26 November 08 | Chad W. Post

This is the eighth part of a presentation I gave to the German Book Office directors a couple weeks ago. Earlier sections of the speech can be found here. There are still a number of parts left to post, but these should all be up before the end of the month.

The most frightening news of recent times involves the Borders chain. In March, Borders put itself up for sale and had to borrow $42.5 million Pershing Square Capital Management. Borders couldn’t find a buyer, and as a result, had to issue warrants to its largest shareholder, giving Pershing Square even more control of the company. And if that wasn’t bad enough, along comes the financial collapse, and Borders Group Stock falls from $7.80 to $2.44.

A couple weeks ago, Borders issued a memo to Independent Publishers Group, stating that Borders would “not be paying [IPG] for two months due to anticipated excessive returns.” Borders claims to have cash on hand and access to credit, but this is a very frightening message for the entire book world, sending a message about Borders long-term stability. And of course, the independent presses are the first to have to deal with this non-payment . . .

If Borders were to go bankrupt—and this is still an if—it would be one of the greatest catastrophes to hit the publishing world in decades. Even after liquidating as much stock as possible, publishers would receive massive returns, millions of dollars would be lost, and going forward, publishers would have 1,100 fewer stores to sell to.

Even worse, without a Borders store next door, a lot of B&N outlets would become superfluous. B&N could easily close down a number of stores to improve their financial standing, reducing sales outlets even further.

A lot will depend on the upcoming holiday sales season, about which there have been mixed predictions. To some, books are the perfect gift. Lasting, thoughtful, and most important in our economic crisis, relatively cheap. Random House recently launched a campaign to promote just this idea. Books=Gifts started last week and in the near future the New Yorker will do an e-mail blast to 25 million newsletter recipients pushing this message.

Meanwhile, Motoko Rich of the New York Times wrote an article for the November 11th paper about the market’s nervousness. Barnes & Noble chairman Len Riggio already sent a memo predicting a horrible shopping season, and HarperCollins just reported that first-quarter operating income plummeted from $36 million last year to $3 million in 2008. And a lot of people are expecting a serious downturn in January, regardless of what happens in the next six weeks. Bookstores are already cutting orders, and presses are trimming print runs.

Borders closing and a downturn in sales adds up to a doomsday scenario in which commercial houses are buried in inventory and bad debt, and have to cut costs severely (including personnel) to try and rebuild. A lot of independent presses could just go away overnight. And Barnes & Noble and Amazon would have a lot of power over publishing houses, allowing them to essentially set whatever terms of sale they desire.


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