Amazon & Border Books
Risa Knight
Professor Alethia R. Gardner
Business 302: Management Concepts
July 26, 2012

Amazon & Border Books The Defense Department created the Internet to keep its computer networks connected during an emergency due to national disasters or enemy attacks. Over the years academic researcher and the government adopted the internet and used it to exchange data and messages. Jeff Benzo’s realized that the internet usage was increasing by 2,300 percent a year. These numbers made Benzo recognize an opportunity for a new business. Jeff Benzo reviewed 20 mail order businesses and he asked himself which could be conducted more efficiently over the internet? Books were the only commodity that mail order catalogues did not exist, because the catalog would be too big for mail; making the selling of books perfect for the internet. Benzo flew to Las Angeles to attend the American Booksellers Convention so that he could learn everything about the book business. Benzo then had to find a location on the internet where people could buy the books by searching what was available and in stock and place their orders. Benzo then made the decision and sacrifice to leave his job in New York and move to Seattle where he could have ready access to the books wholesalers Ingram and the access to the computer talent that he would need for his new enterprise (Spiro, 2009).
He opened his business out of his garage in his Seattle home which Nick Hanauer who believed in Benzo’s idea invested $40,000; Benzo then asked 300 friends and associates to help him test the site. Once the site was up and running, on July 16, 1995, Benzo told his 300 beta testers to spread the word around. With no press and just word of mouth, Amazon.com sold books in all of the 50 states and in 45 foreign countries in 30 days. Within two months his sales was up to $20,000 a week. Amazon’s first attempt was difficult because the website was, boring, plain, and it didn’t attract the customers. Amazon needed more funding, so in 1995 Tom Alburg invested $100,000 into Amazon. Benzo and his team came up with a way to make the website flashier with new hosting capabilities such as one click shopping, customer reviews, and e-mail order verification (2010). Bezos also knew that in 1992 the Supreme Court had ruled in Quill Corp. v. North Dakota that retailers were exempt from charging sales tax in states where they didn’t have a physical presence. (For years, he would use this advantage to avoid collecting hundreds of millions of dollars in state sales taxes, giving Amazon an enormous edge over retailers of every kind, from bookstores to Best Buy and Home Depot. In recent months, however, Amazon, under mounting pressure, has eased its opposition and reached agreements with twelve states, including California and Texas, to collect sales tax (Wasserman, 2010). This was the first time that people can buy books, share your thoughts and book reviews on an online community bookstore (Jeff Bezos Biography 2010). Border Books was founded in Ann Arbor in 1971 by brothers named Tom and Louis Borders. They opened the book store serving the University of Michigan and other smaller colleges; eventually becoming a popular neighborhood hangout. Over the next several years the brothers opened two more bookstores in Michigan, one in Atlanta, and another in Indianapolis. The brothers also started a wholesale business calling it BIS (Book Inventory System). In 1985 the brothers opened its first prototype retail store, shifting sales from small indoor-mall based chain stores and independent booksellers to a new chain superstore. By 1988 with five Midwest book stores, and BIS service numbering 14 bookstore clients; their enterprise was bringing a net income of $1.9 million from sales of $32.3 million. Tom and Louise wanted to make borders a national name, so in 1988 they put a man named Robert DiRomualdo as the president and chief executive. Sales grew to $59 million for the top two superstore chains with only 31 units in 1989, to nearly 1.4 billion by 1994 from 350 units. DiRomualdo opened 14 new stores in the next three years making Border’s a household name in the Midwest. By 1992, Borders had quadrupled its size. Kmart had bought Waldenbooks and wanted to expand its book retailing. In October 1992 the Border brothers sold their business but remanded investors, and Border’s became a wholly owned subsidiary of Kmart. By 1993 sales reached 224.8 million, a 15.8 percent increase in net sales over previous years. Waldenbooks and Boarders formed a new company called Borders Group Inc. in August of 1994 with plans to break free from Kmart. By 1994 the Group’s reached its overall sales to 1.5 billion possessing the highest sales-per-foot by ratio in the industry, and can also 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 (Borders Group, Inc.2002). When Amazon was launched on the internet in 1995, Barnes & Noble jumped on the bandwagon two years later. Borders waited an additional year after Barnes & Noble causing the companies decrease in revenue and quickly losing tens of millions of dollars. Even though the internet was booming, Border’s continued to build huge stores of 25,000 and 30,000 square feet. The sales per-square foot plummeted from average of 261 in 1997 to 173 by 2009 (Austen, 2011).
Amazon was now a billion dollar company by 1999, but success in revenue began to decrease in 2000. Amazon.com reported a fiscal loss of $11.4 billion. This caused the company to lay off over 200 workers in the last year. By the beginning of 2001 Amazon laid off over 1000 worker cutting out expenses and restructuring the business model.
Amazon also was in the market of selling CDs, music, videos, toys, electronics and more. In October of 2002 the firm added clothing sales to its line-up by partnering with hundreds of retailers. Amazon also landed an online sporting goods store offering 3,000 brand names; Amazon.com had an annual sale of over $10.7 billion. Benzo came up with the idea to recruit other companies to sell their products online. This would give Amazon a part of the profit without being responsible for inventory through these companies.
In 2001 Border Book and Amazon partnered up outsourcing Border’s online sales. Border’s assumed that by partnering up with Amazon to run the internet, it will give them a chance to focus on running the physical stores. The big mistake for Border was that they did not end its deal with Amazon soon enough, and Borders did not launch its own website until 2008. But by the time it was launched it was too late, because Amazon had consumed the online market share. During 2006 most of Border’s revenue came from music sales; unfortunately, this was their last year to see a profit. Border’s invested highly in CDs and DVDs when music and video were going digital.
Amazon came up with the Kindle in 2007, and Barnes & Noble a year later created the Nook e-book, and Borders did nothing. Eventually Borders decided to get into the e-book business, but Borders were financially in the red and had to outsource their problems with Kobo; a Canadian e-reader company who didn’t start selling their product until 2010 (Mataconis, 2011). On February 2011, Borders filed a Chapter 11 because they could not compete with Amazon when the market shifted to online. Borders management failed to capitalize on sales opportunities created by the Internet. Borders also built too many superstores causing revenues to decrease tremendously, and they failed to develop an electronic book strategy (Tice, 2011). To secure your business and to build flexibility it is important to take advantage of the opportunities in the market that are rapidly growing. Organizations must ensure cost reduction initiatives making sure it doesn’t impact the organizations ability to capitalize on new opportunities for growth. The company has to establish the right balance between adaptability, agility, and stability in their operating model, cost structure and processes. Adaptability is important, because technology, customer demands, and market place changes quickly. Agility allows companies to enter into new markets quickly and efficiently, it is important to make these changes without compromising stability. Companies with greater transparency and control over their expenditures have the agility to scale activity up or down rapidly to meet varying market conditions. This means that management and the finance department must have long-term vision and understand the real value of each part of the business. At the same time, it is important to improve governance procedures and be more transparent in reporting to retain stakeholder confidence (Ernest & Young, 2011).

References
Austen, B. (2011). The end of borders is not the end of books. Bloomberg Businessweek, (4254), 94-97
Borders Group, Inc." International Directory of Company Histories. 2002 Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-2844700026.html
Ernest & Young (2011) Operational agility from supply chain to integrated value chain growing beyond http://www.ey.com/Publication/vwLUAssets/Operational-agility-adapting-quickly-to-changing-conditions-2011/$FILE/Operational-agility-adapting-quickly-to-changing-conditions-2011.pdf
Jeff Bezos Biography Aug 09, 2010, Founder and CEO, Amazon.com http://www.achievement.org/autodoc/page/bez0bio-1 Mataconis, Doug Friday, July 22, 2011. Capitalism, Creative Destruction, and the End of Borders Books http://www.outsidethebeltway.com/capitalism-creative-destruction-and-the-end-of-borders-books/
Spiro, Josh October 23, 2009. The Great Leaders Series: Jeff Bezos, Founder of Amazon.com http://www.inc.com/30years/articles/jeff-bezos.html
Tice, Carol, July 21, 2011. What Entrepreneurs Can Learn from Borders' Demise http://www.entrepreneur.com/blog/220042
Wasserman, S. (2012). The Amazon Effect. Nation, 294(25), 13-22.