Borders Group Inc. is expected to file for bankruptcy early this coming week – the result of declining annual revenues and mounting rent obligations as well as its struggle to catch up to the e-book business that is credited with keeping the publishing industry afloat.
Borders, which is based in Ann Arbor, Mich., is the third largest bookseller in the United States. According to the Wall Street Journal, Borders is turning to Chapter 11 bankruptcy protection after failing to get publishers to agree to a plan that would have restructured a debt that currently totals over $500 million.
The company released a statement on Jan. 27 saying it received a conditional refinancing commitment from GE Capital for $550 million, but the agreement required approval by Borders creditors.
Scheduled to take place either Monday or Tuesday, the bankruptcy will result in nearly 20,000 job losses and the closure of about one third of its 674 Borders and Waldenbooks stores.
The last few years have resulted in declining revenues for the company. Third quarter sales in 2010 reached $470.9 million – a 17.6 percent decrease from the same period the previous year. The company’s operating losses reached $74.4 million, nearly twice as much as the previous year.
In late 2009, the company shuttered 204 bookstores.
The company’s strategy has shifted from hardback and paperback books to e-books and toys. Digital book sales increased 93.5 percent in the third quarter of 2010, and toys and games grew 6.6 percent. But the company accounted for just 8.7 percent of regular book sales in 2010, down from 11.4 percent in 2006.
Borders originated as one of the original big box superstores that rewarded shoppers by offering thousands of book and music titles in a single location.
Despite leading the market in the 1990’s, the company was sidelined by the rise of Amazon and the shift in consumer habits that shifted from brick-and-mortar retailing to online. The company was late in catching up to the online demand, which is now evolving to include downloadable e-books designed for handheld devices like the Amazon Kindle and Apple’s iPad.
The Kindle in particular hurt retailers in that it has motivated Amazon to slash prices of leading titles as low as $9.99 in order to push sales of its device. Amazon reported in February 2010 that for every 10 physical books sold, it sells six of the same titles for the Kindle.
According to the Association of American Publishers, total sales of e-books jumped 366 percent between 2007 and 2009, an increase of nearly a quarter of a billion dollars. In the same time period, sales of adult hardback titles dropped 7 percent.
Restructuring expert Jim McTevia of McTevia & Associates, a financial consultant firm in Bingham Farms, Mich., told the Ann Arbor News that Borders may win new financing despite news of its pending bankruptcy.
“They could get the new financing and get the refinancing and probably be able to delay an insolvency,” Mr. McTevia said. “But on the other hand, in the final analysis, if the company is losing money, nobody is going to put any more money into the company in the form of a loan unless they have bankruptcy court priority protection of a lender.”
Analysts say that if Borders does file for bankruptcy this coming week, Barnes and Noble, the second leading book retailer in the U.S., might purchase the company’s inventory and desirable store locations.