Trouble at the Borders

Borders is feeling the sting of the low economy as well. The nationwide chain bookseller headquartered in Ann Arbor lost around 14% of its revenue during the holiday season and that trend unfortunately does not seem to be changing. The company also owes a reported 42.5 million in a loan to a  New York hedge fund.  However, Borders is still the #2 bookseller in the nation with over 508 superstores and 25,000 employees worldwide.

Its concept superstore in Ann Arbor contains a lot of innovative features such as a digital center where people can mix their own CD’s, start publishing their own books, and where they can even trace their own genealogy. Yet this extravagance may be some of the cause of Borders woes. According to Borders Group officials, the estimated lease costs for the superstores will be over half a billion dollars in 2010, and in another 30 years, that cost will more than double to almost 1.3 billion dollars annually. The trend for Border’s sales does not seem to be going up, so why is the company investing so much in its stores? According to an Annarbor.com report, it seems to be because the management believes that the stores offer a “rich shopping experience in a relaxing, enjoyable atmosphere.”

Another possible source of revenue loss might be the ever expanding market of eReaders and eBooks that offer consumers increased portability and cost benefits. Amazon’s kindle has around 2.5 million units sold and can have books auto downloaded via the free 3G wireless connection for around $10. Apple’s latest release, the iPad, has multitouch technology and access to Apple’s App store. Border’s competitor Barnes and Noble also has released its own eReader, Nook, along with a digital library that encompasses more than one million eBooks, magazines and newspapers.

Mary Davis, Manager of Public Relations at Borders, said in an email interview that Borders is trying to meet the demands of its customers. “We believe customers want a choice of how they want to enjoy books and that is why we continue to stock a vast inventory of books in our brick and mortar stores, while having a digital strategy that focuses on being device neutral and providing high quality content.” She goes on to announce the production of Borders own version of an eReader, Spring Design’s Alex eReader. The Alex eReader runs the Android platform and will feature dual displays, one with the “eInk” and another with a color screen. That second color screen is also reported to allow people to browse the web.

Yet this trek into the eReader market may not be enough to save the company. William Ackman, CEO of hedge fund Pershing Square Capital Management, believes that there is a “low probability” of bankruptcy in Border’s future. However, he said in an AnnArbor.com report, that he believes the company may not be able to survive on its own.  "It may become part of an industry consolidation at some point, or it may survive as a standalone company." He even suggested that the company might merge with its main competitor Barnes and Noble.

The company has already made many difficult decisions in order to cut costs. Last month, the company announced that it was laying off 124 corporate employees, 88 of whom worked at the Ann Arbor headquarters. In addition, last month, Border’s CEO, Ron Marshall, announced that he was stepping down and planning on going to another company, and that Michael Edwards, the former Chief Merchandising Officer, would take the reins as CEO. These layoffs and the transition in leadership mark what may be a low point in Border’s business. Hopefully, the changes that the new board makes in Border’s business strategy will be able to save it from Chapter 11, and keep one of Washtenaw County’s largest employers in Ann Arbor.

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