Bookseller Borders going out of business

Bookseller Borders Group (BGP) said late today it will go out of business, marking the culmination of a years-long decline for the nation’s second-largest bookstore chain.

The liquidation means that more than 10,700 people who still work for Borders -- including about 400 at its Ann Arbor, Mich., headquarters -- will lose their jobs. The announcement came shortly after the stock market closed.

Borders' 399 remaining stores will be closed quickly, with liquidation sales starting as soon as Friday and finishing up by September.

Borders could not overcome competition from larger rival Barnes & Noble (BKS) and Amazon.com (AMZN), which began to dominate book retail when the industry shifted largely online. Borders, which had filed for Chapter 11 in February, also never was able to come up with an electronic reader like Amazon's Kindle and Barnes & Noble's Nook.

Borders, which had a 10.7% share of the U.S. retail book market, had hoped to sell itself to Arizona buyout firm Najafi Cos., which owns the Book-of-the-Month Club. While Najafi was willing to pay $435 million for the assets, the deal fell apart last week after creditors objected to terms that would have allowed Najafi to liquidate after the sale.

Earlier Monday, Reuters reported that Books-A-Million (BAMM), the nation's third-largest bookstore chain, was in talks to acquire a small number of Borders stores.

Borders said in a filing late today that it had received a bid for 30 stores and that it may seek bankruptcy court approval to sell the leases and their inventories. It wasn't clear if the offer had come from Books-A-Million.

Borders will sell itself to a group of liquidators led by Hilco Merchant Resources and Gordon Brothers Retail Partners. The liquidators had submitted what's known as a "stalking horse" bid. That means it made an offer but the company could accept a bitter bid. No bid emerged.

"Everyone at Borders has helped millions of people discover new books, music and movies, and we all take pride in the role Borders has played in our customers’ lives," Borders President Mike Edwards said in a statement.

The company -- which had closed more than 230 stores since its bankruptcy filing -- has continued to lose millions every month.

A New York bankruptcy judge will be asked to officially approve the liquidation at a hearing on Thursday.

"I’ve always enjoyed shopping at Borders and so have a lots of other people. It’s going to have a pretty bad effect on the industry,"  Michael Norris, a publishing industry analyst with Simba Information, told Ann Arbor.com, the online operation of the Ann Arbor News.

The bankruptcy is also a major blow to retail landlords throughout the country. Borders, which leases all of its stores, has an average of about 25,000 square feet per superstore. The chain has about 270 superstores and 130 small-format locations.

During the bankruptcy process, book publishers turned into an obstacle to Borders’ reorganization. Borders' top seven unsecured creditors, including publishers such as Simon & Schuster and Random House, were owed more than $193 million, according to bankruptcy filings.

Borders' management failed to capitalize on the sales opportunity created by the emergence of the Internet, built a network of superstores that turned out to be far too large and didn’t develop an electronic books strategy.

If there's any solace for Borders workers, it's that Cisco Systems CSCO), the giant networking company, is cutting 6,500 jobs, about 9% of its work force, a move meant to cut costs and boost the company's sagging stock price. Another 5,000 will be cut from the payroll when Cisco sells a manufacturing plant in Juarez, Mexico, to electronics manufacturer Foxconn International. Employees will work for Foxconn under terms of the deal.

Borders was founded in Ann Arbor in 1971 by brothers Tom and Louis Borders. The brothers sold the company to Kmart in 1992, which owned Waldenbooks at the time. The businesses were merged and spun off in 1995.

The company expanded rapidly between 1992 and 2006. What wasn't apparent to the management was that sales per square foot began to decline as early as 1997, a sign of a market that was becoming glutted and later by hit the Great Recession.