Bookstore chain made some key mistakes that history makes painful to revisit
By Paula Gardner
The Ann Arbor News
ANN ARBOR, Mich. (AP) - Corporate leadership of Borders Inc. took a stab at saving the Ann Arbor-based bookseller five years ago - on Feb. 16, 2011 - by filing for bankruptcy and aiming toward a restructuring.
A few months later, then-CEO Mike Edwards thought he'd done the job. He'd worked 20-hour days fighting to stave off liquidation, and believed an investor was ready to extend Borders' lifespan.
Private equity investor Jahm Najafi came close to buying the company in July 2011, but talks collapsed, The Ann Arbor News reported. Edwards kept pushing for a deal, scrambling to make a bankruptcy auction a viable option - and it almost happened just before the court's deadline.
"I was literally 30 minutes from saving the company," Edwards said during a recent interview.
"I thought I was going to save the company at 5 p.m.," he recalled. "By 5:30 p.m., I was going to fly back (to Michigan) and eliminate 10,000 jobs."
The bankruptcy filed on Feb. 16, 2011 may have been the only possible means of survival for the retailer that operated 640 stores, employed 18,100 people and carried $1.293 billion in debt amid declining sales and expensive leases - and assets of $1.275 billion.
Seeking the Chapter 11 reorganization was an attempt to stave off creditors and keep stores operating. The move held particular impact in Ann Arbor, where the book store was founded in 1971 and which proudly proclaimed itself the home of the quirky retailer that grew into the nation's second-largest book store chain and set the tone for what America read.
However, five months later, Edward told employees and investors that reorganization would not happen. The company's liquidation began July 22, 2011.
The closing of Borders came as a blow for Michigan, which lagged the national economy at the time. Ann Arbor, still home to the Borders headquarters and three superstores, mourned.
"It was a painful time for all us involved," said Edwards, who took a leadership role at Staples after leaving Borders and who now is president and CEO of eBags. "I think about the bankruptcy often."
It was a time when the nation was emerging from the Great Recession, U.S. retailers were once again recording sales growth and the book industry was learning how fast e-books and the iPad could shift consumer behavior.
Those lessons continue today, and they're not just affecting book retailers. Sales are shifting from store-based to online, but that's not new; what is new is the rate of speed at which retail relevancy moves along with profit patterns. A brand may have years of value behind it, but that won't keep it relevant, Edwards said.
Edwards took over as interim CEO in January 2010, four months after joining Borders as chief merchandising officer. He became the company's third CEO in a year, during a time when its stock price started a decline below $1 per share.
The bankruptcy filing started a wave of store closings as the initial filing included plans to shutter 200 stores, with another 130 or so possible. Four in Michigan were on that list: Arborland in Ann Arbor; and stores in Dearborn, Grosse Pointe and Utica. By fall 2011, all of the Borders stores closed.
"I think people are still sad that there's not a Borders in the neighborhood," Edwards said. "It was loved; it was cool. It was authentic."
The authenticity came from the chain's start on South State Street in Ann Arbor, when founders Tom and Louis Borders turned their love of books into a business. They hired people who felt the same way about books; that carried over as the store expanded into music during its years as a subsidiary of Kmart.
Even when Borders grew and went public, that core understanding of what it meant for a customer to go into a store and discover something meaningful drove its staff. It created the essence of the brand.
"We had real booksellers who understood the art and literature," Edwards said, noting the expertise found among staff.
"It used to be center of a community," Edwards said. "I think people long for what Borders brought to a community.
"I still miss it. So do customers."
Borders made some key mistakes that history makes painful to revisit. Some decisions seem inexplicable today as it becomes evident how much technology is changing business and consumer patterns. One is when former CEO Greg Josefowicz turned over the online division of Borders to Amazon in 2001.
Josefowicz "shook hands with the devil," Edwards said, "and handed him the online business."
At that time, Borders officials thought online sales would always be small. It invested more and more money into opening more stores, signing long-term leases for them.
"(They thought) customers would always shop in the stores," Edwards said.
"The opposite happened."
Edwards noted that technology drove another fundamental shift.
"The pivotal moment for me is when Apple launched the iPad," he said. "That foundationally changed the (book) industry forever.
"Essentially, the iPad was a Borders in your hand. It had books, music and video. And people had access to millions of books."
Seemingly overnight, some publishers saw their business shift to 25 percent digital delivery.
The result, Edwards said, brought Borders late to an obvious conclusion: "Customer shopping patterns changed."
Today, the digital disruption continues. While there's some irony to unconfirmed reports that Amazon.com plans to open book stores, US Census data shows increases in book store sales in 2015 - for the first time since 2007. Industry data also is showing a decline in e-book sales in the first three quarters of 2015.
Edwards thinks the Amazon move will happen, in large part so that it eventually can develop its Amazon Prime delivery across product lines.
"It will be incredibly disruptive," Edwards said. "It could be a final blow to Barnes and Noble. They can open really small stores, but have access to millions of titles. "
Edwards fought to keep Borders alive through the bankruptcy, filed in New York. The year 2011 was "beyond intense," Edwards recalled.
His days would start at 4 a.m. and end at midnight. That meant working with creditors, "keeping the business going without any cash." It also meant keeping associates engaged.
Edwards described himself at the time as obsessed with finding the cash to keep Borders operating.
"Every day I said, how am I going to win and how am I going to survive?"
Going through a failed bankruptcy reorganization for a CEO is "humbling," Edwards said. Principles that he learned over an entire career suddenly didn't work due to what he described as a "digital tsunami."
Lessons came hard and fast into the board room and top offices: leadership. Transparency. How fast you can move when you need to.
Another lesson: Waste. "How much a company can spend over the years when not forced to look at it."
As he remembers the endless days of 2011, Edwards speaks passionately about the Borders staff. Layoffs took place in waves as the chain headed toward its concluding chapters, but those who remained wanted nothing more than to keep Borders alive.
They were there because they loved the business. They cherished discovering books and music, and wanted customers to value their finds in the same way, prompting an analyst to describe Borders as crucial in the "book-discovery ecosystem."
Doing it under bankruptcy pressure took its toll, but employees didn't stop trying.
"All of the associates put their hearts and souls into saving it," Edwards said. "They are heroes in my view. I'm eternally grateful."
Published: Mon, Feb 22, 2016
