Borders in Bankruptcy, Shuts Down 200 Stores: What's Next
It's official: Borders (BGP) filed for Chapter 11 bankruptcy protection for a whopping total debt of $1.29 billion owed to such publishing giants as Random House and Simon & Schuster (CBS). Now the Ann Arbor-based chain must determine if it will restructure its debts and keep trucking with assumed assets of $1.275 billion or liquidate and close up shop for good.
It's likely that Borders execs aren't quite ready to call it quits. Sure the bankruptcy is prompting store closures and lay-offs in efforts to cut costs. The company says it's identified underperforming locations and plans to shut 30 percent of its national store network in the next several weeks. Sans 200 locations and with commitments for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital, Borders touts its "strengths upon which to build a solid plan of reorganization and implement a new business model to address the changing needs of the American reader."
With respect to the challenges of bookselling a rapidly changing industry, Borders has shown time and again it's not really capable of keeping up with the Joneses â€" ie: Barnes & Noble (BKS) and Amazon (AMZN). For instance, both retailers beat Borders to the e-reader punch. When Borders Kobo reader launched at a significantly lower price point, rather than set fire to the competition it simply fizzled under the burden of its lack of 3G or WiFi (think you have to plug it into your computer to complete the digital download). And by the time it finally flipped the switch on its new Kobo e-commerce shop, B&N and Amazon were ringing up record sales.
This was just one of the more recent flubs in a decade-long series of missteps that's kept Borders squarely in the number three spot among the top booksellers. And while Borders sales represent 8.5 percent of dollars spent on books in the third quarter, according to Bowker's PubTrack service, it may not be enough to save the company from shutting down. The WSJ reports that bankers and lawyers who specialize in restructurings say Borders' predicament smacks of what happened to Circuit City which closed for good in early 2009.
Unfortunately that may be Borders best option. Though it's sad to see a bookstore -- any bookstore --close its doors, it's important to remember the crushing weight that's pressing on Borders.
- The company's corporate value, based on stock price of around $29 million, is close to its historic low -and down from $663 million three years earlier.
- Nearly all the executive team is gone and less than half of its workforce still on the books.
- Its real estate footprint remained unchanged as Borders hit the skids. All Borders stores are leased â€" and as of this time last year the average unexpired term was about eight years. 369 stores have leases that won't expire for at least another six years. This cost Borders $562 million last year. Bankruptcy will allow them to break the leases, but that just creates a domino effect for landlords like General Growth which just emerged from Chapter 11 itself.
- The top 30 unsecured creditors listed in the bankruptcy filing are a mix of major book publishers and distributors which Borders owes about $230 million.
- The company's major shareholder William Ackman publicly calls himself a "stuck holder." The billionaire hedge fund manager made a last-ditch effort to rescue his equity investment back with a $960 million bid to bring Borders and B&N under the same roof. But that deal died before it got off the table.
Borders execs bought themselves some time with Chapter 11 but it may be time to close the book on this enterprise and start thinking of a whole new business model that can cope with the changes in the industry.
Image via Flickr user Anya CC 2.0
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