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Borders Bankruptcy, Day 2 – Part 2

Last night I opened one of my personal e-mail accounts and found the following letter waiting for me from Borders CEO, Mike Edwards.  Now, I haven’t done anything to change the size of the image of the letter.  This is exactly as it appeared in my inbox.  So, imagine how unimpressed I was to start off.  Any way, here’s the letter.  My comments follow.

So let’s start at the top.

“For generations, Borders stores have been . . . ”  Generations?  Well, I guess technically you could say that since Borders has been around for approximately 40 years.  However, to me it sounds like Edwards is trying to pull the wool over our eyes by implying the company has been around a lot longer than it has.

“[B]eacons of enlightenment and education” — Wow!  I didn’t know I’d gone there for enlightenment.  I thought that’s what museums and the like were for.  Obviously, I never truly appreciated my local Borders.

“As Borders moves forward, our commitment to you is to be a best-in-class bookseller” — Gee, I’d have thought this would have been their commitment prior to having to file bankruptcy.  Could this be one of the reasons they are in their current position?

Well, at least he’s upfront about filing for bankruptcy, even if he leaves out the fact they forgot to do little things along the way like have a viable internet presence in a timely manner, offer e-books and have a dedicated e-book reader that is part of Borders like the Kindle or Nook, etc.

“Borders pioneered the in-store experience, providing customers with a vast assortment of books in a warm, relaxing environment — and we intend to build on this….” — Vast assortment of books?  Have they been in any of their stores recently?  The last time I walked into a Borders, I had to hunt for books, pushing through shelves and displays of games, gee gaws and other non-book items before I found this “vast assortment of books”.  The problem was, none of the books I was looking for happened to be in stock.  But, go down the street to B&N and there they were — in their much larger and more diverse stock.  As for “warm, relaxing atmosphere”, that, too, is a thing of the past in too many of their stores.  In fact, one of the stores they are leaving open in my area — much to my surprise — feels like an empty warehouse when you walk in.  Too much room and too little stock…of any sort.  How in the world are they going to fix this when distributors like Ingram have halted shipments to them?

While I’m glad they are honoring their gift cards and you can continue to use their reward card, my advice is to redeem those cards as soon as humanly possible.  There is no guarantee Borders will continue to honor them.  And don’t get me started on their reward card.  I quit using it because they kept changing the terms of it.   And now they want you to pay for it — or at least for the “upgrade”.  Sorry.  Not gonna happen.

“Borders.com is operating as usual.” — Okay, but with limited offerings because, gee, they aren’t getting the books, graphic novels, audio, etc., they used to since they haven’t paid their bills.

“eBook libraries are perfectly safe” — It’s interesting to note that they don’t say because Borders is going to come through this all right.  No, they say it is because Kobo will keep them safe and will continue to sell ebooks through Borders.  But how long will this last if Borders can’t pay them?

“Borders will continue to maintain its strong national presence” — Pardon me?!?  Strong?  If it was strong, it wouldn’t be in this position.  If it was strong, it wouldn’t be closing 200 stores and saying in its bankruptcy filings it may close another 75 on top of that.  As it stands, they are closing a third of their “strong national presence”.  Obviously, their definition of that terms differs greatly from mine.

“Over the next several months, we will build on our core strengths as a great bookseller” — Again, huh?  Not only have they shown over the last several years they are anything but a great bookseller — and this is a shame considering how the company started — but the core strengths of the company’s beginning have been left behind by their corporate model.  So, what strengths are they talking about?  It sounds to me like they’re saying they aren’t really going to change.  Sigh.

“[C]losing underperforming stores” — how do they define “underperforming”?  Of the stores being closed in my area, the ones that always had the best customer service, the best stock and customers in them whenever I went in are the ones closing.  Again, I think this is one of those situations where “we have a failure to communicate”.

“Over the next several months, we will build on our core strengths as a great bookseller with the goal of emerging as the destination of choice for the millions of customers who shop our stores each year.”  OMG, let me count the different ways this statement seems so wrong.  First, he once again says Borders is going to build on their core strengths.  As I said earlier, these are the same core strengths — if you want to call them that — that led them into bankruptcy.  I want to know what they are going to do differently.  Secondly, and so much more telling in my mind, is the fact that he isn’t looking to expand their customer base.  He is looking only to make Borders the destination choice “for the millions of customers who shop our stores”.  Why in the world does he think he can bring Borders out of bankruptcy with just the same customer base?

That pounding you hear is my head hitting my desk, time and time again.

As I’ve said a number of times, I want Borders to survive.  But this letter does little to help me believe it will.  Perhaps, instead of trying to build on the status quo, management actually needs to try to figure out what went wrong and why and then find ways to correct the situation — and do it before even more of their employees face the loss of their jobs.

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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 borders.com 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 BN.com 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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Borders Bankruptcy Update #2

If you are interested in seeing the actual filings in the Borders’ bankruptcy, check these links:

Here’s a hat tip to Publishers Weekly for these resources.

 

 

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More on Borders’ Bankruptcy

As noted earlier, Borders has done the expected:  they filed for bankruptcy this morning.  I first heard about it on the local news.  Early as it was, there was little hard information available at the time.  Since then, more information about the filing is coming to light.

Let’s start with Borders itself.  It has put up a special webpage to address what’s happened as well as adding information on its investor relations page.  The first is exactly what you’d expect it to be — an announcement that all is well, despite the filing and that nothing is really going to change.  What it doesn’t mention is the fact that Borders owes more than it is worth or the fact that it is planning on closing approximately 30% of its stores (more on that shortly).  The information on the investor relations page is basically the press release announcing the filing and plans to reorganize.

Over the next several weeks, Borders plans to close something in the neighborhood of 200 of its 639 stores.  Shelf Awareness reports the number will be 200 whereas Bloomberg suggests it could be as many as 275 stores.  The closures are based upon “a reflection of economic conditions, cost structures and viability of locations, among other factors” (Shelf Awareness).  As a result, thousands of employees will lose their jobs.  It is important to note, however, that while the closings have been announced, they are not yet written in stone.  The bankruptcy court will have to approve the action.

According to the bankruptcy filing, Borders claims it costs $2 million a week to keep the stores listed for closure open.  If the court grants the motion to close these stores — and the emergency motion filed by Borders to liquidate furniture and stock — Borders hopes to begin the liquidation in time for Presidents Day weekend.

As expected, a large portion of Borders’ debt is owed to its vendors, including publishers.  Of the outstanding debt listed in the filings, $178.8 million is owed to vendors and publishers.  Another $18.6 million is owed to landlords.  How much of this debt will be repaid is unknown despite the fact Borders says in the supporting documentation to its filing that it expect funds will be available to distribute among these creditors.

To give you an idea of how this may impact the publishing industry, according to Publishers Lunch, of the top 30 unsecured creditors, book publishers and distributors are owed something in the neighborhood of $230 million.  Some of the specific debts listed in the filing are:

  • Penguin: $41.1 million
  • Hachette Book Group:  $36.9 million
  • Simon & Schuster:  $33.75 million
  • Random House:  $33.5 million
  • HarperCollins:  $25.8 million
  • Macmillan:  $11.4 million
  • Wiley:  $11.2 million
  • Perseus:  $7.8 million
  • F+W Media:  $4.6 million
  • Houghton Mifflin Harcourt:  $4.4 million
  • Workman:  $4 million
  • McGraw-Hill:  $3.1 million
  • Pearson Education:  $2.8 million
  • NBN:  $2 million
  • Norton:  $2 million
  • Zondervan:  $1.9 million
  • Hay House:  $1.7 million
  • Elsevier Science:  $1.6 million
  • Publications Intl.:  $1.1 million

The NYSE suspended trading of Borders stock at the closing bell yesterday.  At that time, the stock was selling for 23 cents a share, close to its all-time low.  The NYSE is now in the process of de-listing the stock.

Because of its connection with Borders, Kobo has assured its customers and owners of its e-book readers that their e-books are safe.  They have even posted a new FAQ of sorts on the Kobo blog.  There are two important things to note in this FAQ:  1) Kobo assures its customers that the e-books they purchased through Borders are in their bookshelf and are safe, even if Borders should go under; and 2) “Borders is an important book retailer in the US market, but its ebook sales represents a minority of Kobo’s worldwide sales.”  So, at least for the time being, those of you with a Kobo e-reader, or with books bought through Borders.com will see no change in availability or support.

This is a story that isn’t going to be over for a long time.  I hope Borders does manage to find its way out of bankruptcy.  Even if it does, I worry about the impact of its debt on the rest of the publishing world.  I’ll do my best to keep you updated but, for now, my thoughts are with those who work at the stores currently targeted for closure.

For more information, check out the sites linked above:

 

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