A run on the Borders?

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.

6 Comments on A run on the Borders?

  1. I read today that while Ingram continues to ship to Borders, another large distributor has stopped for fear of not being paid.

  2. It’s look like Borders’ bankruptcy is becoming inevitable and I wonder what the executives at Barnes & Noble think about it. I am quite sure they don’t celebrate, but I wonder if they see this as a warning sign. I believe that even if B&N looks a little bit better shape than Borders, they’re also in a very bad position and are next in line for bankruptcy. Nevertheless, unlike Borders they have a chance to avoid it, but that will only happen if B&N will learn the right lessons from the case of Borders.

  3. Of course B&N *wants* to see Borders go under!
    They *need* Borders to go under as a majority of their stores are sited to target the exact same customers, often within a block or so.
    If Borders goes, some may turn to online, but most of those customers will just cross the street and beef up B&N’s business.
    The market simply isn’t big enough for two megastore chains.
    We are approaching a point of Triage; trying to save both sick patients risks losing both.

  4. Here’s the lesson from Borders: Don’t sell your customers a competitor’s store (ie the Sony e-reader, the Kobo e-reader).

    I think Barnes and Noble has learned that lesson quite well. They are going to start selling non-nook e-readers and e-reading devices next quarter – but you can be sure that they will take steps to insure they get the majority of the resulting e-book sales.

    Amazon’s robo-recommendation, however, keeps suggesting I buy a nook.

  5. From Reuters: Credit Suisse upgrades B&N stock on Borders woes.
    http://www.reuters.com/article/idUSN0528426720110105?loomia_ow=t0:s0:a49:g43:r2:c0.144366:b40756018:z0

    They expect B&N sales to improve by 18% (About US$400 million) if Borders starts closing stores.

  6. What will happen to the ebooks someone already has if borders disappears? Does anyone know? Will people lose their library?

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