Borders Books Files Bankruptcy, Closes Stores

The plot has taken an unpleasant turn for Borders Books, the struggling bookstore chain that today filed for bankruptcy protection and announced it is closing nearly one-third of its stores (complete list of store closings).

"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 and which are essential for it to move forward with its business strategy to reposition itself successfully for the long term." said Mike Edwards, Borders Group President.

Chapter 11

To position the company to remedy this condition, Edwards says Borders Group, with the authorization of its board of directors, has filed a petition for reorganization relief under Chapter 11 of the Bankruptcy Code. He says that will give Borders the opportunity to achieve a proper infusion of capital in order to have the opportunity to have the time to reorganize in order to reposition itself for the long term.

Borders said it has received commitments for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital, Restructuring Finance. The company says that should allow it to meet its obligations going forward.

The company said that it is serving customers in the normal course, including honoring its Borders Rewards program, gift cards and other customer programs. Additionally, the company expects to make employee payroll and continue its benefits programs for its employees.

Changing business models

As a brick and mortar book chain, Borders was buffeted first by Amazon.com's mail order business model, which cut significantly into sales over the last decade. Next came the e-reader revolution, with more and more consumers reading books they download electronically to special e-readers or tablet computers.  Borders' sales declined sharply in 2008, 2009 and in each quarter in 2010 it has reported.

To meet that new competitive environment, Borders said, with court approval, it plans to undertake a strategic Store Reduction Program to facilitate reorganization and its repositioning. Borders has identified certain under-performing stores - equivalent to approximately 30 percent of the company's national store network - that are expected to close in the next several weeks.

"We are confident that, with the protection afforded under Chapter 11 and with the support of employees, publishers, suppliers and creditors, and the reading public, a successful reorganization can be achieved enabling Borders to emerge from the process as a stronger and more vibrant book seller," Edwards said.