Borders and Amazon

Borders and Amazon

By: HL and MM

Borders Group, Inc was an international book, music, and movies retailer based in Ann Arbor, Michigan. The company was founded by brothers Tom and Louis Borders while doing their graduate studies at the University of Michigan in 1971. Borders’s competitive edge came from its sophisticated inventory system that optimized, and even predicted what consumers across the US would purchase. This early technical advantage allowed Borders to build huge inventories of books. A single store would typically offer tens of thousands of titles—a fraction of what local bookstores were able to offer. Eventually, Borders achieved success too in selling music and movies in the form of DVDs and CDs. At its peak in 1998, Borders had over 670 stores and was valued at $41.75. However, it was also during this time that the root cause of Borders’s downward spiral can be traced back to. While Barnes and Noble and Amazon invested heavily in online retail, Borders continued to focus on building and refurbishing megastores both locally and internationally. Also unlike Barnes and Noble and Amazon, Borders did not pursue development of an electronic reader. Further, while most companies were succeeding in using the internet as a tool for efficiency, Borders’s stores, as late as 2007, did not have internet access and continued to channel all its communications through Ann Arbor. The biggest strategic mistake of Borders was probably when it outsourced its online sales operation to Amazon from 2001-2008—a move that was tantamount to 1) handing customers on a silver platter to a rival, and 2) virtually crushing the potential of having their own online presence. The year 2006 was the last year Borders turned a profit. In 2011, Borders filed for Bankruptcy Protection, closed all stores, and laid off 11,000 employees. In the final analysis, Borders is a cautionary tale because it failed to adapt to the digital age, had risk blindness in terms of its engagement with Amazon, ignored consumer preferences, and demonstrated ineffective communication within the organization.

Amazon.com, Inc. (Amazon) is the largest internet-based retailer in the United States. Amazon started in 1995 as a website that only sold books. It later diversified to sell just about everything, from books and movies to clothing and groceries. Amazon also manufactures consumer electronics such as e-book readers and tablets and provides cloud infrastructure services. Majority of Amazon’s revenues come from taking a small percentage of the sale price of each item that is sold through its website.