July 20th, 2011
Borders Succumbs to Digital Era in Books
The Wall Street Journal
Borders Group Inc.’s imminent demise marks the first major casualty of the digital era in buying and reading books. But the store closings also will mean fewer opportunities for shoppers to wander the book aisles, a loss that will affect publishers as well as competitors and authors.
The bookseller is expected to ask a bankruptcy judge Thursday to approve plans to start liquidating as soon as Friday. By the end of September, the remaining 399 stores of the second-largest U.S. bookstore chain will be shut down for good.
The closures will make Barnes & Noble the only national bookstore chain in the U.S., leaving some Americans to drive long distances to find the largest collections of new bestsellers or wile away the hours among the stacks. Publishers, meantime, are losing one of their biggest customers as they struggle with declining demand for physical books.
Borders filed for bankruptcy protection in February and continued to bleed cash as it raced, unsuccessfully, to find a buyer.
Its failure will hasten the dramatic changes under way in how consumers buy and read books. Tom and Louis Borders started the company 40 years ago in Ann Arbor, Mich. by stocking rich assortments of books that rivals couldn’t match. Now, many consumers prefer having books delivered to their doorsteps or downloading them to electronic devices by touching a screen.
Amazon.com Inc., the nation’s dominant online bookseller by sales, is driving those changes that felled Borders. Apple Inc. and Google Inc., too, have started selling books.
Underscoring Borders’s inability to adapt, the company handed its Internet operations to Amazon about a decade ago and didn’t relaunch its own website until 2008. Then, too late, it relied on a Canadian company for an electronic-book reader.
Publishers, already grappling with seismic shifts in their business, including the demand for e-books, now are trying to gauge how many fewer books they should print, both in terms of physical copies and the number of new titles.
“There will be fewer titles on display,” said the head of one large publishing house. “We’re going to have to make a lot of different assumptions.”
Writers, too, have lost a place to promote their works through talks and signings. The author Kristina Laferne Roberts, who uses the pseudonym Zane and also operates Stebor Books, a publishing joint venture with CBS Corp.’s Atria Books, said Borders was particularly open to African-American writers. “Many of my own signings were at Borders, as were signings of a lot of my authors,” she said. “We’re going to have to find alternative ways to market books.”
Borders’s failure disappointed many. “I felt we were on the right track,” said George Jones, who served as Borders’s chief executive from mid-2006 to January 2009. Mr. Jones said he inherited about $750 million in debt, and that financial markets had turned south when he tried to refinance.
After Borders unsuccessfully put itself up for sale in March 2008, his hopes of creating a proprietary e-reader to match Amazon’s Kindle fizzled. “I would have loved to have had the money to develop something like Barnes & Noble’s Nook, but our company was up for sale, and nobody would partner with us.”
Barnes & Noble, weighing a buyout offer from Liberty Media Corp., also faces challenges but could attract Borders’s customers. “It’s not unrealistic to think that they’ll capture $600 million to $1.1 billion in sales,” said Edward Latessa, portfolio manager for Aria Partner, a Boston-based investment firm that owns a large stake in Barnes & Noble.
At Borders’s flagship store in Ann Arbor this week, customers expressed dismay at the chain’s closing but weren’t surprised. Joel Zaretsky, a 73-year-old painter from Woodstock, N.Y., was curled up in the store’s front window, wearing a tie-dyed shirt, cargo shorts and sandals. His glasses perched on the end of his nose, which was buried in a magazine devoted to Photoshop.
Mr. Zaretsky said he had been coming to the store s every summer for the city’s art festival. “I don’t like it,” he said of the chain’s fate. “This is a case of Internet outsourcing,” he added, before admitting that he, too, bought books online.
Yuching Lin, a 20-year-old college junior, said she sees little reason to buy a book in a bookstore when shopping online is more convenient. “It’s like an old kitchen in here,” she said while chatting with a friend at a table in the store. Barnes & Noble “is classier,” she added.
For several weeks, Borders looked like it might survive. Jahm Najafi, a vice chairman of the Phoenix Suns who runs private-equity firm Najafi Cos., had agreed last month to buy it. But Mr. Najafi’s agreement didn’t preclude him from later liquidating the chain. That didn’t fly with creditors, who felt they could get paid more by liquidators. Borders reluctantly consented to a deal with liquidators after discussions with Mr. Najafi collapsed last week amid concerns about support from landlords and publishers.
Over the past weekend, others, including Birmingham, Ala.-based chain Books-A-Million Inc., contacted Borders’s financial adviser, Jefferies & Co., about possible bids. A bidding deadline passed Sunday without an offer to save Borders.
“We gave it everything we had, but ultimately we lost,” said Borders Group President Mike Edwards.