Borders Looks for Fresh Start After Chapter 11 Filing

Discussion
Feb 17, 2011

It always seemed to be more a matter of when than
if Borders Group would file for Chapter 11 bankruptcy protection. Now that
the filing part has taken place, the question becomes who will be the winners
and losers when the saga plays out through Border’s reorganization and beyond?

Borders’
announcement included plans to close 194 stores with the possibility of others
to follow. The company said it had secured $505 Million in debtor-in-possession
(DIP) financing from GE Capital.

"This financing should enable Borders to meet its obligations going forward
so that our stores continue to be competitive for customers in terms of goods,
services and the shopping experience. 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," said Mike Edwards, president of Borders Group, in
a press release.

Borders’ management and board believes the company has a number
of strengths that will help it successfully compete once it emerges from Chapter
11.

"For decades, Borders has been a beacon of engagement — a highly
frequented destination for consumers and a significant venue for authors and
vendors to showcase new books and merchandise. We have the ability, based on
our brick and mortar presence nationally; the on-line capabilities we have
in place; the loyalty of, and access to, our customers; and the products and
services we offer to be an important and easy access destination of exploration
and purchase for readers across the country," said Mr. Edwards.

While
Mr. Edwards was sounding upbeat, others were not.

"This is the biggest bankruptcy in the history of the book business," Albert
Greco, senior researcher at the Institute for Publishing Research, told The
Washington Post
. "This is really a depressing day."

Some have
suggested that once Borders removes some of its unwanted store locations
that perhaps it will be acquired by larger rival Barnes & Noble. Borders
investor William Ackman had offered to finance a $963
million deal to acquire Barnes & Noble back in December.

Independent bookstores
continue to hold out hope that Borders’ trouble will be good for their businesses.

Michael
Norris, a senior analyst with Simba Information, told USA Today, "Independent
bookstores definitely have a shot at benefiting the most from store closures."

Discussion Questions: Will Borders successfully make it out of Chapter 11? Which retailers will be the biggest winners and losers as a result of this?

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22 Comments on "Borders Looks for Fresh Start After Chapter 11 Filing"


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Dick Seesel
Guest
10 years 3 months ago
There is a Borders about five minutes from my house and it’s one of three stores being shuttered here in the Milwaukee area. Based on my own shopping patterns (especially since I bought a Kindle about 18 months ago), it’s hard to see how the traditional brick & mortar bookseller will survive without this sort of consolidation. The big winners short-term are Barnes & Noble (in this trading area, about four miles away) and a local independent bookseller (about three miles away in the other direction). But the lesson learned is that the demand for printed books is simply too tenuous to support three competitors in a 10-mile radius, even with a high density of affluent, educated readers. What looks like a short-term benefit to B&N should really be interpreted as the writing on the wall. As to Mr. Ackman’s declaration (within the last 2 weeks) that Borders would not have to declare Chapter 11 bankruptcy…right now his track record investing in retail looks pretty similar to Eddie Lampert’s. If I were on the board… Read more »
Charlie Moro
Guest
Charlie Moro
10 years 3 months ago

I am not sure that the Chapter 11 filing of Borders makes them stronger or weaker. I think it continues to make them irrelevant. With the onslaught of e-readers, internet purchases and how long before Starbucks takes the top segment of books to incorporate into their offering instead of being part of the book store environment. I am not sure blue sky awaits Borders.

David Dorf
Guest
10 years 3 months ago

Borders stands as good a chance as Musicland and Blockbuster. Consumers have left their business model in the dust, and Borders was too slow to change. At least Barnes & Noble released the Nook to help stay afloat.

Don’t confuse the demise of Borders with the downfall of book stores. There’s still plenty of room for independent dealers as many consumers still prefer the experience of physical books. But there’s not enough room in the market for Amazon, B&N, BAM, and Borders.

Steve Montgomery
Guest
10 years 3 months ago

I agree with those who commented before above that the book market as we know it will continue to undergo change. One of the two key elements of that change is the consolidation of the mega book stores. The cost to maintain all the elements that go into this approach to book retailing are simply too high for the demand for physical books. I, like many of the commentors, expect that only Barnes and Noble or Borders will survive. Internet providers like Amazon will continue to be a significant factor in the sale of physical books.

The other is the much written about movement to e-books. I like reading physical books, but also have a Nook. Why both approaches? Books like Stephen King’s “Under the Dome” and Clancy’s “Dead or Alive” are simply too heavy to schlep around when traveling. Will I stop buying physical books – no but I will likely continue to split my purchases between Amazon and whoever survives the book wars.

W. Frank Dell II, CMC
Guest
10 years 3 months ago

Border’s is just Blockbuster 2. First there was radio followed by television that filled consumers’ time rather than reading books. Now we have the internet and computer games occupying consumers. Couple this with the shift from paper to digital books and you have to ask the question of what do we need stores for? The number of record or CD stores is down to a fringe. Same is happening with DVD being on-demand so there is no need for a store. The only way I would buy a paper book in the future is if it was not available in digital form. Borders will come out of bankruptcy only to have a slow painful decline.

Ryan Mathews
Guest
10 years 3 months ago
It’s hard to see a rosy future for Borders. In some ways this is a result of a legacy of years and years of bad decisions. Borders was late (and ineffective) in developing an independent online presence. It was too late into the e-reader game. At some point somebody at Borders’ headquarters decided that there was no future in selling music so it stripped its selection down (but tellingly didn’t cut it out) and removed all but one listening station in a move clearly designed to cut impulse purchases. At the same time the same thinkers chose to expand the DVD sections apparently thinking that films won’t eventually follow music. And to top it off, Borders made the rookie retail mistake of filling “extra space” with cheap impulse items like flocked Virgin Mary coin banks and wind-up nuns making it look like a dollar store that had hired Salvador Dali as a merchandiser. Then there was the onslaught of remainder books making it difficult for a customer to tell if they were in a Borders… Read more »
Bill Emerson
Guest
Bill Emerson
10 years 3 months ago

Chapter 11 will allow Borders to create a temporarily more profitable entity by closing unprofitable stores. The issue is that, with the explosive growth of e-readers, the format is no longer viable, at least not on a national scale. The notion that, once trimmed down, they will become attractive to B&N is fanciful. B&N is researching the charmingly euphemistic “strategic financing alternatives,” code for “things are really grim.”

Losers are the employees and stock-holders at Borders along with the publishing industry as it loses a huge, if shrinking, outlet. Winners are the local independent book stores, who will service a shrinking audience in their local communities along with the distributors of e-readers.

Bill Bittner
Guest
Bill Bittner
10 years 3 months ago
I am not that familiar with the Borders financial condition but I have been following the A&P bankruptcy with some interest. On the surface there seems to be one major difference but many similarities. The major difference is that the book industry is far ahead of grocery retail in the move to “virtual retail.” While books, audio, and video are all now easily distributed (and pirated) over the Internet, no one has yet figured out how send a quart of milk over the cloud. So Borders is dealing with a huge transformation of their basic operating model. Whether the “train has already left the station” is yet to be seen. On the other hand, the similarities with A&P are many. Old leases, old senior employee compensation contracts, and various other obligations (I finally cashed an old Borders gift card last Saturday) are weighing on current earnings. When you remove these and the locations that were still operating but apparently not profitable (the 194 selected to close), short term expectations can only be positive. While I… Read more »
Charles P. Walsh
Guest
Charles P. Walsh
10 years 3 months ago

This story has a familiar ring to it…I honestly cannot foresee an end much different to those suffered by other second tier chains in a highly competitive low margin market (Circuit City) or by chains whose products/services were headed towards obsolescence as new distribution channels and technology emerged (Blockbuster, Tower Records).

I can’t imagine a world today where there is room for a “smaller, healthier” Borders and a Barnes & Noble. In fact in the long run as technology in the form of streaming data (movies and books) becomes more readily available and usable (book readers, iPads) it brings to question the viability of brick and mortar operations in this category killer market segment in total.

Kevin Graff
Guest
10 years 3 months ago

Closing 20% or 30% of their stores is just the tip of the iceberg, I believe. We’ll see more and more book stores close up shop in the next few years, both big format and independents. Technology is changing the entire category of book selling. I don’t believe that all book stores will close. However, the ones that do remain will have to be outstanding. So, whether your Borders, B&N, Chapters, Indigo, or a single shop independent, you better ‘get changing’ fast to convince the customer that coming to your store is fun, interesting and worthwhile that it beats the convenience of sitting on the coach and downloading my next book.

Gene Detroyer
Guest
10 years 3 months ago
Borders is DONE! Barnes & Nobel as we know it is DONE! The business model no longer works. What is most surprising is that people are surprised. While everybody talked about how nice it is to hold a book, they were buying eBooks. While everyone was talking about how nice it is to browse, they were ordering online. The real surprise is that someone is going to finance a reorganization rather than let these guys go directly into Chapter 7, which is closely around the corner is any case. But there is a flicker of a light in this story. In the last 3 years, B&N has closed 3 stores in Manhattan. Borders will now close 3. In the same timeframe, 12 small, independent bookstores have opened. Of course, those 12 new retailers may account for 5% or less of the square footage of that which is closing, but they have a reason for being. They are niche retailers that offer consumers a reason to go to a store. (I take my granddaughter to one… Read more »
Daniel Goldin
Guest
10 years 3 months ago

I’m not sure whether B&N wants another square inch of selling space. And some of the best locations, like the University Avenue store on Madison’s west side, are closing. It’s not about how good the store location, it’s whether the store is making or losing money. I think there are very few “A” Borders stores left where there wasn’t a nearby B&N to pick up the lost sales.

Rick Myers
Guest
Rick Myers
10 years 3 months ago

It might exist, but something I have not seen yet is a book-of-the-week or month club type concept for mobile apps and readers. The winner in this race I think will be the one who can deliver mobile formats in an easy way at a smart price.

I love the idea of an e-reader. Books are outmoded and outdated. Newspapers, magazines, books will not exist 20 years from now. A whole library of books can be fit on one device. Where is the encyclopedia today? On our computers. You don’t need bricks and mortar to sell books today.

Brian Kelly
Guest
10 years 3 months ago

Will the sequel to “You’ve Got Mail” be produced?

Shopgirl and NY152 battling on the upper West Side as the category killer does in the mother/daughter children’s book store, yeah, that one.

Now Meg walks past the shuttered Foxes Books, reopens The Shop Around the Corner in her old space (Gap didn’t stick), and what was old is now new again.

Meg’s VC husband, Joe, tries to sort out how to scale a 3,000 square foot specialty book business into a national chain….

Fairy tales, who needs ’em.

Or as we like to say, retail ain’t for sissies.”

David Livingston
Guest
10 years 3 months ago

Ditto Gene Detroyer. Modern technology is changing the way buy books and music. To me the biggest winner is the public library. I go there for books, music, and movies. AND IT’S FREE!!! Why would I ever go to a bookstore?

Craig Sundstrom
Guest
10 years 3 months ago

The comments in my local papers after this story broke yesterday–aside from the “where is the closing list?”: kudos to the Journal and the Trib, thumbs down for the Chron–could be divided into three groups: the hopeful, the delusional, and the pessimistic (or as they would call themselves “realistic”); the first hoped this COULD mean the return of independent booksellers, the second thought it WOULD, and the last said “no chance…it’s e-books and Amazon, et al. for the real thing from now on.” Generally left unsaid was the fourth (aka “Doomsday”) scenario: reading is dying altogether, and even ebooks may not make it. Geoffrey the Giraffe may be smiling right now, but Gutenberg’s Ghost looks glum.

Mark Burr
Guest
10 years 3 months ago

Borders Books. Who?

The biggest retailer to benefit is one that we haven’t heard of yet.

Larry Negrich
Guest
10 years 3 months ago

You can buy almost anything online these days. So, why aren’t all brick and mortar retailers irrelevant? Because profitable retailers in all sectors have been able to create an environment and an experience that the consumer desires. Coffee, alcoholic beverages, dolls, etc. can all be purchased online or made at home. Yet, people continue to frequent successful retailers that sell each of these products.

Borders (and other brick and mortar retailers) need to find their profitable model. And the book industry would be wise to assist retailers of all kinds/formats to make sure that their sole distribution channel does not become the public library. And remember, the library is not free as it is subsidized by all of us.

Donna Brockway
Guest
Donna Brockway
10 years 3 months ago

I think the words of their senior executives give great insight into what comes next for Borders–probably a merger or buy-out by Barnes & Noble. They have not shown, nor are they displaying in their announcements the past few days, any inkling that they realize the enormity of becoming relevant again as retailers–and the world doesn’t need them as booksellers. If ever there was a time for inventive, futuristic strategic thinking, this would be it. But it’s difficult for them to see clearly amidst the daily struggle of financial balancing. And I don’t see small book stores getting any long-term benefits from this–they are in the same “relevance” quandary, and need to be creating their own “reinvention.” I love books, but I don’t see much need for massive book retailers in the future.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 3 months ago

Best Buy or Circuit City? Bed, Bath & Beyond or Linens ‘N Things? Barnes & Noble or Borders?

For all the conversation about Borders’ slow response to technological change, and the impact of technological change on bookselling, at the risk of over-simplifying it comes down to the fact that Borders’ stores weren’t as compelling or appealing as B&N’s stores. The same fate befell Circuit City and Linens ‘N Things.

Frankly, I don’t expect Borders management to suddenly come up the the formula that will return them to relevancy. They had the opportunity over the last dozen years or so, and couldn’t make it happen then. I suspect the tide will completely run out on them before too long.

Ed Rosenbaum
Guest
10 years 3 months ago

There certainly is a difference between what could have been and what is in reality. Border’s could have remained a player. But they never stayed current with changes in the industry. I doubt coming out of bankruptcy will make a major difference. The industry is going to reduce in size, both players and numbers of locations. We are in a different era and Border’s sadly is a victim.

Joseph Peter
Guest
Joseph Peter
10 years 3 months ago

I knew it was going downhill when Borders employees were required to wear those ridiculous headsets…customers no longer heard announcements over the PA that someone was coming to help speed up the line “Assistance to the registers” was reserved for the headsets…and who knows if the employees even called for help through the headsets. The headsets were the nail in the coffin for the lack of customer service at Borders.

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