After competitive blunders and missteps in the past decade, Borders Group itself is under siege, cutting staff, shuttering stores, shaking up top management and flirting with bankruptcy.
LOS ANGELES — Starting off as a used-book store in 1971 in the college town of Ann Arbor, Mich., 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 competitive blunders and missteps in the past decade, Borders Group itself is 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 ended Oct. 30 and has had financial losses every quarter for the last three years. Borders’ chief bricks-and-mortar rival, Barnes & Noble, also has been struggling financially.
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“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 month, GE Capital threw a lifeline in the form of a $550-million line of credit, dependent on publishers’ agreeing to convert Borders’ delayed payments into loans, among other requirements.
In a Jan. 27 statement, Borders President Michael Edwards said the company was “doing everything possible” to keep relationships with vendors and publishers and viewed the refinancing as the most practical solution, but also noted that an in-court restructuring was possible.
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. It closed Monday at 37 cents a share.
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.
In the shadow of UCLA sits a sprawling shell of a Borders store that served students and residents for 27 years until it closed last month. It was one of a few California stores that closed in January; 32 mostly smaller stores 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.
Borders, along with Barnes & Noble, thrived in the 1980s and 1990s as the superstore trend caught on and spread to the book business. Kmart owned the company briefly in the early 1990s before the bookseller went public as Borders Group.
Greco said small neighborhood bookstores were no match for the superstore, which carried 100,000 to 175,000 titles as well 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 and discounters such as Wal-Mart Stores and Target.
Borders was especially hurt by poor and sluggish decision-making by revolving-door executives from unrelated industries, including supermarkets, apparel and finance, Greco said.
In 2001, just as Internet commerce was beginning to thrive, Borders made the mistake of turning its online sales over to Amazon, 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 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 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 ones of Barnes & Noble and Amazon, Greco said.
He said he expected the company to seek bankruptcy protection soon. “Borders at one time was an unbelievably impressive bookstore chain — people loved it,” Greco said. “The day they go into bankruptcy will not be a happy day for publishers, authors and readers.”