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Borders seeks approval to liquidate, close stores

Binh Ta and Kelly Schmutte, both UC Davis graduate students, have lunch at Davis Commons on Monday. The Borders Books & Music store there is one of 400 stores whose fate hangs in the balance as liquidation nears for the national big-box bookseller. Borders is the anchor of the popular downtown Davis shopping center. Sue Cockrell/Enterprise photo

By
July 18, 2011 |

By Mae Anderson

NEW YORK — There will be no storybook ending for Borders. The 40-year-old book seller could start shuttering its 399 remaining stores — including one in downtown Davis — as early as Friday.

The Ann Arbor, Mich.-based chain, which helped pioneer the big-box bookseller concept, is seeking court approval to sell off its assets after it failed to receive any bids that would keep it in business. The move adds Borders to the list of retailers that have failed to adapt to changing consumers’ shopping habits and survive the economic downturn, including Circuit City Stores Inc., Blockbuster, Mervyn’s and Linens ‘N Things.

On Thursday, Borders is expected to ask the U.S. Bankruptcy Court of the Southern District of New York at a scheduled hearing to allow it to be sold to liquidators led by Hilco Merchant Resources and Gordon Brothers Group. If the judge approves the move, liquidation sales could start as soon as Friday; the company could go out of business by the end of September.

Staff at the Borders store at the Davis Commons shopping center, First and E streets, declined to comment on Monday’s news, and said they had not received any word on when a going-out-of-business sale might begin here.

“Besides the effect on downtown, (the closing of Borders) is one of the few corporate failures that saddens me a bit,” said John R. Berg, a longtime Davis resident and self-described book lover. “I lived in Ann Arbor when the first Borders was opened, and that was one of the most wonderfully funky bookstores I’d ever shopped in outside of Berkeley, and their selection was incredible for the time.

“I hope that this closure could lead to some new independent bookstores in Davis, but I’m not sure if the climate is right for that. There’s nothing like being able to look at and feel books, and compare them with their shelfmates, even with virtual books.”

Borders opened in Davis in September 1998. At the time it was controversial: At 20,000 square feet, with a staff of 36 employees, the new Borders was far larger than other local downtown bookstores, and some residents worried that the chain store would drive local independent booksellers out of business. (One independent bookstore, The Next Chapter, moved to Woodland rather than compete. Another, Bogey’s Books, a longtime landmark downtown, eventually closed.)

With its coffee bar, and an attractive one-acre landscaped green area in front with tables and lots of “sittable space” — designed by Mark Francis, a longtime professor of landscape architecture at UC Davis, who also helped design Central Park — Borders quickly became a popular hangout and meeting place, in addition to a place to buy books.

Mark Friedman, president of Sacramento-based Fulcrum Property, which built and operates Davis Commons, said Monday, “We have been talking to a number of potential users (of the space), but at this point we can’t disclose anything.” He added that Borders had another two years to go on its current lease.

Borders’ attempt to stay in business unraveled quickly last week, after a $215 million “white knight” bid by private-equity firm Najafi Cos. dissolved under objections from creditors and lenders. They argued the chain would be worth more if it liquidated immediately.

“We were all working hard toward a different outcome, but the headwinds we have been facing for quite some time, including the rapidly changing book industry, e-reader revolution, and turbulent economy, have brought us to where we are now,” Borders Group President Mike Edwards said in a statement.

Borders liquidation could have far-reaching effects, putting thousands of people out of work at a time of high unemployment, particularly in Michigan where Borders is based. The chain, which has been shrinking in recent years, currently has 10,700 employees.

“We’ll want to look closely from the jobs perspective of people in the state,” Geralyn Lasher, a spokeswoman for Gov. Rick Snyder, said in a statement.

The loss of Borders stores will deal a blow to malls nationwide, according to real estate sources. Borders stores average about 25,000 square feet — about half the size of a football field — and a liquidation could leave large empty spaces across the country.

Borders’ move to close 228 stores while it reorganized in bankruptcy protection already increased the collective vacancy rate of shopping centers that contained a Borders to 9.3 percent from 4.2 percent, estimated Chris Macke, senior real estate strategist at CoStar Group, the nation’s largest provider of real estate data. Macke calculated the liquidation of the rest of the chain could increase the vacancy rate on that same basis to 18.8 percent.

Additionally, Simba Information senior trade analyst Michael Norris predicts the closing could cause sales of electronic books to fall. Borders, for one, entered the electronic book market with Canada’s Kobo Inc. last year. Owners of the Kobo e-reader will still be able use Kobo software to buy and read books. And Kobo officials said users of Borders e-book accounts, which began transitioning to Kobo in June, will be able to access their e-books uninterrupted.

“This industry is going to slowly figure out that a lot of e-book readers still use bookstores all the time to discover what’s new before heading home to buy it for their e-reading device,” he said.

Perhaps a Borders liquidation would hurt the consumer most. Tanya Ellis, 42, of Southfield, Mich., said the closings are “horrible.” She said she and a friend would stop at a nearby Starbucks, then visit the Borders store in Beverly Hills, Mich., and browse for about an hour.

“So where are we going to buy books from? I just got into reading books the last two or three years, and they just keep closing all these bookstores,” she said, adding that electronic readers aren’t an option for her. “It takes all the fun out of it.”

Justin Grant, 31, from Brooklyn, however, was less phased. Although he had just picked up a parenting book to read on his commute home Monday, he said he buys most of the 25 to 30 books he reads a year on Amazon.

“It’s much easier to get them through the mail and delivered to my desk at work,” he said.

It has been a long fall for Borders since Tom and Louis Borders opened their first store in 1971, selling used books in Ann Arbor. At its start, the brothers were mostly interested in offering other bookstores a system they developed for managing inventory.

But in 1973, the store moved to a larger location and shifted its focus to selling new books and expanding, helping pioneer the big-box bookstore concept along with Barnes & Noble Inc. At the time, Waldenbooks and B. Dalton mall chains, with small stores and 20,000 to 50,000 titles, were growing rapidly. The new superstores, by contrast, offered between 100,000 and 200,000 titles, as well as enticements to linger like comfortable chairs and attractive lighting.

Kmart Corp. saw the potential and acquired Borders in 1992, forming a book unit with Waldenbooks. It then spun the bookstores off as a separate company in 1995, the same year Amazon started selling books online.

Borders was slow to adapt to the changing industry and lost book, music and video sales to the Internet and other competition. Sales began to fall, leading to a revolving door of CEOs. By the time Borders’ current CEO, financier Bennett LeBow, came aboard in May 2010 after investing $25 million in the company, bankruptcy was already looking like a strong possibility.

Borders filed for bankruptcy protection in February after being hurt by tough competition from online booksellers and discounters. It hoped to successfully emerge from bankruptcy protection by the fall as a smaller and more profitable company, but pressure from creditors and lenders eventually led the chain to put itself up for sale and finally, seek approval to liquidate.

At its peak, in 2003, Borders operated 1,249 Borders and Waldenbooks, but by the time it filed for bankruptcy protection in February that had fallen to 642 stores and 19,500 employees. Since then, Borders has shuttered more stores and laid off thousands.

Borders says it expects to be able to pay vendors for all expenses incurred during the bankruptcy cases.

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