Borders Bookstores to Liquidate

[GrandMasterTerwynn]

Borders, one of the mega-chain bookstores that helped eviscerate the mom-and-pop bookstore as a viable business model has itself become a victim of the times.

* Borders cancels auction, will liquidate

* Could not find buyer after sale deal fell apart

* Process will close 400 stores, cost 11,000 jobs (Adds detail on liquidation process)

By Nick Brown

NEW YORK, July 18 (Reuters) - Borders Group Inc (BGPIQ.PK), the second-largest U.S. bookstore chain, said it has canceled an upcoming bankruptcy auction and will close its doors for good.

The company said in a statement Monday it was unable to find a buyer willing to keep it in operation and will sell itself to a group of liquidators led by Hilco Merchant Resources.

Borders' roughly 400 remaining stores will close, and nearly 11,000 jobs will be lost, according to the company.

"We are saddened by this development," Borders President Mike Edwards said in the statement. "We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time ... have brought us to where we are now."

Borders was unable to overcome competition from larger rival Barnes & Noble Inc (BKS.N) and from Amazon.com Inc (AMZN.O), which began to dominate book retail when the industry shifted largely online. Borders, for which online sales represented only a small fraction of revenue, never caught up to its rivals' e-reader sales, namely Amazon's Kindle and Barnes & Noble's Nook.

Borders had hoped to sell itself to buyout firm Najafi Cos, which owns the Book-of-the-Month Club. While Najafi was willing to pay $215 million in cash and take on another $220 million in liabilities to acquire the assets, the deal fell apart last week after creditors objected to terms that would have allowed Najafi to liquidate after completing the sale.

Earlier Monday, Reuters reported that Books-A-Million Inc (BAMM.O), the nation's third-largest bookstore chain, was in talks to acquire a small number of Borders stores, citing sources close to Borders' bankruptcy. Representatives for Borders did not address the report when contacted by Reuters, and the company's statement did not say whether formal talks had taken place.

A CHANGING INDUSTRY

Founded in 1971 by Tom and Louis Borders in Ann Arbor, Michigan, Borders had just 21 stores when it was purchased in 1992 by Kmart. By 1997, its store count had ballooned to 203, and the company was setting its sights even higher with plans to expand to 1,000 locations.

But a money-losing e-commerce website and mounting competition from online retailers forced Borders to try unsuccessfully to sell itself in 2008.

The company finally declared bankruptcy in February 2011 after delaying payments to landlords and publishers. It conducted going-out-of-business sales at about 200 of the 642 stores it operated prior to bankruptcy.

While competitors responded to consumers' growing preference for online business and electronic device-based entertainment, Borders remained mainly a brick-and-mortar operation.

"They were like the dinosaur that saw the ice coming but didn't think it was going to hit them," Schuyler Carroll, a bankruptcy attorney at Perkins Coie LLP, told Reuters Monday.

The Hilco group, which also includes Gordon Brothers Retail Partners, SB Capital Group, Tiger Capital Group and Great American Group, will begin liquidations as early as Friday, with the process to conclude sometime in September, Borders said. The bookseller will seek bankruptcy court approval of the closing procedures at a hearing Thursday in U.S. bankruptcy court in Manhattan.

Andrew Glenn, an attorney for Borders, told Reuters last week the company expected a liquidation sale to bring in between $250 million and $284 million.

DJM Realty, a unit of Gordon Brothers, will be in charge of the management and disposition of the 259 Borders leases that remain available for assignment.

"It is not every day a portfolio becomes available" with real estate as desirable as Borders, DJM said in a statement Monday. The properties should draw strong interest given the lack of real estate development and barriers to entry in key markets, DJM said.

PROBLEMS WIDESPREAD

For all its innovations on the digital side, Borders' main retail competitor, Barnes & Noble, remains in its own difficult straits, Carroll said.

The company put itself up for sale in August amid years of declining print book sales, saying its shares were undervalued. It is examining a $1 billion takeover offer made in May by John Malone's Liberty Media Corp (LINTA.O).

David Strasser, an analyst at Janney Capital Markets, said liquidating Borders could make Barnes & Noble more valuable.

"This is perhaps an opportunity for a higher negotiated bid via Liberty or an entrance of another bidder," Strasser said last week in a note to clients.

But Carroll isn't so sure.

"Barnes & Noble is having its own problems," Carroll said. "I don't think one less store down the street is going to solve them."

Barnes & Noble was thought to be interested in buying a handful of Borders stores after Glenn said at a hearing last week that the company had voiced some interest in select Borders locations.

Barnes & Noble CEO William Lynch said in February that certain Borders stores appeared attractive to the company, which operates more than 700 stores.

Borders' statement did not address whether Barnes & Noble had made an offer, and a Barnes & Noble spokeswoman declined to comment.

OUT OF A JOB

Edwards extended a "heartfelt thanks" to his employees in Monday's statement, saying he was "proud" of the role they've played in the lives of consumers.

Carroll said the most significant loss associated with Borders' closing is that of jobs.

"It's one more knife in an economy that really doesn't need that," he said. "And for people who may be living on the edge right now and may not be able to quickly find a new job, they may not do very well."

The case is In re Borders Group Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-10614. (Editing by Bernard Orr and Steve Orlofsky)

So the second-largest physical bookstore chain in the US is liquidating and closing shop for good. Some would say that the company's fate was sealed the day they were forced to declare bankruptcy. The company was deeply in debt, and continued to hemorrhage cash even after they liquidated some 60% of their stores. Unlike Barnes and Noble, they failed to catch and surf the digital wave, and were left behind. Some will probably celebrate the passing of Borders as a well-earned case of schadenfreude. Others will lament the fact that now the only physical bookstore you'll be likely to find (if you don't know where the local niche bookstores are) is goddamn Barnes and Noble. Still others will go "LOLWUT??? You mean you have to leave your comfy armchair to order books?" or "Books? Don't you know those things are hazardous to your health? I mean . . . think of the paper cuts! The sooner it all goes to Kindles and Nooks, the happier I'll be!"

Thoughts?

[Imperial528]

It's kinda sad for me.

I wasn't attached to the store or anything, but it's just another sign among many that points to an era where the majority of major book prints will be digital rather than physical.

Now, I don't have a problem with digitalisation, and I think in many areas *cough*paperwork*cough* it could happen a lot faster a lot sooner, but I'll always have a soft spot for good old bound paper books. I've read eBooks before, and I'm fine reading stories on a computer. For me, though, it's not the same feeling as sitting down and reading a physical book. A shelf full of books is more palatable to me than a whole file library of eBooks.

Christ, I'm not even out of high school yet, and I feel old. Rapid advances in technology and its application do that to you, am I right?

[Stofsk]

Thoughts?

I couldn't care less that borders has closed down, but I feel bad for all the people who'll be unemployed now.

[Guardsman Bass]

Although I feel bad for the 11,000 people losing their jobs, Borders was doomed. They not only missed out on the online and e-book revolution, but they actually helped their main competitor in that area (Amazon) by agreeing to let Amazon do all their online order fulfillment in exchange for a 10-20% cut on each order. On top of that, they spent a gigantic amount of capital expanding like crazy, and got stuck with a lot of marginal and unprofitable locations in the past couple of years.

It was probably inevitable. We've seen the same thing happen to records and DVD superstores, as well as the major video rental chains (Hollywood Video is gone, and Blockbuster got swallowed by Dish Network). Personally, I'm not that sad. I love e-books, and almost all of the books I buy are e-books now (the only two hardcover books I've bought in the past six months were White Luck Warrior and A Dance with Dragons). I get virtually all of the hard copy books that I still read from the library system here (which is also where I do browsing).

The indie bookstores around here have been dead for well over a decade. I haven't seen one within miles of my house since I was in Junior High School.

[Simon_Jester]

I honestly prefer paper books and am not looking forward to a future where people stop printing them for lack of demand.

[Gandalf]

Based on the crazy markups they used on things like the weak range of DVDs, it was only a matter of time before they either went under or had to restructure massively.

On the upside, during a closing 80% off sale, I managed to clean up.

[Sea Skimmer]

I still see some used bookstores around. Borders lost my interest when they neutered the history section, and went from being completely first rate to nothing but the most simplistic histories and a bunch of Nazi SS uberwaffen crapbooks. That process began a long while back, but I remember just walking in one day a couple years ago and finding a bunch of the shelf space had been shifted to other stuff. Actually around the same time it looked like they had outright downscaled the number of shelves a good deal, and rearranged the store nearest me in a less then logical manner. I also became annoyed when the book finding computers progressively broke down and never got repaired, and also simply never gave you very precise location information which made finding a book frustrating.

Now that services like Google books exist which allow previews of lots of works, and I can only expect that to expand, the physical bookstore is really loosing any possible niche.

[Tanasinn]

I honestly prefer paper books and am not looking forward to a future where people stop printing them for lack of demand.

This.

I hate Barnes & Noble. It seems like fully a quarter of their floor space is dedicated to the stupid fucking coffee shop.

[Fingolfin_Noldor]

Based on the crazy markups they used on things like the weak range of DVDs, it was only a matter of time before they either went under or had to restructure massively.

On the upside, during a closing 80% off sale, I managed to clean up.

Just in case you didn't know, the Australian Borders <> American Borders.

[Gandalf]

What does "<>" mean?

[Fingolfin_Noldor]

What does "<>" mean?

Not Equal.

THe Australian Borders is run as a franchise and the American company has absolutely no say in its operations.

[Gandalf]

Ah, my bad. I thought they were more unified as an organisation.

[eion]

As a former bookslave at both Borders and B&N (totaling about 6 years experience) I can't say I'm suprised. This has been a LONG time coming. We inside suspected that Borders was in for a long downward spiral when they decided it was better to have Amazon run the website then create one of their own. Our fears were confirmed each time we saw the corporate office cling onto the physical music and movie business and refuse to create their own E-reader. Borders consistently fell behind the learning curve of the book industry and the blame rests squarely with their consistently myopic and overcompensated executives.

I feel very sad for all my friends who still work at Borders (for the time being), and shall be urging each of them to submit a resume to my employer or to people I know.

And now that B&N is left (deservedly so) in control of the brick & morter book business I suspect they will face increased competetion from other retailers and online, and now they'll have no one for their customers to compare them to. I don't much like their future either, but they have a much more long term strategy, and have been buying up lots of small publishers and their catalogs to add to their inventory, so their future is much brighter.

Thank god I got out over a year ago and have had time to settle into my new career.

[Ahriman238]

The local Borders was closed more than six months ago, leaving us with a Barnes and Noble and a tiny sort of hole in a wall filled end to end with paperback dime novels.

I too, will be upset when I can't get a physical paper book anywhere.

[Kingmaker]

I doubt that physical books are ever going to disappear. There's going to be too much demand from book collectors and people who just like paper instead of bits. What will happen is that you're going to start paying a premium for the privilege of a hard copy, and I wouldn't be surprised to see mass-market paperbacks fade out as a binding format (if I'm pay $18 for a book, I sure as shit don't want some crappy mass-market binding job). Also, say goodbye to browsing the stacks.

edit: Never is a long time. Ink and paper will stick around for the near future, at least.

[Darmalus]

I wouldn't worry about the death of the printed book. I imagine that eventually you will be able to tell Amazon or some other online retailer to print and bind the book instead of sending you an e-book. Sure, it will no doubt be more expensive, being printed on demand and all, but you'll probably be able to customize it. It's a definite market niche and someone will exploit it.

[The Romulan Republic]

Eh, the bookstores in Toronto still seem to be doing decent business. There are lots of them around here, though the big chain here is Chapters/Indigo or whatever.

I certainly hope bookstores don't die out.

[Ralin]

I'm actually sitting in a Borders right now. A reporter stopped me on the way in to ask for reactions to their imminent closing. It was the first I'd heard of it.

I've shifted most of my book purchases to the Kindle, so really the only difference it makes to me is that now Starbucks will be my main Internet hangout for the rest of the summer. Pity, because Borders sold Diet Coke and Starbucks doesn't. And I hate coffee.

[Stark]

Why anyone would draw a link between 'Borders has uncompetitive practices' and 'omg end of printed media' is beyond me, but I guess people who can't change their habits or are afraid of new things ARE often also dumb as shit. Protip - I haven't bought a book, physical or otherwise, in a shop in so long I can't remember it. End of print, or end of amazing markup and logistical bottlenecks?

In Australia, Borders wasn't just destroyed by changing markets; when they eventually caught on and tried to compete online, they managed to eat into their own physical business - and if a store didn't have what you wanted, they'd give you a 10% discount to buy it on their online store! When you can deliver shit from the other side of the world in two days at maybe half the price a shop is charging, the shops are going to fail. Sadly, this is around the time publishers are starting to move their price-fixing bullshit in electronic book sales as well, so they learned nothing.

Neither physical books or physical publishers are in any fundamental danger, and anyone who thinks they are just because Borders went out of business is a grade A fuckwit.

[folti78]

I wouldn't worry about the death of the printed book. I imagine that eventually you will be able to tell Amazon or some other online retailer to print and bind the book instead of sending you an e-book. Sure, it will no doubt be more expensive, being printed on demand and all, but you'll probably be able to customize it. It's a definite market niche and someone will exploit it.

You rang? They are in the business since 2002.

[Tsyroc]

I used to have discount cards for B. Dalton Bookseller and Waldenbooks for a long time. At Waldenbooks I had their Other World discount card back in the 80s and switched to the preferred reader card in the late 80s and kept it for nearly 20 years. Then Borders decided they were going to switch their preferred reader thing to a different format with a new card. Soon after that Waldenbooks was gone and I had to go to Borders instead. I initially didn't mind all that much since Borders had a larger selection and lots of TPBs that I liked to peruse and buy. The problem I had was the stupid preferred reader program. I might have messed it up when setting up my account but I would get reports that I had a bunch of points but then I'd be at the store and I wouldn't have any points or I wouldn't be allowed to use them at that time. I just got sick of it and switch to using Amazon.

Since I work nights it is much easier for me to buy things via Amazon than it is to make trips out to stores which may or may not have what I'm looking for. I liked Borders until they irritated me with that program. I had been trying to support local businesses and it just became to annoying to do so when it came to purchasing books. When I switched to buying books online it also meant that I switched to mostly buying DVDs online so Borders also helped hurt my local Best Buy.

The Borders nearest to me has a coffee shop in it just like Barnes & Noble. It might have more floor spaced devoted to merchandise though. At one time they had very extended hours. Opening early and staying open until 0100 on some nights. I even saw a band playing live in the store once. If they had kept their extended hours and not jerked me around with the preferred reader program I might have kept shopping there on a regular basis.

It's hard to believe that the mall nearest to me used to have two chain bookstores in it and a big Borders a couple of blocks down the street.

[JME2]

Well, B&N has horrible discounts, so I'll be sticking to used bookstores these days.

[Lonestar]

I'm actually sitting in a Borders right now. A reporter stopped me on the way in to ask for reactions to their imminent closing. It was the first I'd heard of it.

I've shifted most of my book purchases to the Kindle, so really the only difference it makes to me is that now Starbucks will be my main Internet hangout for the rest of the summer. Pity, because Borders sold Diet Coke and Starbucks doesn't. And I hate coffee.

Is this your way of saying "I'll have to find somewhere else to get my free internet"?

[Bob the Gunslinger]

I worked at Borders for 5 years and got out just as things started getting really bad. Before management started going batshit insane, the store was an amazing place to work. The strength of the book store, besides the tactile experience and row upon row of shelves to browse, was that informed employees and customers could discuss literature and expand each others' reading universes. Talking about books, I found many new authors in every genre that I never would have clicked on on Amazon. I also got to meet a lot of the authors themselves and interact with some publishers, too, which was pretty educational.

Unfortunately, a lot of my friends weren't able to get out yet, and this news has hit them hard.

I'll miss Borders as it was when I was hired, but I won't mourn at all for the monster it became.

[Guardsman Bass]

I worked at Borders for 5 years and got out just as things started getting really bad. Before management started going batshit insane, the store was an amazing place to work.

I'd be curious to hear about how management fucked up over there. What I've heard about Borders (including the "over-expansion" bit) was from a former Borders manager on another forum plus the news. The guy also mentioned a number of other things, like how over-use of coupons helped drive up traffic but severely hurt their profit margins in 2009-2010.