February 16, 2011, 4:02 PM
Borders Bankruptcy: What Went Wrong
By Shira Ovide
Borders filed for bankruptcy protection today, turning what had been a business success story (small-town bookstore turns crazy successful national mega-retailer) into a cautionary tale.
Some of Borders’ problems weren’t the company’s fault. There are now hundreds of places to buy books online or in physical bookstores. That forces all book sellers to compete over price.
And, of course, Borders made a lot of mistakes, too: Ill-fated expansion plans, too many stores that lose money and being late to realize the popularity of electronic books.
In a bankruptcy court filing, the company offers an explanation of how it found itself battered and broken enough to need the help of a bankruptcy court. Here’s what Borders said went wrong:
Too Many Unprofitable Stores
This is a big lodestone. Borders is planning to close 200 or more of its stores -– about 30% of its current locations –- because too many stores lose money. Borders said the stores it plans to close are draining $2 million a week out of the company’s profits.
Borders said it “found that they…have a number of stores which are simply unprofitable and are substantially impacting the [company’s] overall performance and ability to pay their debts.” Borders said the store closures will leave the company with a “sizable core” of profitable stores.
Borders stores also have unusually long and onerous lease terms – an average of about 15 to 20 years -– which leaves Borders with little option to cut rent costs if people stop shopping there. Already, Borders said, it closed 219 stores in 2008, mostly from its Waldenbooks shops, and it closed 45 stores last year.
Bad Economy and Changing Book Business
Borders said people have been less willing to spend money on optional purchases like books and music, and the company is facing more competition in book selling. Think about how many places now you can buy a physical or digital book –...