Wednesday, November 14, 2012

Fall of Big-Box stores?

Leadership quality is related to growth and growth of companies, that have less skilled leaders, stagnates. Borders Group which was once the second largest US bookstore chain filed bankruptcy in 2011. In the age of internet and eBooks the giant bookseller ran out of business but internet was not the only reason responsible for the decline. There were a series of strategic missteps which led to the shutdown of on e of the biggest Big-Box stores. There were other companies which adapted to the e-reader revolution and eventually benefited from it. One of the major reasons for the demise of Borders was that it lost its competitive strategy by being a follower and not being a leader.

From 2011 to 2008 it outsourced its online sales to Amazon in order to use the online investment to innovate the self-help computer stations in Border stores.  They did not utilize their website to attract new customers and sell product online. This strategy of Borders to focus more on the brick-mortar stores and under utilize its online platform was one of the major reasons for their demise. They easily directed their customer to Amazon an emerging competitor in the books industry and paved the path to failure. Whereas on the other hand Barnes & Nobles which was also facing competition from Amazon invested in their digital strategy to adapt to the new technologies. Borders was last in the race to adapt to eBook by releasing its Kobo (e-reader) in 2010.

Borders few other strategies of non diversification led to the decline in sales and drop in revenues. It generated lot of revenue from the sales of CDs and DVDs but again in the music industry internet and technology had introduced iTunes, Netflix in the markets which clearly impacted the sales of CDs and DVDs.  Other book stores made profit on coffee shops or alcohol sales but Borders failed to recognize this strategy and did not use it to survive the crisis. Leaders at Borders did not evaluate the current scenarios and the change in the industry and opened up too many stores and even overseas which proved to be a loss for the company. These stores were expensive and most of the non-profitable stores could not be closed due to the long term leases. 

The biggest question is whether internet and e-Reader technology was responsible for the downfall of Borders. Could internet be used to connect to customers and increase sales?  Is this an indication that big-box stores will phase out eventually with the ever changing market scenarios? Can big-box stores compete in prices with online retailer giant like Amazon?


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