Borders Group Case Study

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Borders Group Incorporated: Too Big & Failed Capitalism is a key component in the strong rooted foundation that the economy has been based off since the inception of this nation and is defined as trade and industry that is owned and controlled for profit by a private owner instead of being controlled by the government (dictionary.com). While the American free market has often been held in the highest esteem by foreign economies as well as ourselves, casualties of the same system have been rampant following America’s Great Recession and the aftermath. One of the most notable casualties was that of bookstore giant Borders Group Incorporated. Founded in 1971, by brothers Tom and Louis Borders of Ann Arbor, Michigan, Borders Bookstore was originally …show more content…
The rapid expansion, spearheaded by Robert DiRomulado who was hired by Borders in 1988, took place in a year that saw a net income of $1.9 million and sales of $32.2 million per Borders Group Incorporated. In Todd Leopold’s CNN article “The death and life of a Great American Bookstore”, some analysist say the desire for rapid expansion was the first misstep by the company, while Robert Teicher, long time fiction buyer for the chain, says the selling of the company was “transparent and the product…was deeper pockets”. The steady success of the five Borders superstores and other smaller mall based stores and Book Inventory System computer software caught the attention of Kmart Corporation. The Borders brothers sold to Kmart corporation for $125 million in 1992 (Crainsdetroit.com). While the brothers did not stay on after the sale, the company saw a 15.8% increase in sales in the first year as a wholly owned Kmart subsidiary (Borders Group Inc.). As a wholly owned subsidiary owned by Kmart Corporation, all common stock owned by Borders comes under ownership of the new parent company and the parent company directs how all assets are invested. Other examples of wholly owned subsidiaries include Disney owning ABC and Motown Records selling to MCA Incorporated in 1988. This arrangement is different from a merger in which a corporation acquires a …show more content…
Because of this, Borders Group launched an aggressive cost reduction initiative, and announced that it planned to reduce expenses by $120 million singularly in 2009 (Forbes.com). In 2008, Borders Group secured a $42.5 million loan from Pershing Square Capital Management to provide some relief (Ann Arbor News). Moreover, Borders Group closed a total of 264 stores in 2009 and 2010 as stated in the group’s chapter 11 filing. Borders Group also reduced its full-time workforce by 5,600 and part-time workforce by 3,300 from 2008 to 2010 (Borders Group Inc.). By 2010, Borders Group’s market share in the book retail industry was miniscule. It held an 8.1% market share, compared its competitors Amazon.com and Barnes & Noble which held 22.5% and 17.3%, respectively as reported by Mike Spector of Wall Street Journal. In December 2010, Borders Group’s assets were not easily converted into cash, or illiquid as reported by the group. Borders Group owed $350 million to creditors in 2008, and was forced to restructure its debt twice between 2008 and 2011 as reported in an article for Time by Josh Sanburn. Delisted by the NYSE in 2011 for its failure to rise above an average monthly price of $1.00 in six months, Borders Group also withheld payment from publishers, and eventually landlords, as a means to preserve cash

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