What happened to send Borders into Chapter 11?

By Bob Minzesheimer and David Lieberman, USA TODAY

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The decision by Borders, the nation's second-largest bookstore chain, to seek bankruptcy protection on Wednesday has prompted concerns for consumers, creditors and investors.

Q: Which Borders stores are closing?

A: For a state-by-state list, which ranges from stores in Lihue, Hawaii, to New York's Park Avenue, go to money.usatoday.com. Borders says it's closing about 200 of its remaining 488 superstores. Its 171 smaller stores —Waldenbooks and Borders Express — aren't affected.

Q: Are Borders gift cards still good?

A: The company says it will continue to honor its Borders Rewards program, gift cards and other customer programs.

Q: What about Borders' e-book partner, Kobo?

A: Kobo is telling customers, "Your e-book library is perfectly safe. The Borders e-book experience is powered by Kobo, an entirely separate company from Borders. Kobo is financially secure and will continue to maintain your e-book library no matter what happens."

Q: What went wrong at Borders?

A: A lot of things. Borders began in 1971 as an independent store near the University of Michigan. Its transformation began when its original owners, brothers Tom and Louis Borders, used computers to help stores adjust inventories to readers' tastes.

Things started to go sour, though, after 1991 when the brothers sold their company for $125 million to Kmart, which also owned Waldenbooks.

"The timing couldn't have been worse," says John Mutter, editor of Shelf Awareness, a digital newsletter about publishing. At a time when Barnes & Noble, Crown Books and other chains were expanding, "Borders was distracted by the ultimately unsuccessful effort to merge with Walden."

Kmart threw in the towel in 1995: It spun off Borders, which soon began to expand in shopping malls in the U.S. and overseas. But Borders couldn't keep pace with Barnes & Noble and discount chains led by Wal-Mart— and was poorly positioned to deal with the growing competitive threat from Amazon.com.

Q: How did Borders handle the digital revolution?

A: Borders tried to turn Amazon into an ally in 2001. The online retailer agreed to fulfill book orders made by visitors to Borders.com and pay Borders a percentage of the revenue. But that backfired.

"It was utterly stupid for Borders to borrow its future from a company that didn't want it to even have a future," says Michael Norris, an analyst at Simba Information.

In 2008 Borders ended the alliance with Amazon and began to handle its own online sales.

Q: And what about e-books?

A: Borders wasn't prepared for the newest publishing innovation: e-books for digital readers led by Amazon's Kindle and followed by Barnes & Noble's Nook. Borders began selling e-books online in July 2010, well after Amazon, Barnes & Noble and Sony had secured footholds in the market. According to Fordham University marketing professor Albert Greco, who studies bookselling, the two largest chains had similar shares of the market in 2000: Barnes & Noble (15.5%) and Borders (14%); by last year, Barnes & Noble was at 17.3%, and Borders had fallen to 8.1%.

Q: But didn't Borders try to buy Barnes & Noble?

A: Investor William Ackman of Pershing Square Management offered to help Borders finance a bid to buy Barnes & Noble, but the plan fizzled. His company has a 15% stake in Borders.

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