After many success stories of companies who found a solution for their financial problems, mainly caused by the economic downfall, I’d now like to highlight that even big companies with a fixed value can fail their corporate finance.
The Borders bookshop chain in the UK, which employs 1,150 people, has lost the battle. The company suffered from increased competition from online retailers and supermarkets. Further, they faced severe cash flow pressures.
Due to several credit insurers who had reduced their cover to Borders, some of their suppliers became less willing to trade with them and stopped or reduced its credit.
This all made it really difficult for Borders to fill up its stock levels, which decreased its customer service and lead to declining revenues.
Borders tried to survive by seeking for a buyer for all or some of their outlets, but they couldn’t reach their goal.
Borders is a typical example to say that credit insurance is a symptom of a business in jeopardy, in a dangerous situation.
I believe that Borders failed their corporate finance because they hadn’t enough reserve to bridge periods of less credit. They had to foresee that this could happen, definitely when you’re in a branch with growing competition.
Of course not everything is due to the decreasing credit insurance. When the traditional bookshop became less popular and cheaper alternatives like supermarkets got more attention from the customers, Borders had to intervene.Borders’ marketing department should have used their creativity to come up with new ideas and strategies to attract their customers by new or better services.
As a business you always have to create value for your customers or they will turn their back on you. The bankruptcy of Borders is due to a mix of human miscalculations.
Nowadays, innovation is the key to a long and successful story. Consumers are more demanding than twenty years ago. They expect to buy the latest cell phone and one month later, they want to find a more updated version. The most expensive television or car isn’t as exclusive after a while than it was at the time of purchase.
By Evelien Van Gaeveren
Source: BBC NEWS, ‘Borders goes into administration’. BBC News, November 26 2009, www.bbc.co.uk.
Dear Evelien
BeantwoordenVerwijderenI’d like to comment on your article, because this week, I also wrote about what can happen when a company doesn’t succeed in managing its ‘corporate finance’. My company on the other hand was, if you can put it this way, more fortunate because of the fact that the company had buyers that wanted to continue the business activities. Unfortunately, Borders hasn’t found that buyer to save them.
I especially want to comment on what you say about innovation and creativity. I absolutely agree that Borders got into trouble because they didn’t know how to compete with the increasing number of competitors. Especially because these competitors, like supermarkets, can mostly offer products at a lower price.
Customers are so very demanding these days. As you say, when something is new, a week later, it’s antique. On the other hand, I want to say something in favour of Borders. If I were to have a business, I probably would have the same problem concerning innovation. First of all, to me, books aren’t products that you can sell in a thousand different ways. It will probably always be the price that will outweigh in the customer’s choice concerning books. Secondly, even if you try to change your products at a regular basis, I still think that the rate, at which customers want to have new products, is sometimes just unmanageable. So all of my respect goes out to people in marketing departments who have to constantly seek for new ideas.
Kind regards
Lien Vanneder