Borders to Close Its Doors - The UpStream

Borders to Close Its Doors

posted Monday Jul 18, 2011 by Scott Ertz

Borders to Close Its Doors

Back in February, the nation's second-largest bookseller, Borders, filed chapter 11 bankruptcy and announced a plan to restructure. It closed all but 399 of its stores with plans to reorganize the company to regain profitability and hopefully reopen many of its closed stores in a smaller footprint, similar to what Best Buy plans.

Well, the closure of these stores has not accomplished the goal they were hoping for. In fact, there seems to have been no change in the profitability of the company at all. Management decided to try and sell the company instead of fixing the problems, but there were apparently enough issues that no buyer was interested enough to offer an amount the creditors would accept. Instead, Borders will close all of its doors, possibly as soon as Friday.

There is a little bit of hope for some of the stores. To find out how, hit the break.

As of this morning, there were reports that Books-A-Million (BAMM), the third-largest book retailer, was in talks to purchase a number of the stores. However, last week discussions with Najafi Cos., the owners of the Book-of-the-Month Club, broke down because of concerns from creditors over the allowances for closures by the new owners. With that in mind, there is no telling what might happen with BAMM. The good news there, though, is that in this evening's filing, Borders listed 30 stores that they would seek approval to sell the leases and inventories for.

As far as this liquidation, Borders hopes to get it over with quickly. They have contacted a group of liquidators, including Hilco Merchant Resources who helped with the first two rounds of Borders liquidations, as well as Sears Essentials, Circuit City and RadioShack's downsizing a few years back. If anyone can breeze through a major store closing, it's these guys.

This, of course, doesn't just affect consumers. Retail management companies will be taking a hit here as well, especially considering Borders doesn't own the properties for their 399 remaining stores and averages 25,000 square feet per location. Anyone who lives near a former Circuit City or Sears Essentials knows that most of those locations are still vacant years later, mainly because of their large footprints.

Borders' failure is another example of a company ruined by the Kmart Corporation. We have seen Sears hit a major decline since being purchased in 2004. Sears has lost its exclusivity on many tool and appliance brands and even closed stores, including the Sears Essentials brand entirely. Borders was on the same path, just 9 years ahead of Sears, being purchased by Kmart in 1995. Since shortly after the purchase, Borders' sales per square foot has declined steadily. Even after being spun off they seemed to be unable to break free of the problems.

Their lack of a real online or electronic presence certainly sealed their fate. Unlike Amazon or Barnes & Noble, they have no electronic reader and a very small focus on physical sales from their website. Like Cisco, Circuit City and others, Borders just wasn't able to keep up with the changing trends in the industry.

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