Borders Bankruptcy, Day 2 – Part 1

The dust is starting to settle, sort of, after the announcement that Borders finally did the inevitable yesterday.  It filed for bankruptcy.  It didn’t take long for journalists and bloggers — this blog included — to jump into the fray and try to figure out what this would mean to the company and to publishing as a whole.  Honestly, we aren’t going to know the full impact for months, perhaps even years.

There are some more details that started coming out about Borders during the evening and overnight last night.  None of them are really surprising — well, that’s not quite right.  One is, simply because I hadn’t thought about it before.  So, I guess I’ll start with it.

According to Shelf Awareness, the parent company for Borders in Australia and New Zealand filed for bankruptcy as well.  They do note that this company, REDGroup Retail, has not connection with the U. S. Borders.   The article notes that  it will be “business as usual, but the paper [Sydney Morning Herald] called Borders’s and A&R’s outlook ‘grim.'” You have to ask yourself what it is about the overall philosophy of the Borders brand that might be behind the brand’s downfall.

Back to the news that wasn’t so unexpected.

The American Booksellers Association issued a statement about Borders’ bankruptcy filing.  The basic premise of the statement is that the ABA hates to see any bookseller go out of business, even a big box bookseller like Borders, because such closures hurt the industry.  In an attempt to reassure not only the buying public but their own membership, the ABA reports in the same statement that the “vast majority of ABA members” had their best holiday season in years.  Between that and their partnership with Google which allows their members to sell e-books through their websites, ABA sees a positive future for the indie booksellers.  In fact, the statement says something I’ve come to believe: that the “indie bookstore model is well positioned for the future.”

While I don’t want to rain on the parades of those who have been celebrating the fact that their favorite Borders store isn’t on the list of stores slated to close under their bankruptcy filing, I have to point out that there is a separate filing by Borders which says the company may close an additional 75 stores.  The same article notes that Borders posted a loss of something in the neighborhood of $168.2 million in 2010.  If I remember correctly, it’s been something like 3 – 5 years since Borders has actually posted a profit.

Reports on the causes for the bankruptcy range from blaming the economy to blaming Amazon, Walmart and e-books and everything in-between.  I have no doubt that each of these did have an impact on Borders’ bottom line.  You can’t deny the fact that e-book sales soared last year (164.4% increase in 2010 or $441.3 million in sales in 2010.  December sales increased 164.8% or $49.5 million in sales.) according to AAP.  The only other aspect of publishing to post a profit last year was audio downloads (up 38.8% to $81.9 million).  Adult hard cover sales were down 5.1%.  Trade paperbacks were down 2%m and mass market paperbacks declined 6.3%.  Children’s books fell as well.

But this doesn’t release Borders from its responsibility in what happened.  Their financial downfall didn’t occur overnight.  The advent of the Kindle, and later the Nook and iPad, didn’t sound the bookseller’s death knell.  No, blame expansion plans that were over-ambitious and not reviewed as economic signs started pointing toward trouble ahead.  Blame the fact that Borders failed to have an effective on-line presence in a timely manner.  (Does anyone else remember how their first brilliant idea in this area was to send everyone to Amazon?  You would initially go to to order a book and suddenly find yourself redirected to Amazon.  WTF?)

Then there was their failure to jump into the e-book market until last year.  That was bad enough.  But doing so without a branded e-reader that was tied to their store was fatal, in my opinion.  Sure, you can buy e-books from other stores besides Amazon if you have a Kindle or if you have a Nook, but you know you can always get e-books from those stores and those are the stores you first think of shopping at.

Borders hasn’t posted a profit in years and yet nothing was really done to figure out, much less cure, the problem.  As a result, thousands of employees will lose their jobs.  There have been little to no consequences for those in the executive suite for their poor management of the company — at least not until it was too late.

Unfortunately, the impact of the company’s mismanagement and bad luck goes beyond the company.  The vendors — publishers and non-publishers — will feel the economic crunch.  Even if they do manage to get some sort of payment as a result of the bankruptcy filing, it very well may be too little, too late.  That will, inevitably, flow down to their employees and contractors.  Then there are the customers who are losing an already all-too-precious resource — their local bookstore.  And what about the authors and artists?  They get little enough as it is from each book sold.  That will may be cut even further because of all this.

What started as an eddy is quickly turning into a whirlpool.  Will publishing survive?  Sure.  But what it looks like when it comes out on the other side is up for grabs right now.

# # #

Part 2 will go up later today.  In it, I’ll dissect the letter sent to all holders of the Borders Reward Card by the CEO, Mike Edwards.


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