By Phil Wahba and Tom Hals
NEW YORK/WILMINGTON, Delaware | Wed Feb 16, 2011 4:57pm EST
NEW YORK/WILMINGTON, Delaware (Reuters) - Borders Group Inc filed for bankruptcy protection and said it would close about one-third of its bookstores, after years of shriveling sales that made it impossible to manage its crushing debt load.
The long-expected Chapter 11 filing will give the second-largest U.S. bookstore chain a chance to try to fix its finances and overhaul its business in an attempt to survive the growing popularity of online bookbuying and digital formats.
But the chain still faces questions about its longer-term survival in the face of competition from larger rival Barnes & Noble Inc and discounters such as Wal-Mart Stores Inc and Costco Wholesale Corp, as well as from Web retailer Amazon.com Inc and from Apple Inc in electronic books.
Borders President Mike Edward said his chain "does not have the capital resources it needs to be a viable competitor." He said the bankruptcy was essential for Borders to restructure its debt and still operate.
Borders, which was founded in 1971 and bought by Kmart in 1992, had liabilities of $1.29 billion and assets of $1.28 billion as of December 25, according to documents filed on Wednesday with the U.S. Bankruptcy Court in Manhattan. Borders has had net losses totaling $680.6 million since the beginning of its 2007 fiscal year.
The pioneer of book superstores plans to abandon some of its highest profile locations, closing a store in its hometown of Ann Arbor, Michigan, as well as one on Manhattan's Park Avenue.
All 200 closings will be superstores, and about 6,000 jobs will be affected, the company said. It has the option of closing up to 275 in all, according to court documents. It said the stores it wants to close lose a combined $2 million a week. The closings will start by Saturday. The company said it will honor gift cards.
Borders operates 642 stores, including about 500 superstores as well as more than 100 smaller Waldenbooks locations. Almost all of the stores closed by the company in recent years were Waldenbooks locations.
"Waldenbooks really is a specialty retailer," said Mark Freiman, a retail consultant with Focus Management Group. "Borders is category killer and essentially a category killer in book is going to go away. There is no question about it."
The largest U.S. bookstore chain, Barnes & Noble, has had success with its Nook e-reader and online store, allowing it to stay in contention with online book pioneer Amazon.com. Borders has lagged well behind.
Borders made a major strategic error in 2001 when it handed off its online business to Amazon. It relaunched borders.com in 2008, but in the first three quarters of 2010, online sales made up only 2.3 percent of revenues.
The chain's difficulties have been worsened by the revolving door in its executive suite in recent years. The company has had four chief executive officers in the past three years and two chief financial officers in 2010.
Sales declined by double-digit percentage rates in 2008, 2009 and in the first three fiscal quarters of 2010. During those nine months, sales came to $1.54 billion.
SMALL BOOST FOR B&N?
The bankruptcy could help sales of traditional books at Barnes & Noble, at least temporarily, analysts said. Credit Suisse estimates that 70 percent of Borders stores are near a Barnes & Noble store. Barnes & Noble operates 717 superstores.
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