Feb 16 2011
This morning, Borders filed for Chapter 11 bankruptcy which is an attempt to discharge (get rid of) bad debt and reorganize itself into a profitable business. According to the report in Publishers’ Weekly, Borders will close around 30% of its stores. Borders has 642 stores and plans to close 200 of them. Borders’ bankruptcy will be meaningful to the publishers’ bottom lines in short term and the long term. In the short term, this means that the debt owed by Borders to the publishers will be represented as a loss:
The announcement made this morning was foreshadowed last night when it implemented an ordering freeze and Ingram, its lifeline to the publishers, stopped shipping books. Publishers are on the hook for hundreds of millions of dollars led by Penguin Group (USA) which is owned $41.1 million, followed by Hachette at $36.9 million, Simon & Schuster at $33.8 million, Random House at $33.5 million, and HarperCollins at $25.8 million. Neither major book distributor, Ingram or Baker & Taylor were among the leading creditors, and only one book distributor, National Book Network, which is out $2 million.
All these publisher debts are unsecured which means that they will have lower priority with the bankruptcy court. Unsecured debt is debt that is not secured by an asset. In our lives, credit card debt is unsecured whereas a mortgage is secured (secured by the home). Ordinarily, a chapter 11 will result in a debtor being paid cents on the dollar owed. In the long term, the contraction of Borders will translate into smaller print runs (the number of books printed in one order in advance to the retail sale).
Another bankruptcy that will adversely affect the bottom line is the bankruptcy of Fenn in Canada. Fenn was Canada's largest book distributor. It’s largest unsecured creditor is Macmillan to whom Fenn owes $10 million and Harper Collins is owed $3.3 million.
There is no mention as to what will happen to Kobo. Maybe one of Borders’ most valuable assets is its minority share in Kobo. Borders has a 20% investment. My guess is that the plan for restructuring will include the Kobo business at its center. EBooks are on the rise while retail store book sales are declining. According to preliminary US Census Bureau data, bookstore retail sales fell 1.4% whereas general retailer sales rose 6.6%.
Based on Barnes & Noble’s success with the nook (as opposed to book retail sales), a book retailer without a digital plan probably doesn’t survive on a national scale.
Other investors in Kobo include Indigo; Instant Fame, a subsidiary of Cheung Kong (Holdings) Ltd. of Hong Kong; and REDgroup Retail of Australia. Kobo also announced it had raised $16 million CAD (about $15.1 U.S.) in financing from its investors. Indigo will retain approximately 58% ownership of Kobo. Source: News Release
Kobo put out a release to assure customers that their ebooks are safe and that it is unaffected by the Borders’ bankruptcy:
Will I lose access to ebooks I have purchased at Borders.com?
Your ebook library is perfectly safe. The Borders ebook experience is powered by Kobo, an entirely separate company from Borders. Kobo is financially secure and will continue to maintain your ebook library no matter what happens.
Nothing. Kobo is an independent, financially secure company that provides a Global eReading Service. Today will be another day filled with books being downloaded every second by Kobo users in over 100 countries.
The list of 200 stores to be closed have not yet been announced. Wall Street Journal has posted a sortable list of the 200 store closings. I’m curious which of our readers shop at Borders and may be affected by the closures.[poll id="235"]