If Borders expects publishers to support its reorganization efforts it needs to come up with a more viable turnaround plan and more realistic buying terms. That was the sense from publishers contacted by PW Wednesday, all of whom spoke off the record. At a meeting set for next Thursday, publishers will tell Borders they will not begin shipping books to the retail under normal terms, something the company had suggested in its press release Wednesday. “A company in bankruptcy can’t expect that we would extend credit in the same way as before,” one publisher noted, suggesting that terms will need to include some form of cash guarantee, possibly in the form of an escrow account. One publisher said Borders “seemed to understand” that publishers will be reluctant to offer normal buying terms, at least until Borders provides a more detailed turnaround plan that it hopes to present in about a month. “They owed us a lot of money and refused to pay,” another publishing executive said. “It will take a lot of convincing to work with them again. We are waiting to hear what they have to say.”
How much money vendors were owed became clear in the bankruptcy papers, with Borders reporting that prior to filing for Chapter 11 pass due bills to vendors totaled $178.8 million, while it owned landlords $18.6 million.
At Wednesday’s court hearing, the judge approved Borders’ request for $505 million in Debtor-in-Possession (DIP) financing. Borders will use the funds to pay vendors, publishers and other suppliers, but only for goods and services it receives after the February 16 filing. Funds will also be used to operate Borders’ day-to-day business. The hearing was not without its contentious moments. A lawyer for one of the landlord groups observed that Borders was in a similar position to other retailers that were number two in their field—Circuit City, Linens and Things—and failed to survive Chapter 11.
Some publishers also wondered whether how long the $505 million in financing will carry the company and questioned whether the amount will give Borders enough time to complete its turnaround plan.
At least for the moment, the turnaround plan has many similar elements to previous ones. As outlined in court papers, Borders will rely heavily on its Borders Rewards Plus program, a customer loyalty program that has 42 million members, 12 million of which were enrolled in the last two years; at Wednesday’s hearing, the court approved Borders’ motion to honor and continue its customer programs. Borders also plans to grow its share of the online market and the e-book market, but publishers are very skeptical the company will ever be able to compete with the established players. Cutting costs is obviously high on the list, by not only closing stores but also making the supply chain more efficient. In addition to the 200 stores already targeted for closure another 75 could be shut depending on how negotiations with landlords go. Adding more nonbook items to its retail mix is another element of the plan as is improving the in-store experience.
Other first day motions that were approved include permission to pay its employee wages and benefits substantially in the ordinary course of business, and to continue to maintain its cash management systems