Ann Arbor-based chain boosts Web service in bid to survive digital era Jaclyn Trop / The Detroit News
Borders Group Inc., the book superstore chain whose rise to national prominence helped kill many independent bookstores, is fighting for survival in the digital age.
As the nation's second-largest traditional bookseller tries to restructure its finances to solve a cash crunch, it faces a painful irony: Consumers are reading more than ever, but turning away from the company that helped make reading a destination, with sales associates as tour guides.
"They're kind of ambassadors for reading," Michael Norris, an analyst with Simba Information, a publishing consulting firm in Stamford, Conn., said of Borders. "They keep the discussion about books alive."
Or did. That role has diminished for Ann Arbor-based Borders with the emergence of online sales, electronic readers and downloadable books.
"This is a sad story," said Al Greco, a marketing professor at Fordham University's Graduate School of Business in New York, recalling Borders' dominance during the heady 1990s. "It had been an unbelievable company."
Publishing industry analysts are divided about Borders' prospects for survival. Still, the retailer's problems don't signal the death of the reading culture it helped create, said Jerry Herron, a Wayne State University professor of American studies.
"If anything, people are consuming more text than ever before," Herron said.
The potential demise or downsizing of the chain means that the best business model for delivering content has changed, he said.
Borders began as a small used bookstore built by brothers Louis and Tom Borders in Ann Arbor in 1971. The company reigned supreme as book superstores proliferated nationwide in the 1980s and 1990s, in part because it was an early adopter of the computerized inventory system.
The superstores, which offered more than 100,000 titles and could afford to discount, helped stamp out smaller book retailers and independent shops, which sold between 10,000 and 20,000 titles.
In 1992, Kmart bought Borders for an estimated $200 million and spun it off in a public offering in 1995. But the retailer made a fateful mistake in 2001 by handing its online business to Amazon.com, now the largest U.S. bookseller and threatening to put Borders out of business.
"It would be like Ford asking General Motors to distribute Ford cars," Fordham's Greco said of Borders' tie-up with Amazon. "This was not a smart move."
Meanwhile, bigger rival Barnes & Noble Inc. embraced the nascent e-commerce model and launched a website. The New York City-based bookseller developed its own electronic reader and digital strategy. This month, Barnes & Noble said same-store sales, a key measure of retail health, rose 9.7 percent during the holiday season and its Nook e-reader hit record sales.
The brick-and-mortar book industry has declined because of competition from discounters and the Web, but Borders has been hit more sharply because it has been slow to adapt to the Internet. Only this year did Borders contract with Canadian firm Kobo for e-readers to compete with Amazon's Kindle and Barnes & Noble's Nook.
Borders also lacked strong leadership, hiring executives across a range of industries — including groceries, apparel and finance — who didn't stay with the company long enough to have an impact.
"They went through all of these managers who didn't know anything about the book business," Greco said.
Borders must get its debt and vendor payments restructured quickly, Simba's Norris said, to give Mike Edwards time to rebrand the company and implement a long-term, customer-focused strategy. Edwards is chief executive of Borders Inc., the company's main book selling subsidiary. Borders Group also owns Waldenbooks Inc. and other retailers.
Borders' stock price rose 30 percent Friday, to $1.06 a share, after the New York Times, citing unnamed sources, reported that the company is close to receiving refinancing from GE Capital and other lenders.
Edwards, who has led the book selling operation since June after joining the company in September 2009, built a reputation as a turnaround specialist after stints at retailers Lucy Activewear and Jo-Ann Stores Inc.
Borders has taken steps to stay afloat, including shuttering unprofitable stores, revamping its customer loyalty program and unveiling a digital bookstore through its website.
In December, key shareholder and activist investor William Ackman offered to finance a bid for the company to buy Barnes & Noble.
While analysts are skeptical of a Borders-Barnes & Noble merger, they have a good idea of what Borders' demise would mean. If Borders closed all of its stores, Barnes & Noble would take close to 18 percent of Borders sales, bringing in an additional $400 million, Credit Suisse analyst Gary Balter wrote in a Jan. 5 note to investors. Balter wrote that a merger would compound the booksellers' problems, saddling the surviving company with too much real estate.
Borders may be forced to file for bankruptcy if the company can't refinance its debt, said James McTevia, a turnaround consultant with the Bingham Farms firm of McTevia & Associates.
In the meantime, Borders continues to make cuts, most recently eliminating 15 managerial positions. And the company has closed 11 stores in Michigan since January 2008, including one in Farmington Hills that was shuttered Jan. 7.
Store manager Keith Hewitt said a few customers stopped by last week, not realizing the store had closed. "They're missing us," Hewitt said. "We're just about done packing up."
One loyal Borders customer is Ray Barnett, 56, of Royal Oak, who drives past two Barnes & Noble stores to get to Borders' Birmingham location. He buys 50 to 100 books a year from Borders, he said, because it has a better business section and is a Michigan company.
"Books are very important to me," Barnett said. "As great as the Internet is, it's still not the same as having access to a physical book."
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