Submitted on 02/16/2011 - 12:03 PM
NEW YORK (Bankruptcy Watch) — Should anyone be surprised to learn that the Borders Group Inc., the troubled book-store chain, is experiencing more bad news? Its stock continues to fall as it filed for Chapter 11 protection. The beleaguered company now faces the sad task of shutting about 30% of its stores across the country in the upcoming weeks. Haven’t we seen this before, America? You could change the name of the company to, say, “Tower” and see the same sort of story from a few years ago, when that music chain fell on hard times.
Our nation is moving more and more to electronic commerce — and the book business is a victim of the changing public tastes. This is, as all collapses go, a sign of the times. Maybe Borders /quotes/comstock/11i!bgpiq (BGPIQ 0.23, +0.02, +8.76%) (s:bgp) simply had no chance here. Perhaps the e-commerce tsunami sweeping the globe will simply batter any brick-and-mortar structure in its way, no matter how storied its past.
The Borders example hammers home the point that no company is safe from the e-commerce explosion. Consumers want two things, above all, from corporate America: convenience and low prices. And you know, we will pay for convenience, if we have to. It is that important to us. An operation such as Blockbuster /quotes/comstock/11i!bloaq (BLOAQ 0.13, +0.00, +1.63%) staked its name on having the ability to let customers get all of their movie videos in one place. That was a popular idea for a while. Then Netflix /quotes/comstock/15*!nflx/quotes/nls/nflx (NFLX 238.40, -2.39, -0.99%) came along with a better mousetrap and used the Web to attract consumers.
Now it is Borders’ turn to reflect on the damage that the Internet has caused its business.
There’s nothing like a cautionary tale to make someone sit up and take notice.
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February 16, 2011
SAN FRANCISCO, CA (Bankruptcy Watch) — Borders Group Inc. on Wednesday filed for bankruptcy, paying the price for its failed bid to compete with the likes of Amazon.com by pushing its brick-and-mortar business model.
As part of the Chapter 11 process, Borders /quotes/comstock/11i!bgpiq (BGPIQ 0.23, +0.02, +8.76%) will close 30% of its 642 stores, or about 200 that it identifies as underperforming. The bookseller operated twice that many at its peak in 2003.
The Ann Arbor, Mich.-based company listed debt of $1.29 billion and assets of $1.28 billion at the end of 2010 in its bankruptcy filing.
Borders, according to the filing, owes tens of millions of dollars to various publishers, including $41 million to Penguin Putnam /quotes/comstock/13*!pso/quotes/nls/pso (PSO 16.95, -0.14, -0.82%) , $37 million to Hachette Book Group, and $34 million to Simon & Schuster /quotes/comstock/13*!cbs/quotes/nls/cbs (CBS 21.66, +0.01, +0.02%) /quotes/comstock/13*!cbs.a/quotes/nls/cbs.a (CBS.A 21.77, -0.05, -0.23%) .
“Borders Group does not have the capital resources it needs to be a viable competitor,” President Mike Edwards said. He placed the blame primarily on lower customer spending and lack of liquidity.
Borders lined up $505 million in debtor-in-possession financing with GE Capital, the lending arm of General Electric Co. /quotes/comstock/13*!ge/quotes/nls/ge (GE 21.33, -0.13, -0.61%) , as it begins reorganization proceedings in the U.S. Bankruptcy Court, Southern District of New York.
In one of its critical errors, Borders initially eschewed a major online presence, opting to roll out more superstores while Amazon.com Inc. /quotes/comstock/15*!amzn/quotes/nls/amzn (AMZN 187.00, -2.03, -1.08%) and Apple Inc. /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 362.98, +3.08, +0.86%) cashed in on a growing consumer appetite for electronic books.
By the time Borders embraced e-commerce in recent years, the competition had already established a firm lead.
Rival and leading bookseller Barnes & Noble Inc. /quotes/comstock/13*!bks/quotes/nls/bks (BKS 18.86, +0.17, +0.91%) stands to be a big winner in light of the filing, according to S&P Equity Research analyst Michael Souers, who raised his price target on the stock by $6 to $21.
“Not only will sales likely benefit, but this should also increase BKS’ buying power with vendors,” he said, calling Borders’ bankruptcy a “huge boon” for Barnes & Noble.
Goldman Sachs analyst Matthew Fassler upgraded Barnes & Noble to neutral from sell ahead of the filing, though he tempered expectations as the benefits are “likely baked into the Street’s thinking.”
Barnes & Noble shares moved fractionally higher to $18.75 but have lost nearly 12% in the past year.
It appears that the Borders store in North Raleigh's Six Forks Station will be the one stand-alone Borders store to survive the retailer's bankruptcy filing. The company announced thsi morning that it had filed for Chapter 11 bankruptcy protection and would be closing about 30 percent of its stores "in the next several weeks." A list posted on the Borders website dedicated to the closure includes four Triangle locations as being among the affected stores.
The stores in Cary, Apex, Chapel Hill and the store at 404 E. Six Forks Road in Raleigh will all close. The only other North Carolina store on the list is located in Greensboro.
Locally, that will leave just the North Raleigh store at 8825 N. Six Forks Road in Six Forks Station and the two Borders stores at Raleigh-Durham International Airport.
According to the Borders press release this morning, "The company emphasized that the closings were a reflection of economic conditions, cost structures and viability of locations, among other factors, and not on the dedication and productivity of the workforce in these stores."