Battered by competition from Internet retailers and burdened with too much debt, Borders Group Inc. filed for Chapter 11 protection Wednesday with plans to close about 30% of its stores and emerge with a new focus on e-books and non-book products.

Timeline: Borders History

Borders Group Inc. filed for Chapter 11 Wednesday, after facing insurmountable debt and increasing competition from Internet-only retailers such as and the advent of digital books and e-readers. Jeffrey Trachtenberg joins digits to discuss.

Kelsey Hubbard talks with the WSJ's Mike Spector about Border Group's long decline and how the company fell behind in the e-reader race and digital space.

The operator of Borders and Waldenbooks stores blamed lower consumer spending and fierce competition. Whether it can emerge as a stand-alone company will depend in large part on its ability to operate its stores more efficiently while growing and making itself a destination for e-books, the fastest growing segment of the book-publishing business.

While in Chapter 11, Borders plans to close about 200 of its 642 stores it "cannot afford to keep." It had already closed hundreds of locations in the past few years. In 2005, it operated 1,329 stores. Rival Barnes & Noble Inc. today operates 717 bookstores in 50 states.

Brick-and-mortar booksellers like Borders, second in revenue to Barnes & Noble, BKS -5.44% Barnes & Noble Inc. U.S.: NYSE $18.08 -1.04 -5.44% April 4, 2014 4:00 pm Volume (Delayed 15m) : 2.66M AFTER HOURS $17.93 -0.15 -0.83% April 4, 2014 7:04 pm Volume (Delayed 15m): 9,231 P/E Ratio N/A Market Cap $1.08 Billion Dividend Yield N/A Rev. per Employee $186,367 04/03/14 U.S. Stocks End Lower 04/03/14 Liberty Media to Reduce Barnes... 03/19/14 Time to Move on: Sony Shuts Do... More quote details and news » have been pummeled by Internet-only retailers such as Inc. AMZN -3.18% Inc. U.S.: Nasdaq $323.00 -10.62 -3.18% April 4, 2014 4:00 pm Volume (Delayed 15m) : 12.50M AFTER HOURS $321.65 -1.35 -0.42% April 4, 2014 7:59 pm Volume (Delayed 15m): 33,892 P/E Ratio 547.46 Market Cap $148.34 Billion Dividend Yield N/A Rev. per Employee $634,714 04/06/14 Yahoo Makes New Push Into Vide... 04/05/14 Navy Drones With a Mind of The... 04/04/14 Amazon Teases Home Barcode Sca... More quote details and news » and the advent of digital books. Last year, the e-bookselling space became even more intense as Apple Inc. and Google Inc. GOOG -4.67% Google Inc. Cl C U.S.: Nasdaq $543.14 -26.60 -4.67% April 4, 2014 4:00 pm Volume (Delayed 15m) : 6.32M AFTER HOURS $544.91 +1.77 +0.33% April 4, 2014 7:59 pm Volume (Delayed 15m): 55,131 P/E Ratio 14.24 Market Cap $382.47 Billion Dividend Yield N/A Rev. per Employee $1,250,730 04/03/14 Mozilla CEO Brendan Eich Steps... 04/03/14 Microsoft Frames Itself as Und... 04/03/14 Toughen Up With Rough Tech More quote details and news » entered the fray.

The Chapter 11 filing will allow Borders, which employs 17,500 people, to access new capital and reorganize its operations. The Ann Arbor, Mich., company has lined up a $505 million loan from GE Capital to fund its operations while in bankruptcy.

Chief Judge Arthur Gonzalez of U.S. Bankruptcy Court in Manhattan approved the most important of Borders' first-day motions, allowing the company to tap on an interim basis $400 million of that financing. He also approved routine motions, including giving the company the right to use its cash management system and bank accounts and also continue paying most of its employees.

Empty Shelves

As Borders reorganizes and closes stores, it faces many creditors.

In its bankruptcy petition, Borders listed assets of $1.28 billion and liabilities of $1.29 billion as of Dec. 25.

Chief Financial Officer Scott Henry said in the court documents filed Wednesday that Borders aims to stay viable by enhancing its customer rewards program, strengthening its e-book business and expanding more into non-book products. Last year, Barnes & Noble dramatically expanded its offerings of educational games and toys.

Borders shareholders, including financiers Bennett LeBow and William Ackman, stand to lose much of their investments in the company. Messrs. LeBow and Ackman together held more than 30% of Borders's stock as of late last year. Mr. LeBow invested $25 million in Borders last year, and took over as chief executive. Mr. Ackman's Pershing Square Capital Management L.P. is expected to lose at least $125 million on its investment.

Borders blamed fierce competition in part for its Chapter 11 filing. Above, pedestrians pass by a Borders store in Chicago Wednesday. Getty Images

"It wasn't a good investment," Mr. Ackman said Wednesday. A Borders spokeswoman said: "It would be premature for Borders to speculate as to the outcome of the Chapter 11 process for equity holders."

Publishers, meanwhile, emerged as the largest unsecured creditors. Borders halted payments to key publishers in December. Although Borders asked those vendors to forgive unpaid bills in exchange for debt, several major publishers opposed the idea and it never came to fruition.

The bankruptcy filing will likely lead to greater sales at Amazon, especially for Borders customers who may not have another nearby bookstore. Barnes & Noble, too, may benefit.

Borders told customers on its website Wednesday that it will continue business operations "as normal." All reward programs and gift cards will be honored, it said.

Borders got its start back in 1971, when two brothers, Tom and Louis Borders, launched a used bookstore in Ann Arbor, Mich.

The brothers sold their company to Kmart Corp. in 1992, which already owned the Waldenbooks mall bookstore chain. Three years later, Kmart spun off Borders Group Inc.

As competition for consumers intensified amid the growth of the book superstore in the 1990s, Borders made a number of crucial gaffes including transferring its Internet operations to Amazon in 2001 and embarking on an overseas expansion that swelled its debt.

In recent years, Borders had started to shift the focus away from its physical presence by halting expansion plans and identifying unproductive stores for closure. At the same time, the company reworked its customer loyalty program, overhauled its website and introduced a digital book store.

Joayla Victor, a 22-year-old who visits the café of a Murray Hill Borders in Manhattan twice a week to work with her tutor, says she can't remember the last time she bought a book at the store. She says she prefers Amazon's prices.

—Eric Morath, Dana Mattioli and Shira Ovide
contributed to this article

Write to Joseph Checkler at and Jeffrey A. Trachtenberg at