Borders’ Final Chapter

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By: Glenn Rifkin

For some, it was a shocking ending worthy of a suspense novel. In 2011, the once ubiquitous chain, Borders Group, filed for bankruptcy, citing a series of “headwinds” out of its control, including a changing book industry and the e-commerce boom. But even then, the chain’s adoring fans were left wondering if that was the full story behind its demise.

The firm started out as an independent used bookstore owned by brothers Tom and Louis Borders in 1971 in Ann Arbor, Michigan, and grew into a $3 billion empire second only to Barnes & Noble among chain booksellers. In 2003, at its peak, Borders had more than 1,100 Borders and Waldenbooks retail outlets. Exemplifying the big-box strategy, each store offered 10,000 titles—along with music, videos, gift merchandise, a coffee shop, and vast inviting retail spaces—to lure droves of shoppers. It also had a first-class inventory system, developed in-house in its early years, that could accurately forecast consumer trends and help the company optimize its choices of titles.

Borders’ collapse wasn’t due to a lack of booklovers: book sales steadily increased during the early 21st century. But the firm faced a series of huge challenges. There was the advent of e-readers like Amazon’s Kindle, Barnes & Noble’s Nook, and Apple’s iPad, all of which undermined the Borders business model. The economy did hit a wall in the post-2008 financial-collapse era. And then, of course, there was the emergence of Amazon as an internet-content giant—along with other big new content providers like Netflix—which would ultimately be even more crushing.

But critics, noting that Barnes & Nobles had survived all this, point to a series of missteps. In an obvious one, Borders decided to outsource its sales to Amazon for seven years, essentially handing the keys of its business to what would become its largest competitor. It also made major investments in CD and video sales just as the music and movie industries were moving to an emerging streaming world.

Borders made its biggest bet not on the internet but on stores, and in that area, it turned to leasing operations. These leases, and the mounting debt they created, proved fatal during the 2008 recession. “Borders had too many long-term leases on too much retail floor space that weren’t sustainable in the downswings,” says Daniel Raff, an associate professor of management at the Wharton School of the University of Pennsylvania. “Clearly, Borders had overextended itself and couldn’t recover.”

When the 2008 recession hit, Borders had more than $350 million in debt on the books; not even two restructuring attempts could pull it out of the hole. The final chapter of this book was Chapter 7—liquidation.