NEW YORK (
( BGP) story reads like an epic saga -- one in which our tragically flawed hero seems destined for certain failure.
As the book-selling giant files for bankruptcy, the question of whether or not this is the final chapter for Borders has attained new currency. But if the
is any foreshadowing, dark days would appear to be awaiting the company, whether this week, next week, or further along in its narrative.
3 Borders' Blunders
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Chapter 1: "It Was The Best of Times..."
Today's No. 3 bookseller began as a two-room used bookstore in the college town of Ann Arbor, Mich., founded by brothers Tom and Louis Borders. But the brothers did more than pioneer an iconic book store -- they also designed a sophisticated inventory tracking system that superseded conventional databases of the time. (This, however, would prove to be one of the few instances in which Borders was a primary adopter of new technology.)
Borders' initial superstores boasted more than 100,000 titles at discounted prices. The company grew quietly until 1992, when it was acquired by
for an undisclosed sum. It was at this point that Borders' troubles began.
Kmart, which already owned
, had been struggling with its book business, unable to get its assortment and promotional levels quite right. The discounter was hoping that Borders could help rewrite its mistakes, but the acquisition prompted a flood of executive resignations, leaving Kmart to rebuild the newly formed company.
Just three years later, facing its own financial troubles and pressure from shareholders, Kmart decided to spin off the bookstores in an initial public offering, effectively creating what is now Borders Group.
Chapter 2: Online vs. Overseas? Decisions, Decisions...
Around the same time Amazon (AMZN) - Get Amazon.com, Inc. Report began to ignite a frenzy, emerging as an online seller of cheap books. But instead of going head-to-head with the rookie, Borders chose to focus its attention overseas, opening stores in the late 90s in the U.K., Singapore, Ireland, Australia and New Zealand, among others.
Borders' international push was a distraction to its U.S. business, and it wasn't until May 1998 (three years after Amazon's launch, and one year after Barnes & Noble went online) that the company rolled out its own e-commerce site.
Ultimately, Borders' attempts at e-commerce were unsuccessful, generating just $5 million in revenue in its first year in operation. By comparison, Amazon raked in $610 million, while
Barnes & Noble
posted $70 million in sales during the same period.
By 2001, Borders shuttered its Web site, relinquishing its online book selling to Amazon. Borders paid Amazon an undisclosed sum to develop a co-branded site. While Borders remained a partner and received a percentage of sales, Amazon was responsible for providing inventory, fulfillment, site content and customer service.
The partnership lasted until 2007, when Borders finally decided to create its own company-run e-commerce division.
Chapter 3: Borders Gets Aggressive -- Or Foolish
It was also in the late 90s speculation first arose of a potential merger between Borders and Barnes & Noble. While both companies fervently denied the rumors, the chatter resurfaced several times in the early part of the new millennium.
In 2000, Borders hired Merrill Lynch to explore strategic options, including a recapitalization, merger or leveraged buyout for the purpose of extending shareholder value. But by July of 2000, the company had removed its "For Sale" sign.
While management did not provide a reason for taking Borders off the market, analysts at the time hypothesized that it had been unable to find a buyer.
After a reorganization that involved a round of layoffs, Borders announced in October 2000 plans to open 55 new stores over the next six to eight years, essentially doubling its portfolio from 350 superstore locations to about 700.
The company announced that it expected the expansion to cost about $130 million annually.
Chapter 4: The Trouble With Waldenbooks
But as Borders embarked on an aggressive growth project for its superstores, its smaller-format Waldenbooks remained a sore spot.
Dwindling mall traffic in the early part of the decade significantly crippled the chain. In 1992 Waldenbooks held a 9.5% market share, but by 2002 that foothold had dropped to just 4.8%.
Borders began the new decade with 869 Waldenbooks stores, but within two years, that number had dropped to 778.
Then in 2004 Borders began converting select Waldenbooks into Borders Express locations. Over the next several years the company continued to shutter underperforming Waldenbooks, reducing its footprint to 300 in 2007, then further cutting its store base in 2009.
There are currently only about 150 Waldenbooks/Borders Express stores in existence.
Chapter 5: The Great Restructure
In 2006 Borders stock was trading around $20 a share when hedge fund manager William Ackman decided the stock price had significant growth potential, predicting that it could trade as high as $36. Ackman's Pershing Square Capital acquired an 11% stake in the company, establishing a relationship that would eventually keep the book seller afloat.
But the stock never reached that level, peaking around $25 in March 2006, before beginning its treacherous descent.
By 2007, faced with a sluggish book market and intense competition from Amazon and discounters like
, Borders realized it needed to refocus its attention on its core superstore business.
As part of its long-term strategic plan Borders said it would remodel stores, revamp its Borders Rewards loyalty program, scale down its Waldenbooks business, debut a new proprietary e-commerce site that would end its deal with Amazon and explore strategic alternatives for its international segment (which eventually resulted in the closure of its overseas stores).
At the time CEO George Jones said: "Our company's performance has fallen short in an industry that is increasingly competitive, technology driven and price sensitive. We recognize the urgent need to go on the offensive and drive significant change."
Chapter 6: It's an E-Reader World
But even as Borders embraced change, it discounted one critical element: the emergence of the e-reader.
Amazon released its first version of the Kindle in November 2007. To give Borders credit, it did manage to quickly follow up by partnering with
to sell its e-reader in stores, but it overlooked a prime opportunity to develop its own device.
At the time, Sony's e-reader was also being sold at other retailers like
, giving Borders little clout in the e-reader space.
Once again, Borders chose the joint-venture route, teaming up with Sony to create a co-branded site to sell e-books.
While Barnes & Noble wasn't exactly quick to the e-reader game either, by the end of 2009 the company had successfully launched its Nook device. And in the holiday season of 2010, the Nook became Barnes & Noble's best selling item of all time, helping to boost same-store sales 9.7% during the period.
Borders later collaborated with Canadian e-reader Kobo, rolling out the device in stores in June 2010. And it wasn't until last summer that it opened its own e-bookstore.
Chapter 7: Executive Shakeup
Borders' costs related to its new Web site, the upgrade of its Borders Rewards program and the incorporation of new technology in stores weighed significantly on the company's profitability. And while the bold moves were commendable, they effectively stalled the speedy financial recovery that was necessary to revive its core business.
In March 2008, faced with a credit crunch, Borders once again considered a sale of the company, suspended its quarterly dividend, and lined up a $42.5 million infusion from Pershing Square Capital in order to stay in business.
At the time, Barnes & Noble toyed with the idea of merging with its rival, but Borders shelved its plan to sell the company.
Throughout 2008, Borders aggressively closed stores and slashed jobs to cut costs. In an effort to revive its struggling balance sheet, Borders hired Ron Marshall as chief executive in January 2009, hoping to capitalize on his previous success with turning around businesses. Marshall replaced George Jones, who had served as CEO for three years.
This move came as Borders' stock fell under $1 a share and received a warning letter from the New York Stock Exchange.
But after just one year on the job Marshall resigned, igniting a shakeup in the executive ranks. He was replaced on an interim basis by Michael Edwards, executive vice president and chief merchandising officer. At the same time Borders also appointed a new chief financial officer and executive vice president of merchandising and marketing.
Amid the corporate chaos, Borders managed to repay its $42.5 million loan from Pershing Square Capital and announce a new $700 million revolving credit facility and $90 million term loan.
Then financier Bennett LeBow stepped in, investing $25 million into the company and purchasing a 15.5% stake, to become Borders' largest shareholder. And just months later, LeBow took over the CEO post while Edwards was named head of Borders Inc., the company's core book business.
In August 2010 CFO Mark Bierley resigned, and was replaced on an interim basis by Glen Tomaszewski. In October, former Las Vegas sands executive, Scott Henry, stepped in to fill the role.
Chapter 8: The Final Chapter?
As 2010 drew to a close, Ackman offerd to finance a Borders' bid of $963 million, or $16 a share, for Barnes & Noble, which had put itself up for sale earlier in the year. Borders said it would consider the proposition, but just weeks later, warned that it could face a cash shortage in early 2011.
After another lackluster holiday season, Borders announced that it would also delay payments to some of its vendors, which prompted reports that publishers were halting shipments of books to the company. Borders has now spent the last several weeks meeting with publishing big wigs and presenting a plan to get back in their good graces.
Since the start of 2011, Borders has now announced another round of layoffs, the closure of a distribution center and two executive resignations. And while GE Capital said it will provide Borders with a conditional loan commitment of $550 million, the company again delayed payments to vendors in January to preserve liquidity.
So when will the story end? As its history makes it painstakingly clear the company is in drastic need of a complete overhaul. But while Borders may have been a few chapters behind its competitors, the book is certainly not closed yet.
--Written by Jeanine Poggi in New York.
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