On Feb.16, 2011 Borders Group, Inc. filed for bankruptcy protection. Chief Judge Arthur Gonzalez of the Southern District U.S. Bankruptcy Court in New York approved the bankruptcy motion the following day. The filing document includes discussion of the measures the company is initiating to return to profitability. This includes the closure of 200 low-performing stores across the country, about one-third of the company's existing bookstores, by May 2011. An estimated 6,000 employees, of a total 19,500, will be laid off as part of the store closures. Borders also operates a number of smaller Waldenbooks and Borders Express stores, although their fates are not yet clear.
The company has fought unsuccessfully for market share and liquidity for the last few years, under a revolving door of executive leadership. The company's bankruptcy filing revealed a revenue decline of 18 percent in 2010: $2.3 billion from $2.79 billion in 2009.
In its filing, Borders listed $1.27 billion in assets and $1.29 billion in liabilities. Borders’ list of major creditors reads like an inventory of some of today’s largest publishers and media companies, led by Random House, Harper Collins, Macmillan, and Wiley—each owed from $11 million to more than $33 million at the time of the filing.
To oversee its restructuring, Borders has named Ken Hiltz as the company’s new senior vice president – restructuring of the company. Hiltz comes to the position from AlixPartners, a well-known turnaround company that has recently worked with General Motors in its restructuring efforts.
“We are confident that with the protection afforded under Chapter 11 and with the support of employees, publishers, suppliers and creditors and the reading public, a successful reorganization can be achieved enabling Borders to emerge from the process as a stronger and more vibrant book seller,” explained Mike Edwards, Borders Group president, in a prepared statement.
Borders went on to explain that they have already attracted $505 million in Debtor-in-Possession (DIP) financing from investors, led by GE Capital. “This financing should enable Borders to met its obligations going forward so that our stores continue to be competitive for customers in terms of goods, services and the shopping experience,” Edwards notes. “It also affords Borders the opportunity to move forward in implementing the appropriate business strategy designed to reposition Borders to be a potentially vibrant, national retailer of books and other products.” Although qualifying Borders’ future as “potentially vibrant” may seem a bit too cautious, Borders’ statement stressed the company’s “many strengths upon which to build a solid plan of reorganization and implement a new business model for Borders to address the changing needs of the American reader.”
A Long, Downhill Slide
The 40-year-old retail chain has seen its market value shrink by more than $3 billion since 1998, and, for many, the bankruptcy was not unexpected. With the rise of online bookstores, the brick-and-mortar giants faced a new type of competition. Although Barnes & Noble was able to adjust with an aggressive web-based presence, Borders relied for many years on attaching its online sales to Amazon’s website. This prevented the company from developing its own, unique web presence, as well as providing Amazon with key data on Borders’ customers and their purchasing preferences.
In 2009, Borders pulled back on its efforts to expand globally, shutting down its U.K. operation; however it still operates bookstores in Australia.
The rise of ebooks is another industry trend that Borders has bungled. With the 2007 release of the first Kindle, Amazon has led the current ebook consumer boom. Barnes & Noble followed with its Nook in 2009. By the time Borders established a partnership with Canada’s Kobo, Inc. last year, the market had already gelled with clear leaders—and Kobo wasn’t one of them.
Lastly, Borders suffered, perhaps more than most in the bookselling industry, from the economic downturn, which has dampened spending and profits across the globe. Profit margins for books are slim, inventories and distribution are expensive to maintain and operate. Given the economy, attracting customers means discounts, special offers, and reward programs. In a weak economy, this creates stress for any retailer, and all the more so for one skating on thin ice.
Today, bestsellers are available at Walmart, Target and a host of other nontraditional venues at deep discounts to attract customers. For any bookstore, balancing the need for online convenience with the physical experience of browsing while snacking on food and coffee—all the while providing attractive pricing and a robust catalog of titles across the spectrum of childrens’ books to trade to textbooks to reference works to top sellers and key indies—is no small feat.
Michael Norris, senior analyst with Simba Information, notes that, “Borders certainly has the potential to be a financially viable bookseller in the future. I’m impressed with the current CEO, Mike Edwards, who seems to be in it for the long-haul. If everything goes right for the company they will end the year with a much smaller footprint that when they started the year, but hopefully they will have turned up the volume on why it is that they matter and that will hopefully make up for the smaller footprint, but it’s anyone guess today how strong Borders is going to be as this continues.”
No one seems able to predict Borders’ future with any certainty. They may return as a more focused, smaller operation on a national scale—or perhaps focusing on major regional areas. Others see a stronger focus on online sales or ebooks. Today it appears to be too early to make any predictions.
In a white paper released in November 2010, AlixPartners unveiled its Five Lessons Healthy Companies Must Learn from the Distressed. It is an interesting read coming from the company whose official is now charged with leading Borders’ recovery. It stresses the need to (1) recognize the importance of acting quickly and decisively, even when certainty isn’t assured; (2) liquidity, cash, is the precious commodity essential to implementing change and improving the situation; (3) focus on issues with the highest potential impact for change; (4) make key management changes to remove all ineffective personnel, especially in key positions; and (5) a crisis situation like this allows a company to ‘unfreeze’ the organization’s traditional slow process of change to implement decisions more quickly and make the company more agile and responsive.
What about the impact on publishers and bookstores? Some believe this could breathe new life into smaller, indie bookstores. Others believe it might accelerate the movement to print-on-demand for books, DVDs, and other media. For authors, it represents the loss of another channel to sell and attract readers to their works.
The American Booksellers Association (of which, Borders is not a member) released a statement in which they assert that “despite the doom and gloom expressed by some about the future of full service bricks and mortar bookstores—and, while we don't under-estimate the challenges that lie ahead—ABA believes that the indie bookstore model is well positioned for the future.”
Clearly, Borders will have to focus more fully on developing a more digital lifestyle brand for its stores. The only real differentiation for booksellers today is speed (of online or buying through megastores like Walmart, Costco or even some larger grocery chains) over quality experience (focused on comfortable social browsing in a physical—or online—space). The bankruptcy filing and infusion of cash will give Borders a much-needed chance to reorganize its debt and business operations. The long-term future of this company, as well as other book chains, is yet to be seen.
A Role for Libraries?
Borders was founded in 1971 by Tom and Louis Border in the college town of Ann Arbor, Mich. Begun as a somewhat offbeat yet friendly upstart, the company grew into a bookselling giant that, along with Barnes & Noble, was responsible for the closure of small indie bookstores across the country. Borders’ challenge in this environment is to find ways to compete in an increasingly online environment, stiff competition, small profit margins—along with users’ needs and interests that are becoming more social and diverse.
Borders pioneered the concept of a bookstore that was also a social meeting place, restaurant, and browsing mecca with comfortable seating, a chance to settle back and read for hours, if you like; a place to meet friends or do your homework.
Writing in a Salon blog post, author Edward McClelland notes that: “Even with Borders disappearing, the independents will still have to face competition from the Kindle, the Nook, and the iPad, not to mention Amazon. But as paper books become a niche product, niche retailers will be the best place to buy and sell them. Book lovers will always want a place to gather and hear recommendations from a bookseller who knows their reading habits, and their community. Borders belonged to an era when book retailing was a big enough business to monopolize. Now that there’s no money in it anymore, we may have to go back to shopping for books in stores that let dogs wander through the stacks, and don’t even serve coffee.”
Or, perhaps, this is a perfect confluence of factors that could give libraries another chance to garner long-lost market share—lost over the years to these same booksellers—once again becoming the local, social media hub (online and in person) for their communities. Time will tell.