The Borders Collapse: What Does It Mean?

 

There is a lot of new information about the Borders bankruptcy. Check out this story in Publishers Lunch. Here are some highlights:

  • Borders CFO Scott Henry reiterated that ” Borders aims to stay viable by enhancing its customer rewards program, strengthening its e-book business and expanding more into non-book products.” (Borders has been intoning this for several years in order to explain their strategy for a turn-around. At this point, no one in the industry is buying it. It was a failed strategy before and is no more likely to succeed today.)

 

  • Most publishers aren’t talking, but rumor is that most of the majors won’t be shipping books  to Borders even on a cash with order basis. Borders has been buying books from the distributor, Ingram Book Company, but one can only guess at the stringent credit requirements that Ingram is imposing.

 

  • In their filings, Borders has claimed an option to close an additional 76 – 136 stores on top of the 200 that were announced (and posted on Scribd) this morning.

 

There are still a lot of questions worth considering as Borders’ bankruptcy progresses. To what extent will Borders’ sales migrate to online booksellers, to Barnes and Noble, to big box merchants,  and to independent stores. I have spoken to several independent booksellers  located near Borders. They seem to think that this will give them a new lease on life.

Probably the more important question is whether Borders’ Chapter 11 filing for reorganization will fail  and cause the company to file a Chapter 7 bankruptcy that will govern the liquidation of the remainder of the company.  Bankruptcy lawyers will tell you that many  of these efforts to reorganize fail, because suppliers are unwilling to risk working with the reorganized company. This certainly seems to be the case with book publishers at this time.

And finally one must ask how many book sales lost by Borders will simply disappear? As the Publishers Lunch article says, conventional wisdom is that 50% of sales will migrate to other venues, while 50% will be lost. However a back-of–the-envelope analysis of book sales since the beginning of the year would indicate that the impact of Borders’ closings will be less dramatic.

There already is a lot of Monday morning quarterbacking trying to explain the Borders collapse. In my opinion, the answer is pretty simple. Borders was the victim of changing buying habits by book customers. The growth of online bookselling has been hurting brick and mortar store sales for years now. E-book sales  have increased exponentially this year to the point where they constitute about 10% of trade book sales. Borders has failed to adopt to this new environment and was not in a position to exploit the e-book phenomenon. Their web presence is weak. For some time, they had even allowed Amazon.com to manage their website! Finally the economy has hit all retailers including booksellers very hard. Borders was already in a weak position going into the Great Recession. And the downturn for them has been devastating.

All of this added to a long list  of foolish management decisions over the years  has made Borders the sick man of the book business.  It is too bad. When Borders first began expanding 20 years ago, they were considered a class act, a company much more attuned to the culture of books than Barnes and Noble.  Ultimately this changed, and has not been the case for a long time.

To be sure,  Barnes and Noble is struggling with many of the same stresses as Borders, but they seem to be more successful at adopting to the changes going on in the book business. At least for now. Borders had a reputation of overpaying for leases. (When I was planning my bookstore in the Union Square district, my real estate agent told me that the nearby Borders on Post Street was paying rent in excess of $1,500,000 per year.  That store is scheduled to close). Barnes and Noble has announced that they are going to be reducing the square footage  devoted to books in their stores and selling more sideline items. But they, too, have been closing underperforming stores. B&N early on has focused much more on Internet sales, believing that this was the future of bookselling. Barnesandnoble.com is second to Amazon in online book sales, but it is a distant second. Unlike Borders, Barnes and Noble has embraced e-books. Their e-book reader, The Nook, has gotten excellent reviews and accounted for the fact that this December Barnes and Noble had its best sales ever. However if you discount the sales of the Nook, the picture is not so rosy.

Ultimately the fall of Borders is linked to the seismic changes that are going on in book publishing now. How this will sort itself out in the future is unclear. But one thing that seems certain is that people are continuing to read books even if they exist in new formats and new packages. I guess this is the good news.

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3 Responses to “The Borders Collapse: What Does It Mean?”

  1. Debbie Maxwell Allen Says:

    Just wanted you to know how much I’ve enjoyed your blog. I featured it today on my own blog. Thank you very much!

    http://bit.ly/evySCc

    ~Debbie

    • andyrossagency Says:

      Debbie, thank you so much. I am glad you are enjoying the blog. It’s a lot of fun to do. I just checked out your blog as well and thanks for featuring me. Let me know if you need an agent.

  2. Debbie Maxwell Allen Says:

    You’re welcome Mr. Ross. I’m a fiction writer, so sadly I probably wouldn’t be a good fit for your agency. It’s fascinating to read your stories of so much time in the business. You’ve witnessed so much change in the industry–you’ll have to write a book about it!

    ~Debbie

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