Borderss Group Inc. (NYSE:BGP) was the second largest U.S. based book retailer and the largest mall-based bookseller in the country. The company operated 511 superstores under the Borders name, of which 508 were in the United States and three in Puerto Rico. The company also operated 175 mall-based and other bookstores, including stores operated under the Waldenbooks, Borders Express and Borders Outlet names, as well as Borders-branded airport stores. In addition, the Company owned and operated United Kingdom-based Paperchase Products Limited (“Paperchase”), a designer and retailer of stationery, cards and gifts. Paperchase operated 85 stores, primarily in the United Kingdom, and Paperchase shops existed until 2009 in 333 domestic Borders Superstores. In addition, the Company operates a proprietary e-commerce Web site, Borders.com. The company generated $2.8 billion in revenue and a net loss of $109 million in 2009.
Borders made money through the sale of books and CDs as well as its in-store Seattle's Best Coffee brand cafes and Paperchase gift and stationery shops.
The electronic book (eBook) revolution has arrived. Electronic readers (eReaders) offer portability and storage, language attributes, low cost for book purchases, access to millions of free books, and a smaller carbon footprint compared to print books among other benefits. As a result, eBook demand has skyrocketed, with revenue in the industry reaching $398 million in 2009 and expected sales to be $2.5 billion by 2013. The two top eReaders in the market by sales are Barnes & Noble's Nook and Amazon's Kindle 2. However, Borders had developed its own eReader, the Kobo, which is competing for marketshare in the emerging industry.
Because each company sell book titles for $9.99, the sale of eReaders is the primary competitive business and has resulted in price wars. In the summer of 2010, Barnes & Noble reduced the price of its Wi-Fi Only and 3G + Wi-Fi Nook devices by $50 to $149 and $199 respectively. In retaliation, Amazon reduced the price of the Kindle 2 by $60 to $189. Trying to maintain its position as selling the cheapest eReader, Borders included a $20 gift certificate to the $149 Kobo.
The Kobo, Nook, and Kindle 2 aren't the only eReaders on the market -- the three devices face competition from Apple's iPad. Although the iPad isn't just an eReader, it does have its own ebook store called iBooks, which is very similar to what the other retailers have. The iBooks store sells books from publishers like Penguin, HarperCollins, Simon & Schuster, Macmillan, and Hachette. iBooks prices are slightly higher than those of its competitors (selling at $15 per book), but the price is expected to fall once more iPads are distributed. In addition, Apple is using ePub, meaning that e-books from other stores might work on the iPad.
Part of the reason for declining sales growth in brick and mortar stores was the continuing increase in competition from online retailers, which take business (and margin) from brick and mortar sales. In the past, Borders has partnered with Amazon.com (AMZN), letting Amazon operate the websites of its subsidiaries in return for referral fees. However, Borders ended the relationship with Amazon to run its own [borders.com website] which now redirects to Barnes & Nobles.
The Borders Rewards program has over 37 million members. Discounts for buying Borders products incentivizes customers to make Borders their destination, increasing brand loyalty. Members can earn Borders Bucks in increments of $5 for each cumulative $150 they spend on qualifying purchases in a calendar year at Borders and Waldenbooks stores nationwide. Borders Bucks expire 30 days after receipt by the member if not redeemed. The Borders Rewards program is free, with no enrollment costs or annual fee, and has been reworked to provide more frequent payouts to a wider variety of customers. On the other hand, competitor Barnes & Noble's member program is not free and charges an annual fee.
The retail book market is slow to change and is at this point closed off from new superstore entrants. Borders competed on two fronts, with other physical retailers and with internet booksellers.
Borders competed with other companies who shared its model of having massive book superstores with thousands of titles.
Amazon.com is the largest online competition for Borders. Formerly partnered with Borders, Amazon offers the convenience of never having to leave your home to buy a book. Additionally, without some of the overhead inherent for B&M stores, Amazon.com can offer low prices or free shipping, leading to further price competition. Amazon also competes with Borders' Kobo with the Kindle 2.
Wal-Mart and Target are the main retail megastores, which sell everything from books to clothes to groceries. Despite not being a core sales segment of their business, these larger stores have had an impact on the sale of books by making best sellers more widely available. This puts pressure on traditional book retailers like Borders to cut prices on bestsellers to retain store traffic, leading to diminished margins.