The bookstore, which is the second largest chain bookstore in the United States, filed for Chapter 11 bankruptcy in order to attempt to overhaul its business. Borders Group, Inc. hopes to overhaul and restructure the entire company and fix its financial woes. The company blames sluggish sales and poor state of the economy for its need to restructure. Borders placed itself on the market in March 2008 but failed to find an interested buyer.
Long-term survival of the 40-year-old store is still up for debate, mostly due to growing competition from rival Barnes & Noble as well as discount stores such as Costco, Wal-Mart and web retailers like Amazon.com. Some economic experts blame Borders financial state at the company’s lack of presence in a digital marketplace.
According to documents filed with the U.S. Bankruptcy Court on Wednesday, February 16, 2011, the company has $1.29 billion in liabilities and $1.28 billion in assets. Borders owe publishers money for paper books; $41 million owed to Penguin and $33.8 owed to Simon & Schuster. America’s editors, authors and publishing agents might feel a pinch if those debts go unpaid. Some argue that companies are not keeping up with the times. Consumers keep spending money on e-readers such as iPads, Kindles and Nooks. Amazon offers over 81,000 digital books for its Kindle device. Barnes and Noble proclaim that it offers 2 million books to fans of e-reading. Yet, Borders cannot even make itself a competitor in the digital area.
In 2001, Borders handed over internet sales operations to Amazon. Borders launched its own website seven years later, but it was too late, Amazon already dominated the market for online book sales.
The U.S. Trustee appointed a committee of unsecured creditors, which include Penguin Group, Random House, HarperCollins, Perseus Books Group, Sony, General Growth Properties and Simon Property Group. The committee will serve as a watchdog and keep an eye on how Borders operates during bankruptcy.
Borders bookstore property owners will join in the restructure plans and reduce rent for stores Borders plans to keep. Experts claim Borders has a poor rental plan, tying itself to store leases that range 15-20 years in poor locations.
The company will close some high-profile locations including a store on Manhattan’s Park Avenue and a store in the company’s hometown of Ann Arbor, Michigan.
The bankruptcy filing will affect six thousand jobs by the closing of 200 stores of its 500 superstores, but does retain the option of closing up to 275 stores. It will not be closing any of the 100 smaller bookstores known as Waldenbooks. The company has about four months to decide if more stores will close under its bankruptcy financing agreements.
Stores began closing on Saturday, February 19, 2011 and the company states that it will continue to honor any gift cards still held by customers.