What’s The Matter With Borders

There has been a lot of talk in the publishing trade and in the financial pages of the major media about the future of Borders Books and Music. Borders is the second largest bricks and mortar bookseller (after Barnes & Noble). There is a very good article by Pete Osnos, publisher of Public Affairs Books, in the January Atlantic Monthly.

It looks like Borders is very close to filing for bankruptcy. Their sales have been declining in double digits for several years. Their stores are down to 674 from 877 last year and many more scheduled to close in the next few months.

After Christmas, Borders announced that it was “temporarily” suspending payment to publishers on the $455,000,000 that they currently owe. This is a staggering amount of money that is at risk to publishers who are suffering their own financial problems in a weak economy.  Borders has been meeting with the publishers in New York promising financial “restructuring” and making rosy predictions that they have made many times before. They have asked the publishers to convert their Borders receivables into loans to the company. Publishers are obviously reluctant to do this. A loan to a bankrupt company is a worthless asset. Border’s is begging publishers to restore credit to them and to make concessions to help the company stay in business (and presumably to protect the publishers’ receivables). Barnes and Noble, who is understandably less troubled by Border’s financial problems, has stated that any special terms granted to Borders by publishers must also be granted to them and to independent stores as well.

Borders still accounts for 8.5% of all trade books sold. Barnes and Noble and Amazon are both  about  17%.  So the uncertainty of Borders future is becoming a logistical, as well as a financial, nightmare. Publishers are having difficulty scheduling author appearances and planning for in- store promotions without knowing the future of the chain.

The story of Borders has elements of a Greek tragedy but partakes of a fair amount of farce as well. Borders originated as an independent store in Ann Arbor, Michigan. It was a lot like Cody’s. In the 1980s, it developed a sophisticated inventory control system. In 1991, Borders was bought by the mass merchant, K-Mart. They began following the lead of Barnes and Noble opening 40,000 square feet superstores throughout the country.

At that time Borders seemed like the class act. They had a real book culture. Barnes and Noble seemed more like they were treating books like merchandise.  But as the years wore on, things changed. Borders brought in a lot of grocery store executives who brought their (how shall we say) unique vision to the company. As Barnes and Noble became a more robust business, Borders lost its way. They started  going heavily in music cd’s  not long before  music started being downloadable. They treated Internet bookselling as an afterthought. And now their Internet site is run by Amazon, their chief competitor, in what must be one of the most bizarre relationships in the history of modern retailing.

Meanwhile, Borders isn’t paying its bills. Publishers are not shipping books, and the shelves of the giant Borders superstores are starting to look threadbare. It’s a downward spiral difficult to turn around.

If Border’s closes, there will be some opportunities for Barnes and Noble and Amazon to pick up a portion of the business and significant relief from competitive pressure for some independent stores.  But it is going to be a heavy financial hit for publishers of all sizes, and how it will all play out in the world of books is anybody’s guess.

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