Starting off as a used-book store in 1971 in the Michigan college town of Ann Arbor, Borders grew into a successful nationwide chain of superstores, widely castigated at one time for helping stamp out many small, independent stores around the country.
But after a series of competitive blunders and missteps in the last decade, Borders Group Inc. itself is now under siege, cutting staff, shuttering stores, shaking up top management and flirting with bankruptcy.
Critics said the company botched its move into the digital age and instead saw sales drop and earnings plummet.
The company reported a net loss of $74.4 million for the quarter that ended Oct. 30 and has reported financial losses every quarter for the last three years. Borders’ bricks-and-mortar chief rival, Barnes & Noble Inc., also has been struggling financially.
“The superstores were viewed by the independent bookstores as dinosaurs that came to kill them — and they did,” said Al Greco, a book publishing expert and professor of marketing at Fordham University’s Graduate School of Business Administration. “Today, it looks like the big bang has hit and now the dinosaurs are in peril.”
Last week, GE Capital threw a lifeline to the company in the form of a $550-million line of credit, dependent on publishers’ agreeing to convert the company’s delayed payments into loans, among other requirements.
In a Jan. 27 statement, Borders President Michael Edwards said the company was “doing everything possible” to maintain relationships with vendors and publishers and viewed the refinancing as the most practical solution, but also noted that an in-court restructuring is a possibility.
On Friday, the company disclosed that it no longer complies with New York Stock Exchange rules that require it to maintain a minimum average trading price of $1 a share over 30 days.
The price dropped below $1 on Dec. 31 and has continued to fall. Shares lost a penny Friday to 39 cents.
As the company scrambles to restructure the debt to vendors and lenders, its customers are coping with fewer stores and worries about the chain’s future.
On Westwood Boulevard, in the shadow of UCLA, sits a sprawling shell of a Borders store that served university students and area residents for 27 years until it closed last month. It was one of a handful of California stores closed in January and 32 mostly smaller stores in malls that were closed last year.
As of December, the company operated 509 superstores and 169 of the smaller-format stores, which include Waldenbooks, Borders Express and Borders Airport stores.
Some Borders shoppers at the Brand Boulevard store in Glendale lamented the company’s current woes, while others seemed less worried.
Tammy Hill, 42, of Glendale, said she shops at the store frequently and enjoys the atmosphere at Borders, where couches and chairs are sprinkled throughout the store and shoppers are allowed to plop down in an aisle and read for hours as if they were at a library.
“It’s a little more serene,” she said as she revealed that she was dreading going down the street to buy an interior design book she couldn’t find at the Borders. “I was just fretting about it,” she said. “Oh God, now I have to go to Barnes & Noble.”
Some shoppers, like Jeff Rosen, 56, of Silver Lake, have taken notice of the company’s troubles. He was searching for a book with his daughter. Though he usually shops online at Amazon.com, he made a trip to the store to make sure he used a gift card while he still could. “I want to burn it off,” Rosen said. “It won’t be good in six months.”
Borders, along with Barnes & Noble, thrived in the 1980s and 1990s as the superstore trend caught on and spread to the book business. Kmart Corp. owned the company briefly in the early 1990s before the bookseller went public as Borders Group Inc.
Greco said small neighborhood bookstores were no match for the superstore, which carried 100,000 to 175,000 titles — a selection most independents could not match — as well as such merchandise as CDs, newspapers, magazines, candy, calendars and coffee, plus the tables, chairs and sofas shoppers could use for leisurely reading or studying.
“They became a destination,” he said.
But by 2000, the bricks-and-mortar booksellers began a collective decline because of competition from online vendors such as Amazon.com Inc. and discounters such as Wal-Mart Stores Inc. and Target Corp.
Borders was especially hurt by poor and sluggish decision-making by revolving-door executives from unrelated industries, including supermarkets, women’s apparel and finance, Greco said.
In 2001, just as Internet commerce was beginning to thrive, the company made the mistake of turning its online sales over to Amazon, a competitor, which gained vital customer information such as purchasing habits. “It’s unheard of,” Greco said. “It’s as if Coca-Cola asked Pepsi to distribute Coca-Cola.”
At the time, Borders prided itself on providing an eclectic selection that would better appeal to the serious book reader and strove to be less “cookie-cutter” than other large bookstores, said Gary Balter, an analyst with Credit Suisse.
Amazon was able to lure those serious readers away from Borders by prompting them with suggestions of related books based on their purchase. “That was their target customer,” Balter said. “If you’re a serious book reader you can now go online, see similar books and you don’t have to go through shelves.… It’s more convenient.”
In 2008, the company ended its relationship with Amazon and rolled out its own online sales operation, but it trailed behind the more seasoned online operations of Barnes & Noble and Amazon, Greco said.
Rosen, of Silver Lake, said he had tried to use Borders’ online store in the past but found navigating it “awkward.” By contrast, he said, Amazon.com was “quick and easy.”
Borders’ precarious situation took another hit with the emergence of the electronic reader. In November 2007, Amazon released its e-reader, the Kindle, taking both superstores by surprise with the new technology. When Barnes & Noble came along with its own e-reader, the Nook, in November 2009, Borders still had no answer, Balter said.
It was not until last July that Borders formed a partnership with a Canadian firm to distribute e-readers and launched an e-book store.
Dominique Morris, 25, a freelance journalist, was shopping at the Glendale location on a recent afternoon with a friend. As she headed for the exit, she stopped to check out the e-reader, which was prominently displayed by the front door. “I didn’t even know they had one until now,” said Morris, who shops at the store about twice a month.
Greco said he expected the company to seek bankruptcy protection soon. “It’s pretty clear they will file for bankruptcy; it’s just a question of when,” he said. “Borders at one time was an unbelievably impressive bookstore chain — people loved it. The day they go into bankruptcy will not be a happy day for publishers, authors and readers.”