Borders' Death Knell: Chapter 11, 7, or Simply the Final Chapter

There are scads of reasons why Borders (BGP), the second largest bookstore chain in the country, may soon be nothing more than a memory. But there's one really big question to answer if that happens: who's going to pick up the business?

In case you haven't been following along at home, here's what's already transpired:

• Borders had five rounds of layoffs in 2010 and began the New Year with the departure of five top executives including the CIO and general counsel. It closed 200 shops and is also planning to shutter its Tennessee distribution center which means 300 more people will be out of jobs.
• Borders is heavily in debt (over $445 million as of Oct. 30) and some publishers have stopped shipping books altogether. Edward Champion, publishing professional and editor of Reluctant Habits, told NHPR that bestselling authors such Jodi Picoult had been informed by their publishers that Borders' financial problems would probably preclude them from making in-store appearances.
• Borders' execs (the ones that are left, anyway) are supposed to meet with a group of publishers today to determine how to proceed with outstanding payments. According to reports by Publishers Marketplace, some publishers remain optimistic about striking a deal while others are clamoring for the chain to declare bankruptcy so they'll at least have legal protection for recent shipments.

Here's the major implication:

Even with all its struggles over the past couple of years, Borders commands a sizable portion of the market. Borders sales represent 8.5 percent of dollars spent on books in the third quarter, according to Bowker's PubTrack service. For comparison, Barnes & Noble (BKS) rang up 17.4 percent. And Borders hangs in third place on many publishers' accounts lists, trailing behind B&N and Amazon (AMZN).

Sarah Weinman, news editor of Publishers Marketplace, tells NHPR that if Borders does go out of business, publishers will be scrambling to make up the shortfall. And it doesn't necessarily mean that all Borders sales will automatically (and neatly) be redistributed to B&N, the largest brick-and-mortar chain in the U.S. Furthermore, Weinman notes that B&N's heavy investment in digital doesn't exactly equip the bookseller to absorb existing Borders customers.

At this point, declaring Chapter 11 or filing a prepackaged bankruptcy would at least give Borders time to restructure its debt and soldier on for a little while longer. Without a top down overhaul of everything from its management to merchandising the remaining stores and a digital plan, though, it's not likely that Borders can survive in the long term.

No matter which way Borders plays it, competitors need to act quickly. B&N and independent booksellers need to craft a strategy to scoop those sales tout de suite. Honoring Borders loyalty programs and other similarly enticing promotions would be a start.

As for publishers, they may have to re-adjust their sales projections for this year. It wouldn't be the first time disaster's struck in this industry.

Image via Flickr user fsse8info CC 2.0

Related:

• How B&N Kept Turning Pages While Borders Hit the Remainder Bin
• Will B&N and Borders Merge?
• Will Selling Books at Walmart Hurt B&N?