by Doug Desjardins
The recent bankruptcy filing of bookstore chain Borders Group is yet another sign that retailers who deal in old media are doing a slow fade. 
In February, the book retailer announced plans to reorganize under Chapter 11 bankruptcy protection and said it would close up to 200 of its 642 stores to get out from under heavy debt to suppliers. It reportedly owes $41.1 million to Penguin Putnam, $33.8 million to Simon & Schuster and $33.5 million to Random House.
In its filing, Borders listed assets of $1.28 billion against debt of $1.29 billion, debt that has left Borders “without the capital resources it needs to be a viable competitor,” according to company president Mike Edward. The company said it could be forced to close as many as 275 stores and that its reorganization plan would eliminate 6,000 jobs.
Borders' bankruptcy follows Blockbuster Entertainment’s Chapter 11 filing last September. The world’s largest video rental chain listed assets of $1.02 billion against debt of $1.46 billion and announced plans to close up to 1,000 of its 3,000 stores. Like Borders, Blockbuster was in deep dept to suppliers with bills that included $21.6 million to Twentieth Century Fox and $19 million to Warner Home Video.
“To preserve our three-decade-long developed brand value, Blockbuster seeks a restructure that permits a significant deleveraging of its business so that it can move forward at the digital clip at which its competitors are currently running,” said Blockbuster spokesman Jeffrey Stegenga.
The “digital clip” Blockbuster referred to was its attempt to incorporate new technology into its brick-and-mortar business. In 2007, it adopted an online ordering system similar to main rival Netflix and tested other ways to compete with digital movie downloads. The chain also faces competition from Redbox, which operates low-priced video-rental kiosks in thousands of retail locations. Blockbuster is attempting to avoid the fate of former rivals Hollywood Entertainment and Movie Gallery. Struggling Hollywood disappeared in 2004 when it was acquired by smaller rival Movie Gallery. Movie Gallery was never able to make its acquisition work and went out of business in 2008.
Borders faces pressure from new competitors that didn’t even exist five years ago, and the growing popularity of book downloads and e-books like Kindle have cut into its book-buying business. Borders also faces pressure from club stores like Costco and mass merchants Target and Wal-Mart, which introduced a larger selection of books in recent years at lower prices.
Meanwhile, main rival Barnes & Noble is still turning a profit thanks, in large part, to its online efforts. For its most recent quarter, it reported a 64% increase in online sales of $345 million. The company reported net income of $60.6 million for the quarter, down 24% from $80 million in the comparable quarter last year.
Resources
Borders Files Chapter 11, to Close 200 Stores
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