Borders Books Victim of Recession, Wholesalers, Internet

Borders Group Inc. announced on March 20 that it will suspend its monthly dividend and explore "strategic alternatives" - including the sale of the company - in order to "maximize shareholder value," according to a statement released to PR Newswire.

Hit by a slowdown in consumer demand and stiff competition from wholesalers and online retailers, the company's fourth-quarter profits were less than analysts expected, resulting in a net loss of US$157.4 million for fiscal 2007.

Borders management "determined that additional capital was required to execute our operating plan" for 2008, but "the current credit environment has made many of these alternatives prohibitively expensive or entirely unavailable," said Borders Group Chief Executive Officer George Jones in the press release.

To help finance its operating plan, Borders secured an agreement from its largest shareholder, Pershing Square Capital Management, to lend it $42.5 million. Borders may also sell some of its international businesses to Pershing.

Known to most consumers as Borders Books, the Ann Arbor, Michigan-based company is the second-largest bookstore chain in the United States, after Barnes & Noble Inc. Borders employs 30,000 workers and owns 1,100 brick-and-mortar outlets across the globe.

Selling not only books but movies and music as well, Borders has had a difficult time competing with wholesalers such as Costco and Sam's Club. Wal-mart - which also buys books and movies in bulk and sells them for prices far below most of its brick-and-mortar competitors - has also eaten into Borders' sales.

The Internet has battered the bookstore chain as well. Music downloading services such as iTunes have taken away from sales of CDs, while Web sites like BN.com (Barnes & Noble's online store), Walmart.com and Costco.com all have forced Borders to cut prices.