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How B&N Kept Turning Pages While Borders Hit the Remainder Bin

Borders' (BGP) stock plummeted to 89 cents a share on news that it couldn't pay its suppliers this week. Right after that, Borders' CIO and its executive VP and general counsel resigned. Those left in the C-suite are now scrambling to restructure debt and determine whether to cut their losses and close shop for good.

That's a bitter pill for champions of traditional bookselling. No matter how this turns out, Borders as a brick-and-mortar entity is pretty much facing extinction â€"- especially as Barnes & Noble's (BKS) strategies continue to eke out gains.

Indeed, as noted by Publisher's Marketplace (subscription required), Borders is heavily in debt (over $445 million as of October 30) and its most valuable asset is the minority stake it owns in Kobo, the Canadian company that provides Borders with its e-reader software.

Pile on the fact that Borders' efforts to gain digital market share -- even a modest 17 percent -- have been diluted by a number of ad hoc initiatives to boost in-store sales. Remember the launch of in-store Build-a-Bear Craft Shops and pop-up shops amid massive layoffs and store closures?

Then, add a heavy dose of loose cannon investing courtesy of activist hedge-fund manager William Ackman. He owns a 37 percent stake in Borders and has pockets deep enough to purchase Barnes & Noble, but he's been all over the map in terms of his ability to work with existing management at his other holdings which include Target (TGT) and JCPenney (JCP).

Now sprinkle on the inevitability of suppliers cutting off shipments to Borders stores. Rowman & Littlefield Publishing Group, which publishes its own titles and distributes books for several hundred publishers through its National Book Network (NBN), has stopped sending stock. This comes more than a year after NBN warned its clients they were playing at their own risk if they wanted books distributed to Borders.

Borders' execs are meeting with a number of publishers this week to negotiate terms. Ingram, the Nashville-based distributor of many publishers' titles, will continue to keep Borders supplied with books. Perhaps its management believes that as long as the chain has books to sell it'll be more likely to pay its debts.

While the death knell may be ringing for Borders, B&N's future is looking a bit brighter. Comparable-store sales rose 9.7 percent for the nine weeks ending Jan. 1, and the chain posted record sales on Dec. 23. It's no surprise that the Nook e-reader is responsible for much of those brisk sales which represent the first holiday gains in five years.

Barnes & Noble's been investing wisely in its digital business since 2009 with a number of smaller initiatives alongside the introduction of Nook, its answer to Amazon's (AMZN) Kindle. Marketing and sales efforts for the Nook and e-books on include cashing in on Fictionwise's millions of e-book titles (and acquiring the company's experience and electronics), developing LendMe functionality for e-books, offering a Droid e-reading app, and launching PubIt!, a digital self-publishing platform.

B&N may have been rocked by the contentious battle waged between its chairman and majority stakeholder Len Riggio and activist investor Ron Burkle of The Yucaipa Cos. Proxy election results held at its annual shareholders' meeting nearly a month ago left Riggio in charge of steering the bookseller to a possible sale. But the retailer still boasts 717 shops and shows no sign of staggering into the bookselling sunset anytime soon.

Ironically, thanks to the sales figures and the juxtaposition with Borders' recent free-fall, Riggio's claim that B&N's stock is undervalued sounds much more believable. Not to mention attractive to a potential new owner/investor.

Image via Flickr user Anya CC 2.0


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