Borders collapses into bankruptcy in the US

Iconic book chain Borders has filed for Chapter 11 bankruptcy protection in the United States, outlining plans to close up to 200 stores and sack as many as 6000 staff.

The chain will use bankruptcy protection to attempt to restructure operations, which have been sagging under the weight of $1.3 billion in debt and falling sales.

“It has become increasingly clear that in light of the environment of curtailed customer spending, our ongoing discussions with publishers and other vendor related parties and the company’s lack of liquidity Borders Group does not have the capital resources it needs to be a viable competitor,” president Mike Edwards said in an overnight statement.

The company has secured $505 million in debtor finance from GE to help with restructuring, which essentially involves savage cuts to the company’s store network.

Borders revealed a staggering 30% of its stores are unprofitable and are losing a combined $2 million a day. The store closure program will start this weekend.

Borders, started in 1971 by brothers Tom and Louis Borders, became infamous for putting thousands of neighbourhood bookstores out of business with its superstore model focused around cheap prices and a huge range of products.

Ironically those superstores will be first to go under the restructuring process.

Analysts say Borders was too slow to respond to changing reader behaviour.

While many readers changed purchasing habits to online book retailers during the past decade Borders pushed ahead with its superstore model, which involved large rents and labour costs, and it outsourced its eCommerce site to Amazon until 2007.

Amazon and book retailer Barnes & Noble released e-book readers in 2007 and 2009 respectively but Borders’ ebook reader, the Kobo, wasn’t released until 2010 when it found it difficult to gain much traction.

Publishers are likely to be hit hard by the closures because Borders holds number two spot in the book-selling market, with estimates this morning suggesting publisher earnings could fall as much as 10%.

In Australia the Borders chain is owned by REDGroup Retail, which also owns Angus & Robertson.

REDGroup Retail, which is owned by private equity group Pacific Equity Partners, should not be directly affected by the US chain’s bankruptcy but the news is unlikely to do much to bring forward PEP’s plans to float that business.

PEP had examined floating REDGroup on the ASX in 2010 but that has been delayed indefinitely due to Australia’s unsettled retail environment.

The collapse of Borders in the US may have made the job of selling the business via a trade sale or IPO even more difficult because investors around the world have been left in no doubt that the global book selling industry faces tough times ahead.