar to those sold at Borders. He also remarked that the giant retailers sold music, movies, and books almost as an afterthought.

COMPETITION

Changing advertising agencies regularly, Barnes & Noble, the largest U.S. bookseller, contracted more than four different agencies to run ads between 1999 and 2005. Advertising that appeared during 2003, the same year as Borders' "This Season" campaign, was executed primarily in-house by Barnes & Noble. For 2002 the company spent a reported $6 million on advertising, undershooting what Borders spent the following year by $9 million. One print ad released in 2003 made the case that the company's superior size enabled it to provide a better selection. It showed a black-and-white illustration with two stacks of books, one stack grossly larger than the other, and text that boasted, "Bigger means more, OK?"

ECHO DEVELOPING DIGITAL TECHNOLOGY

In mid-2003 Borders became a member of Echo, a consortium working on the development of technology to regulate the licensing and retailing of digital music. Echo was founded in January 2003 by Best Buy Co., Hastings Entertainment, MTS, Incorporated (Tower Records), Trans World Entertainment Corporation, Virgin Entertainment Group, and Wherehouse Entertainment.

The primary strategy Barnes & Noble employed to bolster sales was similar to that of Borders: to merely build more superstores, some topping out at 60,000 square feet. Hoping to compete with Amazon.com, Barnes & Noble sold a large percentage of its website business, barnesandnoble.com, to Bertelsmann AG, which owned, among other things, the publisher Random House, Inc. By 2003 Barnes & Noble was trying to regain control of its website by buying Bertelsmann's shares.

The dilemma for both Borders and Barnes & Noble was twofold. One, as a result of waning mall traffic, both companies' smaller bookstores—Waldenbooks belonged to Borders, and Doubleday was owned by Barnes & Noble—were losing money. Second, even though both companies recorded sales growth quarter after quarter, they continuously needed to provide reasons for people to enter their stores. Many consumers enjoyed the experience of buying books online from Amazon.com. To attract consumers inside their doors, Barnes & Noble used promotions similar to those employed by Borders, such as readings, book signings, and lectures. Its stores also featured comfortable seating and in-store cafés. In 2003 Barnes & Noble's sales grew more than 11 percent, surpassing the 3.78 percent growth Borders experienced that year.

MARKETING STRATEGY

To maximize the campaign's limited budget, Crispin Porter + Bogusky wanted to create print ads that consumers could interact with. On November 30 "This Season, It's the Original Thought That Counts" appeared in three different executions across print and outdoor mediums. Roper and David Steinke, the project's art director, were challenged to create spots that conveyed the meaningfulness of certain gifts, especially the kind sold at Borders. The campaign portrayed other kinds of presents, such as purely functional items, as involving less sentiment and as therefore less desirable. "Price and selection and convenience can only get you so far," Roper told Adweek. "You have to start with more of a brand perspective. If you think about the offerings in a place like [Borders], it's a far more personal statement or gift than a sweater or curling iron—if it's chosen right."

The first set of ads appeared in more than 40 newspapers nationwide, including the Chicago Tribune and the Washington Post. When discovered by the reader, the insert first appeared as folded wrapping paper embellished with reindeer. Once unfolded, the back of the wrapping paper displayed a life-size image of a book jacket. Copy appeared as review endorsements, such as, "Ever notice how when you gift wrap a book, everyone can always tell it's a book? They don't have to pick it up, shake it or put their ear to it. They look and they know." "Hmm, a book," appeared below in faded text. The insert was large enough to gift wrap most books.

The second execution, inserted in Rolling Stone magazine, was a snowflake-themed piece of wrapping paper with an actual-size photograph of a DVD case on the back. Consumers could place their DVDs directly onto the advertisement and gift wrap DVDs. Copy that mimicked the formatting seen on the back of most DVDs read, "A lot of other gifts, besides a DVD, can fit in this 5.5″ × 7.5″ rectangle. A small box of monogrammed handkerchiefs, for one. But after wrapping paper and ribbons have settled, nobody will curl up on the couch, belly stuffed with turkey sandwiches, to watch the climactic battle scene between a pair of designer socks." To the left of the photograph appeared the Borders logo and the campaign's tagline. Wrapping-paper inserts for gift wrapping a CD case were run in the New Yorker.

Outdoor ads appeared on mall kiosks and billboards, displaying copy such as, "If the pen is mightier than the sword, all original ideas can beat the you-know-what out of a toaster." Another image showed a woman catching snowflakes on her tongue, and each snowflake bore a title of a movie, book, or CD. The campaign ran through December of 2003.

OUTCOME

The "This Season" campaign made its mark in the advertising industry, collecting awards such as a silver at the One Show, a Bronze Lion award at the Cannes Advertising Festival, and a silver at the Clio Awards. The campaign's newspaper execution earned a Silver Pencil and won Best in Show at the 2004 ATHENA Awards competition. John E. Kimball, senior vice president and chief marketing officer for the Newspaper Association of America, remarked on ATHENA's website, "This year's Best in Show winner, in particular, demonstrates how a little 'outside-the-wrapper' thinking can have a tremendous impact."

WALDENBOOKS' NAMESAKE

Waldenbooks, owned by the Borders Group, was founded in 1933. The bookstore was named after Walden Pond, the Massachusetts pond that inspired Henry David Thoreau to write his renowned transcendentalist work Walden.

For 2003 Borders posted a 3.78 percent growth in sales from the previous year, and 35 percent of the company's 2003 sales took place during the quarter that "This Season, It's the Original Thought That Counts" took place. The industry leader, Barnes & Noble, posted significantly higher growth: 11.62 percent. Borders struggled to define its brand in 2003 and to gain on Barnes & Noble; but as Candace Corlett, a partner at the marketing consultancy WSL Strategic Retail, told Adweek, Crispin Porter + Bogusky's campaign was definitely "a step in the right direction."

FURTHER READING

Borst, Barbara. "Author! Author! Artist's Love of Books Led to Barnes & Noble Portraits." Pittsburgh (PA) Post-Gazette, November 25, 1997, p. D3.

Corrigan, Patricia. "Big Books, Little Prices." St. Louis Post, December 1, 2004, p. E1.

Elliot, Stuart. "Crispin Porter Moves Operations to Miami." New York Times, May 17, 2004, p. 10.

Fabrikant, Geraldine. "Top Honors Taken by Miami Agency." New York Times, September 23, 2004, p. 2.

Flass, Rebecca. "Borders to Consumers: 'It's the Thought That Counts': Toasters Get Snubbed in Crispin Porter + Bogusky's New Holiday Ads." Adweek, December 1, 2003, p. 9.

―――――――. "Why Crispin Porter + Bogusky Decided to Bail on Building an L.A.-Area Agency." Adweek, May 24, 2004, p. 14.

Jensen, Trevor, and Rebecca Flass. "Crispin Porter + Bogusky Sees Borders as the 'Funkier, Cooler' Bookstore: L.A. Office Lands $15 Mil. Account as Client Refocuses on Image." Adweek, September 22, 2003, p. 10.

Mack, Ann M. "How Online Retailers Are Luring Holiday Shoppers." Adweek, December 6, 2004, p. 10.

Marcel, Joyce. "The Morrow Family and Manchester's Northshire Bookstore." Vermont Business Magazine, December 1, 2004, p. 15.

May, Jeff. "Booksellers Have a Read on What Customers Want: Big Stores." Newark (NJ) Star-Ledger, May 17, 2004, p. 24.

Milliot, Jim, and John Mutter. "Booksellers Anxious about Holiday '04 Prospects." Publishers Weekly, November 22, 2004, p. 5.

Saewitz, Mike. "Plaza Regaining Some of Past Glory." Sarasota (FL) Herald-Tribune, November 29, 2004, p. BS1.

                                               Kevin Teague

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