A few days ago, I mentioned Borders’s financial problems—it had to delay payments to some publishers because it needed all the cash on hand it could keep as it was trying to refinance its debt after a new appraisal reduced the value of its assets. Now Galleycat reports that two of Borders’s executives have resigned: executive VP Thomas D. Carney and CIO D. Scott Laverty have both stepped down.
Meanwhile, The Bookseller notes that Borders is going to meet with publishers about concerns over the retailer’s financial crisis. Publishers Weekly reports that at least one of the “big six” publishers has stopped shipments to Borders, and a Hachettes rep told the Wall Street Journal that his company, one of those Borders had delayed paying, was considering doing the same.
Electronista draws a comparison to the problems of the defunct Circuit City chain, which entered a similar financial crisis before shutting its doors.
Financial pressure has now become acute at the company and mimics that of Circuit City before it was defunct. The electronics chain’s problems with sales were reinforced when it engendered a lack of faith from device makers, many of whom began insisting on cash up front and didn’t trust credit from the chain. Borders lost $74.4 million just in its most recent quarter and has lost money in most every quarter for the past two years except for the holiday season, when the usual spike put it back temporarily into profits.
Interestingly enough, this is not the first time Borders has been compared to Circuit City. Over a year ago, in November 2009, The Motley Fool thought Borders could be the next Circuit City if it didn’t survive the 2009 Christmas season. “Borders’ formidable debt load has been a major risk for a long time,” Alyce Lomax wrote. “The ruthless price wars this holiday season portends could make paying down that debt even more difficult.”
This year, Lomax writes:
Although [major shareholder Bill] Ackman [who offered to help finance a takeover of Barnes & Noble by Borders] has pulled Borders’ bacon out of the fire several times over the course of the company’s history, investors should wonder how long he’ll consider such efforts worth his while. After all, the current competitive landscape continues to drift toward online stores and e-books, and away from giant bricks-and-mortar booksellers.
Borders has tried to keep up with the changing market by hitching its e-bookstore wagon to Kobo’s star, but it doesn’t seem to have been enough to keep it afloat, especially in light of the disastrous affect the reappraisal had on the state of Borders’s assets. Even if Borders’s e-book efforts rated as something of an also-ran, if it does go under the overall e-book market will become that much smaller.