My thoughts – and findings – on Borders

I know the Borders thing is last week and while I’m not trying to kick at a dead horse (literally), I have a few of my own thoughts I’d like to share on the situation.

First off, I’m going to miss Borders.  They were the perfect bookstore for me.  One of the biggest things I hate about B&N stores is that nothing is broken up into genre… well, let me clarify, certain genres aren’t broken up that should be. 

Like what?

 Horror for one thing. 

It’s very annoying to see Nicholas Sparks and Stephen King share the same shelf space in the general term of “fiction”.  Yes, I know it’s fiction, but could you tell me something more please…

I can’t find new authors at B&N.  I can’t. 

I liked Borders because if I went into the horror section, I’d grab a King or Koontz book and then I’d grab something new from someone I’ve never heard of.

Second, Borders was inviting.  It had less of a warehouse feel to it.  It had a real café, a fun place to hang out.  My friend and I back in high school used to go there, sip bitter coffee, and watch open mic nights.  People strummed guitars, read poetry… hell, one night we met a bum walking from Wilkes-Barre who called himself Glen.  He wrote a poem on a napkin and read it.  There was so much freedom in that moment that it stays in my mind as one of the moments that helped shape me into becoming a writer.

On a funny side note, I tried chew for the first time in a Borders bathroom.  My friend slid the can of cherry Skoal under the stall and I loaded my mouth up.  Fifteen minutes later we were outside.  I was horribly sick, dying.  He kept saying to me how he wished he could feel that first high again… well, I turned towards him and puked.  All over him.

Ah, yes, good ‘ol Borders.

But then came an evil man named Jeff.  And his company Amazon.  And then came even more evilness of e-reading-machines and ebooks.  And ephones, er, iphones.  And droids.  And, and, and… technology.  *cue in the spooky music*

I’m not going to say here that Borders didn’t suffer from the changes in publishing and technology – they did suffer.  But their downfall, from the start, sadly was their own.  They set themselves up to fail.  They put themselves into a position where when the gettin’ was good, they were safe.  But when the gettin’ got bad, they went bye bye.

I was pondering this the other night and decided to dive right into the heart of it all – Borders financials.  At first I had a hard time finding the damn things, but luckily, I got the financials right off their site.  For those who haven’t read an annual report for a company, I warn you – wear boots.  Because the bullshit is abundant.  But that’s for every company… they have to keep it positive to please their shareholders.  One wrong sentence or sniff of something bad and investors can turn on you worse than Philly fans (oh come on now, I’m a Philly guy, I’m allowed to say that!).  Investors need reassurance and they need growth.  Constant growth.

The hard part of reading financials isn’t plugging numbers into formulas – which I did NOT do.  The hard part is looking, understanding, and reading in between the lines.

I went through all the financials from 2003 through 2010.  (Note that Borders fiscal year ends January 31.)

The first thing that JUMPED at me was from 2003.  There was a very sketchy paragraph about how Amazon (yes, the evil Amazon) would be fulfilling Borders internet orders for them.  WOAH… that scares me.  Even back in 2003, that seems scary.  By 2003, the internet was huge and while, granted, it didn’t have its power today with social networking and whatnot, I didn’t like the way the paragraph read.

The next thing that bothered me was the expansion plans.  They wanted to expand fast.  And I mean fast.  They wanted to be everywhere yesterday.  Expansion?  It’s a great thing.  But look at the basics here – expansion does not guarantee profits.  Expansion takes time and planning.  And capital.  And the whole capital thing, I’ll get there in a second.

Then came the downfall.  The downfall of the economy and where the cracks opened and bled.  As I read more into the financials the attempt to keep the smiles were fading quick.   In 2007, Borders closed stores in the UK and Ireland.  And in 2008, they closed stores in Australia, New Zealand, and Singapore.

Wait, I’m not done yet.

The big one.  The kicker.  The thing that toppled them over… they had a company financing their purchases.  See, in finance and accounting, if a company gets into a financial mess, they can use their receivables as collateral for financing everyday operations.  This is a TERRIBLE thing to have happen, but companies sometimes can pull out of it.  Here’s the skinny of it all… Borders had to keep a certain amount of sales to obtain a certain amount of financing.  If the sales fell, so did the financing.  In other words, a spiral effect.  Say Borders has a bad week or month (which all companies) do.  That would KILL them… which it eventually did.

Borders lost sales and lost the ability to survive.  They needed more cash to figure out their next step but couldn’t get it.  They were stuck… and they closed.

As far as the liquidation process goes, those owed money found it better to just let the company go.  That bothers me to my core because I liked Borders but hey, there has to be a separation of emotion in business I guess.

I dug around some of the numbers too and check this out…

In 2003, Borders had $463 million in working capital.  Their short term debt (owed in the next few years) was only $112 million.  They were stable.  Healthy in fact.  By 2006, that working capital shrank to $326 million and their short term debt grew to $206 million.  Still not bad, but worse than before.  Finally… we’ve got 2008, 2009, 2010.  Granted 2008 was bad because of the economy, so I’ll skip that one.  But look at 2009.  Work capital of only $77 million with short term debt of $329 million.  And finally, 2010… working capital of $60 million with short term debt of $274 million.  And that my friends is how a company slowly dies.  Right there.

They collect revenue.  They make a profit from it.  They spend that profit and then some on other projects.  Those projects fail.  Before failing, the company sinks TOO much into the projects.  Now the company is stacked with debt.  Then comes hell… the economy tips over and spills.

It may seem shocking at first when a company so big closes.  Think Lehman.  Think Circuit City.  But as I said, when the economy is good, banks are open and willing to deal.  Vendors will work with companies because they have their own banks to work with.  It’s a system.  But take that system and shake it… the stock market crashes, the economy flops, and oh my, you have a new can of worms opened. 

So I tip my hat to Borders.  Not to their management team or executives (who by the way made a fortune running the company… yeah, they put some of that in the annual reports.  Sickening to see sometimes.), nor do I tip my hat to those who hindered the potential saving of the company.  I’m a realist and knew the company was gone for good back when they filed bankruptcy, but I still wished they could have been saved. 

I tip my hat to the experiences.  To the feel.  To the enjoyment.  To the coffee.  To the sounds of conversations and keyboards clicking. 

I’ll miss it, but the truth in this is that Borders did it to themselves.  Did Amazon contribute?  Sure.  Did the Kindle and Nook contribute?  Sure.  But you know what, if we look at it that way, then Borders could blame all of us… because we bought stuff from Amazon and bought Kindles and Nooks.  We all know that’s not fair because we as consumers and customers can do what we please.  It’s up to the companies to please us and keep us coming back… and that’s where Borders failed. 

I refuse to see my local Borders as an empty store.  I imagine it bustling.  But that’s me, I’m a horror writer and I believe in ghosts.

For those who want to see the correlation between their debt and capital…

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About Jim Bronyaur

Jim Bronyaur writes mystery, thriller, and horror books. Grab a book at www.JimBronyaur.com Tweet him @JimBronyaur And for those who have Kindles and Prime, you may be able to get some of Jim's books for FREE!
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6 Responses to My thoughts – and findings – on Borders

  1. Chad Winters says:

    Excellent analysis…This was my feeling as well, but without the financial expertise. Seems eerily similar to this layperson as the U.S. government’s budget situation. Spending more than you make is survivable until a downturn in the economy.

    • Jim Bronyaur says:

      Thanks for the comment!

      Scary, isn’t it?

      They expanded at the wrong time. Value of land went down as did sales. They were banking on current sales – hell, growing sales – to thrive and it never came.

  2. declanconner says:

    It will be interesting to see if Waterstones survives in the UK. They are the last of the big chain bookstores that were rescued by a Russian Billionaire earlier this year from the verge of bancruptcy. There have been fortunes won and lost since they opened their first bookstore in the UK. Interesting that the new owner is going to ditch the new release, pile it high and sell it cheap scenario. He’s another money man who seems to be able to find value in bookstores that I just cant see. Good luck to him.

    I hope you don’t mind me posting a link to my article on Waterstones here, but it seems to be a subject that would interest you.

    http://declanconner.com/2011/05/20/waterstones-book-storesthe-beginning-of-the-end-or-a-new-dawn/

  3. declanconner says:

    Feel free to leave a comment on my Wterstones article with links to your two excellent articles I have commented on. I am sure my readers would be interested in your views.

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