Updated: Borders’ Downfall And What’s Next

Borders bakruptcy

Why did Borders fail and what does its shuttering mean for Barnes & Noble (NYSE: BKS), book publishers and others? Here is our FAQ.

Why did Borders fail?

In a letter to Borders’ nearly 11,000 employees, all of whom will lose their jobs, Borders Group CEO Mike Edwards palmed off Borders’ closing on “external forces.” True, Borders faced a lot of competition from Amazon and other online booksellers. But the nation’s second largest bookstore chain was also slow to adapt to the digital age and made poor decisions. In 2001, Borders decided to pay Amazon to run its website, rather than handling that itself. As a former Borders employee told Bloomberg this week, “It ended up being a customer-harvesting vehicle for Amazon.”

Borders broke off the partnership with Amazon in 2008 and began running its own website, but it lost years of managing its own digital strategy; meanwhile, Barnes & Noble was quicker to adapt and, of course, launched the Nook, which now has over 25 percent market share for e-readers. Other factors that led to Borders’ demise: Its emphasis on CD and DVD sales (not a great strategy in the iTunes era) and rapid expansion of stores, even as sales declined, at the cost of a beefed-up online strategy. AnnArbor.com has a great timeline of Borders’ rise and fall, beginning with the chain’s inception in 1971.

This is great news for Barnes & Noble, right?

Kind of — Barnes & Noble is losing a competitor and it will gain customers who used to shop at Borders. But B&N faces a lot of the same challenges that Borders did, namely competition from Amazon (NSDQ: AMZN). Barnes & Noble temporarily will also lose some customers to Borders’ massive upcoming round of liquidation sales. (B&N also attributed its decline in sales in the first quarter this year, the last quarter of its fiscal year, to the first round of liquidation sales immediately following Borders’ bankruptcy.)

What does this mean for publishers and authors?

It’s unequivocally bad news for publishers and authors. Bottom line: The closure of Borders means fewer places to sell books (and promote books and book discovery). Publishers will have to reduce their print runs and shipments, and, as the NYT‘s DealBook pointed out, may have to lay off employees who worked only with Borders. Borders’ closure is particularly bad for paperback sales: it “was known as a retailer that took special care in selling paperbacks, and its promotion of certain titles could propel them to best-seller status.” Independent booksellers, counterintuitively, could also be harmed by Borders’ closing: In the Providence Journal, one independent bookseller feared that publishers, squeezed for cash, will be less able to extend discounts to indies.

Who is losing the most money from Borders’ liquidation?

Publishers. Penguin alone is owed more than $41 million. See our list of the biggest losers from the Borders bankruptcy.

What happens to Borders’ e-book partner, Kobo, and the customers who bought e-books through Borders?

Kobo, which powered Borders’ e-bookstore, stressed in a long statement that it’s a privately held company, Borders owned just 11 percent, and it will go on expanding both in the U.S. and internationally. Borders transitioned its e-bookstore and customers’ e-books over to Kobo back in May, and users can switch their accounts over easily (and retain access to all their books) if they haven’t already.

How many stores are closing, and where are they?

The 399 remaining Borders stores will close. Borders had already closed over 200 stores since filing for bankruptcy in February 2011. Closures include Borders stores in major cities like Boston, New York and Chicago as well as Borders stores in smaller cities and towns that may have been the only bookstores for miles. Here is the WSJ‘s interactive map of stores that are closing.

When will the liquidation sales start and when will the stores close?

Liquidation stores will start as early as this Friday, and all Borders stores will be closed by the end of September.

update: What if I have a Borders gift card or unused Borders Bucks?
In an e-mail to customers, Mike Edwards explained that gift cards will work at the liquidations sales. Borders Bucks expire July 31, and Rewards Plus members keep their discounts through August 5.

If you have more questions, please post them in the comments.

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