Wednesday, August 26, 2009

Borders in Trouble

If you've followed my advice and subscribed to Publishers Lunch, you probably saw their article yesterday titled "Borders Posts Larger-than-Expected Q2 Loss After After-Tax Charges." If not, no worries, as yours truly is about to quote it extensively.

The part(s) that worried me most is/are as follows:
...Borders [is] still losing money, even having more or less eliminated capital expenditures entirely this year.

Consolidated sales were $616.8 million, down 17.7% from a year ago. On an operating basis, Borders Group generated a second quarter loss of $12.7 million, compared to a loss of $10.5 million for the same period last year. On a GAAP basis, the second quarter loss was $45.6 million, compared to $11.3 million a year ago. The second quarter GAAP loss includes non-operating, after-tax charges—primarily non-cash—totaling $32.9 million.

Operating cash flow in the second quarter was $40.6 million compared to $71.1 million one year ago when the company first initiated a significant inventory reduction program.
Now, granted, a year ago we were only just cusping on this whole "recession" business, so it's likely Borders' Q3 numbers will look much better (simply because they'll be comparing themselves to one of their worst quarters ever), but these numbers do not look good at all: sales are down almost twenty percent and their operating cash flow's nearly been cut in half. If you listened to or read Borders' own Q2 report, the numbers look a little better, but this is because they're quoting numbers before accounting for interest, tax, depreciation, and amortization (paying back of loans), and the PL numbers are post-tax, &c. If you missed the Q2 conference call, a transcript is available here.

True, Barnes & Noble isn't doing so hot either, but they're still making money and their gross figures are considerably larger. BGP (Borders) is currently trading at $3.48/share on the NYSE, compared to BKS (B&N)'s $20.77. Numbers, folks. They don't lie.

Couple this with the fact that has been trailing (though they're doing a little better this year than last) and Borders has been disrupting sales by stocking more toys rather than chasing the e-book market, and the future looks pretty grim indeed. They've reshuffled their management in recent months to try to address these issues, but frankly, I don't think it will make much of a difference.

As you can see, I'm a bit worried here, folks. What do you think?


  1. Yes, Borders is doomed without a drastic change in direction. The last few times I've been into my local Borders, I've been disappointed at the lack of selection. I don't even bother going in anymore if I'm looking for a specific book because I know I won't find it.

    When I browse the YA section and can't find Shiver, Eyes Like Stars, any of Marr's Wicked Lovely series, Bones of Faerie and only a single copy of Pierce's Bloodhound, then I'm looking elsewhere. Especially when four bookcases (not shelves) in the section are taken up with the Twilight saga. Popular or not, the rest of YA deserves shelf space too.

  2. Losing Borders would be very bad indeed. If B&N decided not to buy a particular book, that book could be doomed before it's even released. We need competition amongst book sellers.

  3. Borders is losing money because they've sacraficed good customer service and cut back on the books they stock.

    I pre-ordered a book from one of their stores only to have Borders cancel my pre-order with no notice to me, no notice to the bookstore I frequent and no explanation.

    I eventually talked to someone in corporate and they blew me off. I'm not the only one this happened to. Everybody on the author's fan list/community who pre-ordered that particular book from a Borders-owned store had the same experience.

  4. It's sad, really. Borders used to be such a good book store, when they were owned by "the Borders," a husband and wife team who had a lovely ONE bookstore in downtown Ann Arbor. Back then, they had terrific customer service, every single person who worked there had encyclopedic knowledge of their vast selection of books, and to work there, you had to take a grueling test to see if you had what it took to pass muster.

    That was before they went national...before KMart bought the Borders out of their book store...before KMart sold them to others...before the in-store stock got watered down to toys and CDs and other non-book items...before they had a Borders on a corner of a street in virtually every town in this country. They've strung themselves out too thin to be able to pay all their rent (and they can't get out of the legal contracts), and they have lost sight of what made them a good bookstore to begin with.

    I cry when I go into a Borders, trying to keep them in business, and don't see the selection I need them to have.

  5. Eric, who would that leave besides B&N, Books-A-Million, and Waldenbooks? Also, any speculation on how this would affect Bookscan numbers? If Borders went under it would automatically up the total percentage of books sold through Walmart, Sams, and Costco.

    What happens if a book chain that size fails? Do they return vast amounts of inventory to the publisher?

    Sorry, that was a lot of questions.

  6. Yeah, I have to admit, I don't like Borders too much. I hope they survive and roar back to life and we have two giant national chains selling books hand over fist. I also hope independents like Book Soup in LA and Title Wave in Anchorage thrive. But Borders simply needs to be a better shopping experience if they want my business. B&N is just a much better store. I hope we don't get down to just one major book seller. Like Debra said above, they would have total control over which books sell...and which don't.

  7. I've said it before and I will say it again. Borders going under will be a sign of the approaching Apocalypse.

    The bright shinny here is their expanded YA sections. Yes, there are some toys but the new YA section here in Redmond, WA, Borders is the largest I have ever seen. Books and books and more glorious books.

    Please. Borders. Stick with us, man!

  8. I don't have a Borders nearby, just B&N and BAM so I can't compare. But I know that our B&N is 10x better than the BAM, in everything from selection, organization, customer service and atmosphere. And now B&N has free Wifi and is trying to find their niche in the ebook market, which will keep them relevant in the near future. If Borders doesn't find a way to stay releveant, they will likely go under.

  9. The Borders where I live has a much better selection of Sci-Fi, Fantasy, and YA the the B&N. They stock fewer Star Wars books, more trade paperback, and are more likely to stock everything in print by top-quality authors. The Borders caters less to people interested in what I consider the the lowest tastes in genre fiction.

  10. Hey, just what we need here in Michigan, another failing business!

  11. Hi Laurel--

    It wouldn't leave Walden, as Borders owns Walden.

    And in short, Borders' going under would be (no hyperbole here) catastrophic for the industry. Publishers will work as hard as they can to prevent it from happening, and no one's quite sure what would happen if they fail.


  12. I suspect Borders is getting hosed because it relies on DVD and music more than BN.

    Home video has been a booming business for a few years as movie studios restored and released classic backlist titles on new special-edition DVDs. Now that revenue stream has been exhausted, and studios have had limited success in persuading consumers to repurchase movies they already own in either super-special editions or on Blu Ray. Netflix, which has had double-digit growth in the recession, also may be cannibalizing home video sales.

    Music has always been a big part of Borders's strategy, and the market for music on CD has really crashed. Standalone movie/music retailers like Tower, Virgin Megastore, and Blockbuster all went under because of these issues, so books is the only relatively stable business Borders has left.

    However, Borders also has a dubious and kind of devious marketing plan. They give you a free membership card, and you get "rewards dollars" for spending there, and coupons in your email. But almost everything in the store is sold for full cover price.

    Clearly, they want walk-in customers to pay a little more rather than drive across town to BN or wait for Amazon, while the regular customers will print out the coupons in order to get things for a (roughly) competitive price. They seem to be hoping these tactics won't be quite annoying enough to force customers to make a trip to Barnes and Noble. This probably isn't a good business strategy in a market environment where consumers are pinching pennies.

  13. Looking at share price alone doesn't tell you much. Yes, in this case the numbers happen to give the right impression, but you should really be concerned with market cap: 200 million for Borders and 1.1 billion for B&N.

  14. The Waldenbooks I practically lived in was wonderful--knowledgeable staff and magnificent selection. Then Borders Group bought the Waldenbooks chain.

    The full-time staffers were let go or "encouraged" to retire. Both shelf space and selection were drastically reduced. The new managers constantly push extra crap on the customers. (I'm a diabetic and even when I say that, the clerks still push the candy!) I dread walking into the store now. In fact, I've only been in the store once in the last two years.

    And Borders management wonders why its losing customers...

  15. It's so sad. I've tried to support Borders to keep it alive, but when I can get the same new hardcover off Amazon for $10 less (including shipping), it's very, very difficult.

    The pricing at Borders is almost always outrageous when compared to B&N and especially Amazon. I want to help support brick and mortar, but they have to be more competitive, or they're going to screw themselves.

    Also, Crawford--fantastic point about the DVD and CD sections hindering them! I hadn't thought about that, but it rings so true.

  16. I would love to hear your speculation, Eric, on some of the most major things that would happen to publishing if Borders fell. And what that means for authors.

    Oh, the times they are a-changin'. (Am I old enough to use that phrase?)

    WV: Schologog: A weird creature that you wish would come in and interrupt your class just before the teacher asks for your assignment.

  17. I go to Borders because it's the closest bookstore to my house. I just went in there this weekend and I was amazed by the lack of titles, even popular books by well known authors. The horror section was down to two short bookcases 99% of which was Steven King and Dean Koontz. It was really empty and sad. I hope they don't go away. There are only four bookstores in my area (Anchorage,AK) Borders, Barnes and Noble, Metro, and Titlewave. Titlewave is fantastic but they're starting to focus exclusively on used books.

  18. I think the "closest bookstore to my house" factor may be the cornerstone of the Borders strategy.

    They will mark down prices on the stuff on the front tables, which is bestsellers and the new' releases on DVD and CD, but all the stuff on the shelves is cover price, which nobody else charges.

    To offset the high prices, Borders will e-mail its members a 25% or 30% or 40% off coupon for the list price of whatever. In some cases, the 40% off list may be cheaper than Amazon or BN for a particular item, especially since you get $5 of store credit for every $150 you spend there. But there's only a 40% off coupon available a few days each month.

    When there is no coupon, the prices for the books on the shelves are unreasonable, and the fact that a trade paperback costs $14 to a non-member customer (as opposed to $9-ish at BN or Amazon) probably deters people browsing buying things they find in the store.

  19. I remember reading back in November that Borders would likely tank by February, even with the expected upturn that was supposed to happen in December, the month of gift-giving. I'm a little surprised it's still around, and its figures look a little better now than they did then (which just tells you how dreadful they were last year).

    Borders used to be my favorite book store. I seemed to have a constant influx of the 40% off coupons, so the higher prices were never really a problem for me. (It just seemed like any other store that has merchandise on "sale" for 364 days of the year.) On the contrary, I always found B&N to be more expensive, even with the member card, and I'm a bit surprised by the posts I'm seeing to the contrary.

    However, in the last year, my experience with Borders has gone down the tubes. I can only base my observations on several stores, of course, but selection is way down. I had some gift cards and went in with a mental list of 10 or so books to choose from--they had one of them, and most of them were big enough titles like THE TIME TRAVELLER'S WIFE that should have been in stock. (And this was before the movie buzz, so that wasn't a factor. They simply didn't stock it.) I really want Borders to succeed because I used to love it, but they need to sell things besides the mega-hits to keep people coming back.

  20. I hope Borders isn't doomed because I don't even know where the nearest BN is...

  21. Borders is the closest bookstore to my house as well...and it takes me forty-five minutes to get there. To get to a BN or to the Joseph-Beth Booksellers in Cincy would take me an hour. Consequently, Borders gets a lot of business from me. And I've not had too much trouble finding the books I want there--although Borders, from what I've heard, has a decent stock of fantasy, which is mostly what I read. Nor have I had trouble with the staff; they've always been very friendly and helpful.

    But those damn coupons...I hate their coupon system. I never remember to print them before I go to the bookstore, and their prices are crazy high without them. Which means that when I'm in the store without coupons, I only buy the one book I'm looking for rather than the two or three I would buy if the price was lower.

    And the fact that without Borders, BN will control whether or not a book sinks or swims is very, very alarming.

  22. Hopefully I won't repeat what someone else has said - but I love ordering online from Borders. There's always a deal or lower price on the books than they are in the stores - sometimes I'll get my email coupon and go to the site and the current prices are cheaper than that! (But you can use those promos as well) And, if you order over $25 then the shipping is free! I love that store. I agree with Horserider. I don't know where the next closest book store is. Probably at least 20 something minutes away. (Sounds like nothing but I guarantee you I'll be less likely to peruse the bookstore.)

  23. okay, have to clarify, you can use the coupons in your emails UNLESS the price of the book online is an actual better deal...they do not combine the two offers.

  24. Yes! Having worked for Borders as a bookseller throughout all of college until early last year, I saw what was happening from the inside. How Borders was falling apart, and desperately lying to their employees. It scared me so much I bailed ship and am now working a library--which is doing considerably well during these times.

  25. This makes me want to go out of my way to shop at Borders. Something to think about, for sure.

  26. Here's my two cents...(and just to warn you, when I get heated up about a topic, it can get lengthy, and will inevitably be full of parenthetical comments and unnecessary quotation marks).

    Borders is the only "real" bookstore I have nearby aside from the public library (and yeah, the library doesn't count, I know). It just opened a few years back and I had been saying for OVER A DECADE, "Good grief, this town needs a good bookstore already!" I did jumping jacks the day I found out a Borders was going up. And I've been very pleased with it - good selection, friendly employees, a huge play area for the kiddies, and a coffee shop (that I've never used, but it's still awesome to walk in there and smell the grounds while perusing my next purchase).

    I take my son to Borders on a regular basis, despite the downturn of the economy, because I remember how much I enjoyed having "books of my own" when I was a kid. It didn't matter if I accidentally colored on them or tore a page in my enthusiasm. And I could put my name in it. MY name...not "property of such-and-such district library."

    The last time I took my son to get another First Readers book (he loves the Star Wars: Clone Wars series), I stopped by the sci-fi section (as usual) and there were Star Wars toys on the endcaps of the bookshelves. So, of course, he immediately picks one up and tosses the book on the floor.

    What? Seriously, like any kid in this generation (or any previous generation or any generation henceforth) is going to prefer a book over an action figure. Why the F are they stocking toys? Needless to say, I was miffed. Not at my son, though...he was just doing what came naturally for a boy his age (that would be 5, if you're wondering).

    I was able to have the cashier slyly take the toy from him at the check-out, but he'd figured out what happened before we got to the car. And took it out on poor Anakin Skywalker in his brand new book. Crinkled the damn thing up and nearly tossed it out the window on the way home. Good thing he didn't, though, because once I put his name on the inside front cover, he'd taken a liking to it again.

    Long story short (too late, I know), I like my Borders, and it saddens me that they have to resort to gimmicks like displaying action figures in the "adult fiction" section (uh...there's a whole children's WING in that place, so why venture away...*shakes head*).

    My son will be starting school this year, so, after reading this post, I'm going to look into some things that I could possibly do in conjunction with the teachers to get more parents actually buying books for their kids (for his age, they're less than five bucks a piece, and we don't live in a poverty-stricken area...if I can afford it, as a writer, then anyone can).

    Okay. Two cents complete. :)

  27. I used to go to Borders for books I couldn't find anywhere else. They used to have a great and varied selection, but, sadly, that's no longer true. I still stop there to look for books I want, but rarely find what I'm looking for, and now I go to Barnes & Noble. I think their lack of selection has eroded their customer base and significantly impacted their profit.

  28. '"the Borders," a husband and wife team who had a lovely ONE bookstore in downtown Ann Arbor. '

    I miss it too, especially the USGS maps and the university press section. But "the Borders" were brothers Tom and Louis, who were not husband and wife for obvious reasons.

  29. I love(d) Borders. I've always liked them more than B&N and go to Borders even though I can walk to B&N. We used to have a Monday board game night in their cafe until they shortened their hours. I went in yesterday for the first time in months and I honestly thought the place was going out of business. Everything had moved and I had to walk across the entire store to get to the books. Borders is the victim of lesser brand notoriety and HORRIBLE managerial decisions. I don't know how publishers can save it. I believe it is doomed.

  30. borders skipped many debut books this year, including my own. if only they'd return to stocking books and expanding their selection. not sure if the chain is salvageable.

    for the poser who thinks that bn would have a "monopoly" on books, well, it's true. at the same time, borders wasn't taking risks with many new writers anyway, whereas bn has been.

    more reason to support your indie book stores, imo.

  31. I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


  32. My daughter was interviewed for management and then asked to work "as a foot in the door" to help Dan Brown's new book release and at the cafe19 hours a week. She agreed. Two weeks later, she told she did a great job, but would "probably be happier somewhere else" and fired.
    She is devastated.
    It is soooo unethical to continue to "holiday hire" while promising a career to these young people.
    I will boycott this store. Hope they go down! They treat their people terribly.
    Not just my daughter either. A few years ago, a friend of mine with a MA in Art History had to get a basic job to make ends meet when she could not get a professorial position. She worked at Borders as a bookseller. She is widely read, enthusiastic, and personable. She was none-the-less followed around by a store spy who made sure she (and the other employees on the floor) asked all their "point" questions of every customer and then they were written up everyday.
    Might as well gag them and equip them with a "talking device." This grown professional woman found this intimidating and demeaning. Who wouldn't?

  33. I live in Ann Arbor. The ORIGINAL Borders was amazing. The people who worked their took great pride in their jobs -the considered working at Borders a career. They were professionals. And the ownership adored their employees.

    The new Borders just mistreats their employees. The meaner a person, the more they are apt to be kept on and even go onto Borders management. Slice and dice, that's their motto, it seems.

    In the long run, business is about people. We all prefer to do business with people we like for products we like at prices we like in environments we like. But how we treat people and how they treat us is still important.

    It is hard to support a corporation that isn't friendly to its own people.

  34. I just came across this thread and I want to make a comment just so you are aware of Borders' competition. Barnes and Noble is a horrible place to work. I mean it is absolutely dreadful. People are hired at a starting pay of $7 an hour as of a year ago. I worked there and I still have nightmares about it. To be truthful, it doesn't matter if know a thing or not about books to work there. The Member Card that we had to push down everybody's throats is a complete waste of money. You pay $25 to save 10%. Unless you buy in volume, you are being ripped off. I could go on but you probably don't even think about what people have to endure at places like that. Just remember that the Barnes and Noble that you think is the greatest place to purchase your book is pretty close to hell.

  35. I am an ex-Borders employee of eight years, and I have to say, we saw it coming. There was a major shift in management on the executive level five or six years ago that resulted in a shift of focus away from customer service and selection, which had been their strong suits. Really, it seemed like somebody had stolen a copy of the B&N handbook and decided we should try to be them, only without the ten-year marketing plan. Needless to say, Borders will never be as good a B&N as B&N, but they once were a really good Borders, and that was why people shopped there. Now people don't shop there, and they wonder why.