May 19, 2024

Borders Plan for Recovery Is Described as Doubtful

Borders presented a restructuring plan to its creditors on Wednesday that promised publishers and landlords a sleeker, more efficient company poised to emerge successfully from bankruptcy through increased online sales and revamped stores.

But publishers characterized the plan as unrealistic and said they were more convinced than ever that Borders would be forced to sell itself or liquidate.

In a lengthy meeting on Wednesday with creditors, which include Penguin Group USA, Random House, HarperCollins and the Perseus Books Group, Borders executives tried to persuade publishers that since filing for bankruptcy protection in February, the company has stabilized itself and laid a foundation for growth.

It has secured $505 million in financing from lenders led by GE Capital to keep it operating throughout the bankruptcy process.

According to the plan, which was described by people who were briefed on it but who spoke on the condition of anonymity because those discussions were intended to be private, Borders said that it could make a profit by the end of this year and that by 2015 it hoped to make nearly 40 percent of its revenue from online sales, including e-books and print books sold on its Web site.

In February, Borders filed for Chapter 11 bankruptcy protection after years of declining sales and management turnover. In the third quarter of 2010, its same-store sales were down more than 12 percent, a loss of $74.4 million.

Borders is in the process of closing 226 superstores and is prepared to close 20 more. Liquidation sales are already complete at some 50 stores.

The company has negotiated rent reductions of more than $30 million with its landlords and is trying to renegotiate other contracts with vendors, people familiar with the plan said. It has also told publishers that it has changed its distribution system to make it smoother and more efficient.

Borders also said that it would tailor its product offerings more closely to customers who frequently shop in the stores. In stores with an especially high number of female shoppers, for instance, categories like children’s books, education, cooking and lifestyle could be expanded.

The company has planned significant changes to its stores, clearing out more space for nonbook products like games, stationery and pens, and expanding its cafes, which could sell a wider array of items, including food from local sources and wine.

Borders said that even in bankruptcy, it has successfully expanded its customer rewards program, called Borders Rewards, and is counting on further growth.

It also plans to offer a larger selection of tablet devices in Borders stores, and to work with the manufacturers of Kobo to make the Kobo e-reading device available more widely in other brick-and-mortar retailers.

The company headquarters in Ann Arbor, Mich., are expected to be moved to the Detroit metropolitan area, in an effort to cut costs, The Wall Street Journal reported on Wednesday.

For months, publishers have been skeptical of the quality and permanence of Borders’s plans for the future. They have also privately grumbled about Borders’s plan, recently filed in bankruptcy court, to award its executives as much as $8.3 million in bonuses, in an effort to retain high-ranking employees throughout the bankruptcy process.

One of Borders’s major objectives is to persuade publishers to resume shipping new books to stores under its previous terms. Several publishers said they had been unwilling to ship books to Borders unless they were first paid in cash, and after the meeting on Wednesday, they said they were no more likely to resume normal trade terms with Borders.

“We are not impressed,” one publisher said of the plan. “None of it gave us any reason to think they can get themselves out of this. I don’t think it’s changed anybody’s mind.”

Mary Davis, a spokeswoman for Borders, declined to comment on the specifics of the restructuring plan.

“We had a productive discussion,” she said in an e-mail, and told the creditors “that the business plan we are proposing represents the best path forward for a vibrant and profitable Borders that is in the best interest of our creditors, employees, publishers, consumers and other stakeholders.”

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