after the fall

One of my clients was wondering what effect a Borders bankruptcy might have on major publishers.

At least there, the answer is "not as big as you might think." Let us say Borders was 12% of the company's business, and that Borders was not paying for two of the biggest holiday months, so that this would be more like 1/3 of their annual billing with Borders than 1/6 of it. So that ends up being around 4% of your expected income where you've actually paid for and printed and shipped books and incurred all of those costs and you're stuck with the bill. Now, that's a big hit. A very big hit. It could take your expected profit and narrow or shrink it, maybe even put you into a loss situation for the year. But it's an absorbable hit, especially when you realize that most of the major publishers are part of huge international conglomerates with publishing operations in lots and lots of different countries. And this isn't the first time a major player in the industry has gone bankrupt. Borders UK went belly-up 14 months ago, and a major distributor in the US went belly-up several years back.

There are other effects. There are some books that went to press with the expectation that copies would go to Borders, and now those books might be sitting in the warehouse instead. Moving forward, there will be fewer Borders stores, the number circulating is that 150-200 of around 450 may close in a bankruptcy filing. Some of those sales will be lost. However, it's important to keep in mind that the stores that are closing, many of them will be stores that have not been doing a lot of business in recent years, maybe a few like the Borders on Park Ave. in Manhattan that does a decent business but with too high a rent, but if they close 35-40% of their stores, those stores are likely to be closer to 20% of the actual business Borders has been doing. So that would be something like 2.5% of the business that will disappear or migrate to other bookstores or sales channels. There are some stores that don't have a B&N anywhere nearby, Kris Rusch talked about how her one hour drive to a Borders would become two hours to a B&N, so if that Borders were to close there would clearly be people who wouldn't drive two hours to buy a book. But in other instances, if the Borders in Commack closes people are all driving out there anyway, most of them can drive another mile, mile-and-a-half to the B&N in Commack.

Even right now, I went into the Borders in Kips Bay Manhattan on Wednesday night, and it certainly didn't have that dying bookstore look that I've seen before, like in the final years of Wordsworth in Harvard Square. Borders is paying cash for important books they need to have to keep the business going, Ingram is still supplying on terms unknown. I don't think unsecured debtor publishers will get zero cents on the dollar.

Right now, we're in that time when nobody knows exactly what happens. The Kips Bay Borders is theoretically getting 4 copies of one Del Rey book I have in March, 3 copies of another. Will they pay cash to Random House, or get them from Ingram, or not actually get them? If there is a bankruptcy filing, this store will almost certainly be on the list of those closing, so will they still get books intended to arrive two or three weeks after the filing, or will they cancel them? Multiply this out by lots and lots of books and you can see how much uncertainty there is. So we worry. We should worry. But this will not likely be the end of the world.

This is not to say there are not smaller publishers in the world or publishers without a cushion or publishers who do a much bigger share of their business with Borders who will feel this much much much harder than the average publisher. And yes, some of them may end up going under as an aftershock if Borders goes under.

Also, there will be some books, the Goblin books by Jim Hines are an example of books that are carried at Borders and not at Barnes & Noble, and there will be particular books that might die if Borders dies. However, if Borders does not die completely but does live on with 62% of its current store base which does 80% of its current business, those books may not die. This may not be as bad as when Borders entirely dropped titles in spring 2008 when it first developed liquidity issues. And even then, keep in mind that books die on a regular basis when B&N or Borders decides to cut a title loose.

Part of me thinks I'm being too rosy in this blog post. Let me emphasize again, there are some books and some authors and some publishers that will get hurt very badly, that are already hurt very badly by what's happened already, perhaps fatally. And if 200 stores close, there could be thousands of employees who lose their jobs, just as hundreds already have at the 50 stores Borders closed in the last six months and at the warehouses that have been closed and in positions that have been made redundant at all levels of the company. At the same time, as I've said for a long time, publishing has been dying for as long as I've been in the industry, just shy of 25 years, and the industry still lives. It will still be around, whatever the fate of Borders, six months or six years from now.

If Borders closes 200 stores, plus all the stores already closed... I'm trying not to be a piler-onner. There are clearly a lot of bad real estate decisions. But some of those bad real estate decisions, I'd have made. Borders #228 in Manhattan, I'd have signed that lease twelve or fifteen years ago. New retail development in an underserved area of Manhattan, no bookstore in the immediate vicinity as we reckon such things in Manhattan, adjacent to a big 15-screen Loews movie theatre I'd have signed that lease, darned tootin' I would have. And it was a nice store, with a nice selection when it opened, a perfectly delightful place to go shopping. And I can't tell you why that store never did a particularly good business. Never. The problem isn't the lease, per se, but how long of a lease it was, that the store's been open more than ten years doing not such a good business and probably not making very much money even in its best of days, and the only way to escape the lease is to go bankrupt. There are other decisions that seem more questionable. Clearly they overpaid for the Park Ave. location. The King St. San Francisco store that closed in the fall, that store I don't know where they were thinking they'd find customers. All those decisions have been compounded by an inventory system that didn't give bad stores a chance at redemption, and by spending lots of money to remodel stores that never had better days and never were (the philosophy at Sears which hasn't spent tons of money remodeling stores thus earning demerits from many who write about such things does have its merits). But if a bad decision is only bad with the benefit of hindsight, let us admit that that decision, at least, wasn't bad at the time.