Borders' Vendor-Payment Accusations the Least of Its Problems

Last Updated Jan 26, 2010 7:40 AM EST

Bookseller Borders Group (BGP) disputed a recent report originally in the publication Debtwire that asserted the retailer pays its smaller vendors later than its larger ones. The article, which reportedly interviewed six suppliers, said that it is taking Borders 40 percent longer to pay for goods during the year ended Oct. 31 than it did during the prior 12 months.

Borders vehemently denied the report, saying it "has continued to pay its vendors in a timely manner, has not lengthened its days to pay and has not been contacted by a group of publishers as alleged." And to the retailer's credit, law firm Lowenstein Sandler denied, as stated in the Debtwire article, that it is representing a group of small publishers.

Accurate or inaccurate, the company's problems are likely bigger than this issue. Borders just released dismal holiday season financials, reporting that sales a its superstores open at least a year plummeted 14.6 percent. By contrast, main competitor Barnes & Noble (BKS), while not hitting a home run during the holidays with a 5.4 percent same-store-sales drop, fared considerably better.

The bad holidays followed some rough financial periods. Borders lost $39 million during its third quarter, the same amount it lost in the third quarter of 2008, and same-store sales declined by 12.1 percent. Unfortunately during the conference call for that period, CEO Ron Marshall said: "Borders is better positioned now than we have been in recent years for this holiday selling season."

Motley Fool columnist Alyce Lomax compared to Borders to Circuit City and said it will have a lot of trouble competing with the likes of Barnes, Amazon.com (AMZN) and Apple (AAPL) and their colliding e-readers. "As far as I can tell, Borders has its hands full simply trying to survive, let along orchestrate a competitive counterattack," Lomax wrote.

There aren't as many store closings on the horizon this year as there were in 2009. The industry can only hope that Borders won't end up as the exception.