Thursday, February 24, 2011

The Incredibly Shrinking Borders

Tom and Louis Borders founded a used book store in Ann Arbor in 1971. It was a success, and soon they devised an inventory control system to wholesale books to other book stores.

Borders Bookstores filed its long anticipated bankruptcy petition on Tuesday, February 16. It listed $1.27 billion in assets and $1.29 billion in liabilities.

That’s not when it died – only a formal date. Theoretically it still breathes through Chapter 11.

Borders has been on a death spiral for years, just like Circuit City, Pan Am, and A & P. The ever-shrinking Borders shrank from 1,249 stores in 2003 to 642 before the bankruptcy filing. It closed 219 stores in 2009, 45 in 2010, and sold its Ann Arbor headquarters in October 2010 for $18.4 million. It plans to close at least 196 additional stores in bankruptcy and perhaps 75 more.

Did Borders fall prey to Nope. The company even sold its internet operations to Amazon in 2001.

How about when it failed to effectively respond to Amazon’s Kindle, Barnes & Nobles’ Nook, or Apple’s IPad? Not really.

How about when Wal-Mart became the largest music retailer in the United States, followed by Apple with ITunes? Not then either.

How about its last profit in 2006, and hundreds of millions in losses since then? Negative.

How about 5 years of unsuccessful recapitalizations and years of mismanagement?

What about too many long term leases in poor locations?
It didn’t help, but no.

The Border Brothers sold the chain to Kmart in 1992. That was the beginning of the end.

Kmart acquired eight years earlier the mall centered Walden Books Chain. It couldn’t figure out how to run Walden so it doubled down by paying the Borders Brothers for their operation. Most of the management left after the merger. Borders had little more success with Waldens than Kmart.

Kmart, seemingly the most successful retailer at the time, did not know how to manage its business, much less those of anyone else. It went on an acquisition streak, bringing diversified retailers into its corporate umbrella. Payless Drugs was a thriving West Coast discount drug chain until Kmart paid $25/share for it. Kmart peddled it to Thrifty, which then joined Rite Aide. Payless died, as did Builders Square and Pace Membership Clubs.

Kmart sprung off Borders-Walden in 1995. Stores expanded, sales grew, profits rose, but the numbers hid the corporate drag of Waldens.

Only OfficeMax and Sports Emporium survived the Kmart embrace, which ironically filed to invest in a computerized inventory control system.

Borders has sadly been sinking for decades with no happy ending in sight.

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