Borders headed for bankruptcy filing

[jocampo]

Just read on Engadget Android app, they will file for bankruptcy maybe next Monday or Tuesday. Kind of sad. More competition in the book arena is always better but they certainly did not act smart or move fast enough with all these ebook and ereaders wave.

[Kali Yuga]

I seriously doubt ebooks have much to do with their fall. This has been years in the making, and ebooks have been a tiny slice of book sales until very recently.

They almost certainly expanded too fast and unwisely. International stores, acquiring and then closing other chains, too much overlap with B&N....

[bill_mchale]

Actually, I think ebooks had quite a lot to do with their filing for Chapter 11. Remember, bankruptcy is often is as much about cash flow as it is debt. If they had gotten serious about ebooks earlier, and brought out the Kobo (or something like it) for Christmas 2009 instead of spring 2010, they might have remained a big enough player to have secured the financing they needed. The Kobo is a decent reader, but in the American market, I would say the best it can hope for in the near term is being number 3 behind the Kindle and the Nook... and even that is a struggle with the Sony readers (Though the price of the Sony's gives a good reason to choose the Kobo).

--
Bill

[Kali Yuga]

Net income has been in the red since at least 2006. They lost $151m in 2007, another $157m in 2008, $186m in 2009, and $109m in 2010. That's $603 million in losses over 4 years.

They've had financial difficulties since 2008, and their stock price utterly tanked after they were forced to take a high-interest loan in August 08 -- it hasn't gone above $5 since. They've had a couple of management changes as well, including one where execs opened up their golden parachute to collect seven-figure payments.

Ebooks also aren't that big a chunk of sales yet; they certainly weren't in 2007 when Borders started hemorrhaging money. I'm not sure they could afford to do much more than partner with Kobo, since building their own site and device would have driven them further in the hole and into debt.

I will amend my earlier position though -- over-expansion is just one of many reasons for their failure. Others include a bad balance sheet, massive debts, a major recession, revolving management, a bad outlook, and bad luck.

Their ebook strategy and timing certainly didn't help, but I don't see how even a great one would have saved them from bankruptcy.

[jocampo]

Originally Posted by Kali Yuga

I seriously doubt ebooks have much to do with their fall. This has been years in the making, and ebooks have been a tiny slice of book sales until very recently.

They almost certainly expanded too fast and unwisely. International stores, acquiring and then closing other chains, too much overlap with B&N....

Yes and No.

They were having issues before but failed to enter into the ebook market on time. Last two years basically changed the game in terms of how the people read and how much are willing to pay for a pbook; e-readers were the factor which change that.

Statistics and most recent reports say that people are buying more ebooks now than their counterpart in paper format (at least in USA). We will have to say if that is just temporary or a trend, but when you have a brick store which electricity to pay, employees, rent in some cases, etc, it is difficult to win the game against a online Webserver, which is working 24/7 running Oracle or MySQL with a few DBAs well paid. One more example, B&N, although they were smarter and hit the jackpot with the Nook Color but still, having money issues running all those brick stores around USA.

[Boston]

To be clear, they are filing for bankruptcy protection not bankruptcy. This means they are asking for time/protection to reorganize...the latter means they realize that its impossible to recover.

[Scott Nicholson]

The local Waldenbooks didn't pay its rent and just announced a Feb 27 closing--but this store has sucked for years and years. Have you EVER been in a Borders with good customer service, selection, and value? A fish rots from the head first, but when the tail also stinks, why go around it?

I talked to a Borders PR rep for a story yesterday and they will be closing a third of their stores. No amount of "protection" can salvage that. In other words, would YOU invest in it?

Scott

[Lemurion]

Ouch - I'm just hoping the local Borders hangs on, I like the store and the staff.

[Boston]

I love the Boston Downtown Crossing Border's store. The service I have received there has been outstanding...not so much for some other Borders stores. That being said, I am sad when I see physical bookstores going the way of record stores. The downside of the electronic world imo. I hope they take this opportunity to find a way to recover as remote as the possibility may seem.

[markbot]

I suppose this will be good for Barnes and Nobles in the short-term. if this doesn't make it out of chapter 11, barnes and nobles might take over some of the profitable locations maybe.

[markbot]

Barnes and Nobles has a 6% dividend yield but has no operating profits. Plus it still has to pay the interest on its debt. it has 380MM in debt. It generally takes losses except in the fourth quarter with Christmas. trailing 12 month operating profit is still negative. in short, this company's operating performance is terrible. the equity holders will try to extract as much value as possible....hence the dividend when there are no profits and no clarity on when and how a turnaround can happen.

is it not obvious to anyone else that the long-term prospects for this store are similar to border's? its stores are too large....you will have expense deleveraging.

the nook is a loser in my opinion. it is far too slow and is nothing special. and the nook color is an act of desperation.

the internet + ebooks is leading to a slow hemorrhaging but inevitable fate.

[CHunter_Author]

Chain bookstores are a flawed business model to begin with. Think about it. They rent out these huge retail spaces, often in expensive, high traffic areas. People can come in and browse through books and magazines all day with no obligation to buy a thing. If someone wanted, he or she could read an entire hardcover $26 book for the price of a $2 apple juice bought in a cafe, and then they could walk right out. Sure, some people will buy books because they are book buyers, but this passive model is made to be exploited.

[tubemonkey]

I don't go into bookstores anymore. In fact, I've never been in Barnes & Noble or Borders store. The last time I was in a bookstore was in the 90's and that was B Dalton and Waldenbooks in the malls.

[binky]

Wow, that's pretty sad, and bad. Here in Canada you pretty much have Chapters, and they bought out Indigo a few years ago. There's a smattering of Coles but that's it. Less competition is always a bad thing.

[Andrew H.]

Originally Posted by jocampo

Yes and No.

They were having issues before but failed to enter into the ebook market on time. Last two years basically changed the game in terms of how the people read and how much are willing to pay for a pbook; e-readers were the factor which change that.

I would agree that their e-book strategy didn't help - but I'm not sure that it could have: even a better executed strategy would have them competing against B&N and Amazon. And they have been failing at this for at least five years.

Statistics and most recent reports say that people are buying more ebooks now than their counterpart in paper format (at least in USA).

No, people are still buying more than 10 times as many paper books as e-books in the US. Only at *Amazon* (15% of the market and seller of the leading e-book reader) are the sales of e-books overtaking paper books.

We will have to say if that is just temporary or a trend, but when you have a brick store which electricity to pay, employees, rent in some cases, etc, it is difficult to win the game against a online Webserver, which is working 24/7 running Oracle or MySQL with a few DBAs well paid. One more example, B&N, although they were smarter and hit the jackpot with the Nook Color but still, having money issues running all those brick stores around USA.

This is a good point; B&N is barely keeping its head above water, and has been in a similar position for many years.

There is still money to be made with B&M stores - but not as much as there used to be, and clearly not when B&N and Borders have so many giant stores within a couple of blocks of each other. Two stores barely breaking even close to each other *can translate* into one store making a decent profit if the other one goes away.