For bookseller, it could be the end

Future of Borders concerns landlords

Borders listed debts of $1.29 billion in court papers. Borders listed debts of $1.29 billion in court papers. (Bloomberg News/File 2006)
By Kaivan Mangouri
Globe Correspondent / July 16, 2011

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A looming liquidation of retail chain Borders Group Inc. could shut down its 15 remaining stores in Massachusetts and leave only one chain bookstore in Boston: the Barnes & Noble in the Prudential Center.

The lack of competition would reduce pressure on the remaining chain bookseller, according to Mary Gotaas, a Los Angeles-based analyst for IBISWorld Inc. “Before Borders [went] bankrupt, bookstores were trying to adapt themselves like coffee shops with specialized items,’’ she said. “If Borders is liquidating, I don’t know if Barnes & Noble will have to try as hard.’’

Earlier this week, creditors thwarted a promising bid from a subsidiary of Phoenix-based private equity firm Najafi Cos. to take over Borders, which filed for bankruptcy protection in February. A US bankruptcy court in New York has given Borders a deadline of tomorrow to find another bid or its assets will be sold at auction on Tuesday. The lead bid would come from a group of liquidators that includes Boston-based Gordon Brothers Group. Gordon Brothers did not return calls for comment.

The potential shutdown of Borders stores concerns the chain’s landlords. Clarendon Group USA Inc. bought the Downtown Crossing building that housed a 40,000-square-foot Borders in 2006. The store had already been there for 11 years, said executive director Michael Murphy.

The Borders lease was to run until the end of next January, but Murphy is seeking a new tenant for the massive space. “It’s frustrating, because you don’t have a good feeling for where you’re going right now - it changes weekly, if not daily,’’ he said.

Clarendon’s broker, CB Richard Ellis of Boston, met with several prospective national retailers attending this week’s International Council of Shopping Centers convention in Boston, Murphy said.

“Finding tenants for that space is definitely our number one priority here in Boston,’’ he said.

Borders listed debts of $1.29 billion in bankruptcy court papers, and has closed more than 200 of the 642 stores it was operating when it filed for Chapter 11 protection from creditors. Eight have been closed in Massachusetts. “We are focused on preparing for next week’s auction on July 19. We are hopeful that Najafi Companies and other potential bidders who are interested in operating Borders as a going concern will choose to participate in the auction,’’ the company said in a statement.

Borders struggled financially for years after overextending itself in the United States and overseas, and failing to successfully cope with such changes in the industry as the advent of the e-book, retail analysts said.

Since 2006, revenue for stores selling new books has dropped from $20.8 billion to an expected $19.2 billion this year - a 7.7 percent decrease, according to an IBISWorld industry report. That number is expected to fall another 5 percent to $18.2 billion in 2016. While the numbers don’t seem drastic, Gotaas said existing stores are largely propped up by sales of college textbooks. As academia publishers gravitate toward e-readers, those numbers could fall more quickly, she said.

Michael Tesler, a retail analyst with Retail Concepts Inc., said Borders took the wrong steps when business started getting tight. “They needed to take risks and try new things . . . and they didn’t, so they lost,’’ Tesler said. “I’m not going to feel sorry for them, because they became a dinosaur and were blind to that fact.’’ The chain, which eight years ago had 1,200 stores nationwide, paid for oversized spaces in the wrong locations, he said. “Borders customers are the suburban, upwardly mobile family,’’ Tesler said, and they prefer to purchase books online.

Kaivan Mangouri can be reached at