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Borders are BROKE!

If you have any Borders gift cards laying around, now would be a good time to spend them.

I just got off the phone with a Borders PR rep. She read me the official statement about Borders' current financial crisis. I’m going to quote it in its entirety because this one is scary. If I were a Borders vendor this statement would probably give me a panic attack. (Please pardon the transcription errors.)

In response to media inquiries, Borders Group Inc. today stated that, as the company previously reported, it is in discussions regarding the potential refinancing of its existing senior credit facilities. As part of this potential refinancing, Borders has determined that it is necessary to restructure its vendor financing arrangements and is delaying payments to certain of its vendors.

Borders has notified these vendors and will be working with them to restructure their arrangements with the company. Borders stated that there can be no assurance that it will be successful in refinancing its senior credit facilities or restructuring its vendor financing arrangements. As the company previously reported, the absence of the refinancing could cause the company to violate the terms of its existing credit agreements in the first calendar quarter of 2011 and the company could experience a liquidity shortfall.

I’m sorry, but if you’re not paying vendors and you’re worried about making loan payments then you’re experiencing a liquidity shortfall right now.

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Mike Cane December 30, 2010 um 8:32 pm

Not necessarily. They could be liquid enough to keep operating stores but not liquid-plus enough to also pay down debt and service existing accounts. It’s not a good bind to be in.

Zigwalski December 31, 2010 um 12:04 am

Your headline should be Borders is Broke. Borders is one company so it is singular!

There are three problems that Borders faces for the immediate future.

1. Get rid of under performing units that are draining profits. I bet at least 20-30% reduction in store count.

2. Reduce inventory in their stores. Each store is probably filled with 100s of books that are just never going to sell. They need to get rid of these right away.

3. Re-evaluate their e reader business. Look at the Micro Cruz e reader. It debuted at $199 and now sells for $119. If it were any good, it should have flown off the shelves at Christmas at that price. Even if the manufacturer reduced the cost of these devices to Borders, the profit margin had to dwindle with it.

The expensive Sony’s and ill fated Kobo are not going to help Borders at all. If they could work with Sony to develop a Sony Pocket Edition with their Bookstore in a wifi version, then they might have a contender. But we all know that is not going to happen.

Moriah Jovan December 31, 2010 um 11:19 am

ill fated Kobo

The Kobo’s value is in its international ebookstore and lessened geographic restrictions of titles to international customers.

Zigwalski December 31, 2010 um 12:42 pm

Kobo was to be the big e reader for Borders. SO I am referring to the e reader not the company. If the price had remained high for the Nook and Kindle, then the Kobo would have sold decently for Borders. With the first Kobo not having wifi, slow, and a crappy screen and cost the same as a Nook at it’s time of release, Kobo came out to Borders as a tarnished name. If the Kobo wifi had come out first, at least they would have had a better unit.

The idea to stock so many e readers, probably did not help Borders as much as it looked on paper. Brand identification like the Nook and Kindle are really setting the market.

I have bought most of my books from Kobo since they offer huge discounts almost every week. So I am actually a fan of Kobo as a company.

Moriah Jovan December 31, 2010 um 2:10 pm

SO I am referring to the e reader not the company.

…except it’s in Wal-Mart and every time I ask, I’m told they sell faster than they can keep them in stock.

Zigwalski December 31, 2010 um 2:13 pm

I don’t see how selling them in Wal Mart will help Borders. The Wal Mart ones are linked to the Kobo store.

I have two Wal Marts near me. One does not sell them and the other does not have them on display and a bunch of them behind the counter.

Darryl Adams December 31, 2010 um 6:01 pm

1. Borders US is an investor for Kobo. I do not know how much the investment has paid off, but the Aussie Borders have done nicely from the investment.

2. Borders AU (owned by REDGroup) is a different company to Borders US, so if you have an Aussie Borders Gift Card, you should be safe).

3. Not sure about the US insolvency rules, but the Aussie definition of Insolvency is not being to pay debts as they fall due.

While there is serious penalties for trading while insolent, If takes creditor action or director action to trigger an insolvency action. If the creditors agree (including secured creditors) formally or informally, a company can keep trading, if only to avoid the large cost of administration.

It does not look good however

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