Before we get sentimental, and I know we will,
we really need to look at the numbers. Oh, absolutely.
The scale of it is just staggering. Right. At
its absolute peak, this company was generating
billions of dollars in sales. It employed nearly
20 ,000 people. 20 ,000. And it had, what, over
1 ,200 stores globally? Over 1 ,200. It was the
second largest bookstore chain in the United
States. And then in what really felt like the
blink of an eye, it just hit absolute zero. We
are, of course, talking about Borders Group.
It is a truly staggering collapse. And you're
right to start with the scale because I think
people tend to remember. The cozy end of things,
you know, the coffee, the comfy chairs, the carpet.
The sang stations with the big headphones. Exactly.
But they forget that this was a massive multinational
corporation that effectively just evaporated
into thin air. It did. And the usual eulogy is,
frankly, it's lazy. You hear it all the time.
Oh, Amazon killed them or nobody reads books
anymore. But when you look at the documents,
that's not really the whole truth, is it? Not
at all. We have bankruptcy filings, we have internal
memos, international retail reports, and they
paint a much darker, much more complex picture.
The Amazon killed them narrative is, I mean,
it's convenient, but it's so incomplete. It is.
Amazon was certainly the executioner, you could
say that, but Borders had been handing them the
ammunition for a solid decade. The rot started
way, way before the Kindle ever showed up on
the scene. So what is this story really about
then? This is a story about a corporate identity
crisis. It's about fatal strategic outsourcing
and really a fundamental failure to understand
what business they were actually in. And that's
the mission for this deep dive. We're going to
autopsy the corpse of Borders Group. We need
to figure out how a company that literally defined
the megastore concept. They practically invented
the idea of the third place for readers. Exactly.
How did that company manage to alienate its customers?
completely destroy its balance sheet, and then
just hand its entire future over to its biggest
competitor. And we have to look globally, too.
This isn't just an American failure story. The
collapse in the U .K., the absolute mess in the
Asia -Pacific region, they actually served as
the canary in the coal mine for the U .S. operation.
The domino effect. A perfect domino effect that
started in, of all places, Ann Arbor, Michigan,
and ended with a liquidation sale in a Singapore
convention center. Let's start right there. Let's
start where it all began. Ann Arbor, 1971. Because
the biggest irony here is that Borders didn't
start as a corporate monster. It started as the
complete antithesis of one. It was incredibly
humble. You have Tom and Louie Borders, two brothers,
both students at the University of Michigan.
They opened a shop at 209 South State Street.
It's small. It's local. But the DNA of what Borders
would become was formed right there. And it wasn't
about retail in the way we think of it now. It
was about, well, intellect. I think this is a
really crucial distinction to make early on.
Louis Borders wasn't a merchant in the same way
that, say, Sam Walton was a merchant. He was
a mathematician, right? He was. And that mathematical,
analytical mindset is absolutely key to the whole
early story. So in 1975, they make their first
big move. They acquire a local store called Wars.
And Wars was an institution in Ann Arbor. A total
institution. An 80 -year -old bookstore that
basically made all its money selling textbooks
to university students. Which is a goldmine in
a college town. Yeah. I mean, textbooks are a
captive market. You have high prices, guaranteed
customers every semester. It's a license to print
money. It is the easiest money in book selling.
But the Borders brothers, they weren't interested
in the easy money. They bought the store, but
they had absolutely zero interest in the textbook
game. So what do they want? They wanted to build
a browsing store, a place for discovery, a place
you could get lost in. So what do they do? They
hire Michael Hildebrand, who is a rare books
expert, and Harvey James Robin, a professional
bookbinder. Okay. That is a very specific hiring
strategy. You don't hire a bookbinder if you're
just trying to shift units of the latest Stephen
King novel. No, you don't. You hire those people
if you care about the physical object of the
book, if you care about the curation of the content
inside. They eventually moved the shop to a larger
location. It was the old Wagner and Son men's
clothing store, and they focused on breadth.
on depth they wanted the deep cuts they wanted
the books that nobody else bothered to stock
they wanted the backlist titles the academic
presses the obscure poetry and this is where
the system comes in we can't talk about early
borders without talking about tailwind this is
the secret sauce this is what made it all possible
louis borders being the math guy developed a
proprietary inventory management system he called
tailwind and you have to put yourself in the
70s and 80s here most bookstores How did they
order? Gut feeling. Maybe some very, very basic
sales data from the cash register. It was an
art, not a science. But Tailwind was different.
It was revolutionary. It used algorithms, a word
you didn't hear much in retail back then, to
predict what specific demographics in Ann Arbor
and later in other cities would actually want
to read. It was data -driven creation. So let's
make that concrete. While Barnes & Noble or Walden
Books might stock, say, 20 copies of a huge bestseller
and zero copies of a niche philosophy book, Tailwind
would tell the Borders manager, actually, in
this specific zip code, based on past purchasing
patterns, you will sell three copies of that
philosophy book this month. So stock it. Precisely.
It allowed them to carry a massive, sprawling
inventory, far more individual titles than any
of their competitors, without going broke on
unsold stock. It was the long -tail concept that
Chris Anderson wrote about, but decades before
the Internet popularized the term. They were
optimizing for the browser, for the intellectual,
for the person who was looking for that one obscure
book they couldn't find anywhere else. And that
person became their most loyal customer? That
system? Tailwind, it fueled their growth. By
1985, they feel confident enough to open a second
store in Beverly Hills, Michigan. But then the
tone starts to change. In 1989, they bring in
a guy named Robert F. Tiro Moldo. And this is
a pivotal moment. Tiro Moldo. He wasn't a book
guy. He wasn't a University of Michigan intellectual.
Far from it. He was the president of Hickory
Farms. The cheese and sausage gift basket place
you see at the mall during Christmas. The very
same. And that hire signals a massive fundamental
shift in the company's direction. You don't bring
in the Hickory Farms guy to curate rare manuscripts.
No. You bring him into scale. You bring him in
to franchise the model, to roll it out across
the country. And to his credit, he did. He took
that incredible efficiency of the tailwind system
and applied it to an aggressive national expansion.
He was the guy who turned the art project into
a replicable business. But they still kept some
of that original soul for a while. I mean, the
flagship store in Ann Arbor, what they called
Borders No. 1, moved into the old Jacobson's
department store on East Liberty Street in 1994.
Oh, that place was legendary. It felt like a
cathedral of books. Multiple floors, escalators.
The cafe. It was enormous. It was the peak of
the concept. The perfect marriage of the original
Ann Arbor intellectualism with the scale of a
national chain. But by the early 90s, the business
reality was shifting again. And this leads us
to the first major, major turning point. The
moment the trajectory really wobbled. The Kmart
acquisition. The Kmart experiment. This part
of the story always, always baffles me. 1992.
Kmart buys Borders. It feels like a glitch in
this simulation. Kmart was the land of the blue
light special, cheap polyester and bulk detergent.
It was the epitome of low margin, high volume
discount retail. And Borders was this sophisticated,
inventory rich, intellectual hub. Why on earth
did they merge? What was the logic? The logic
was desperation and hubris, mostly on Kmart's
side. Kmart was struggling, trying to diversify
away from its core big box model. And they already
owned Walden Books. Right, Walden Books. We have
to talk about them. The quintessential mall bookstore.
Absolutely. If you're of a certain age, you remember
them. Narrow aisles, packed to the ceiling, mostly
just the top 40 bestsellers. And it was always
located right between the food court and the
Gap. The exact opposite of the spacious, come
and stay a while, Borders model. The polar opposite.
Kmart had bought Walden Books years earlier,
but the mall -based bookstore model was already
starting to show serious cracks. Malls were beginning
their long, slow decline. So Kmart's management
looks over at Borders, this rising star with
its fancy new superstores and its incredible
tailwind inventory system. And they thought,
we've got a brilliant idea. If we buy them, we
can merge the two operations. We can use the
sophisticated borders executives and their systems
to save our floundering Walden books chain. So
the plan was literally to have the smart. Indie
-turned corporate guys from Ann Arbor fixed the
dying mall chain. That was the theory. In practice,
it was an absolute unmitigated disaster. It was
a culture clash of epic proportions. I can only
imagine. You had the Borders team, who were used
to managing deep, complex inventory with relatively
high margins, suddenly being told to wrestle
with the Waldenbooks model, which was all about
high turnover, mass market paperbacks, and heavy
discounting. It's like trying to run a Michelin
star restaurant using the logistics and supply
chain of a fast food chain. The entire set of
metrics for success are completely different.
They are. And the systems didn't talk to each
other. Tailwind was designed for depth and precision.
Kmart's corporate systems were designed for bulk
and volume. The Borders executives looked at
the mess Kmart had handed them, this impossible
task of integrating two opposing business models,
and many of them just walked away. They bailed.
They didn't want to be book category managers
for a discount retailer. They had built something
special and they saw it being diluted and destroyed.
So Kmart buys them for their expertise, immediately
breaks the culture, drive the experts away and
then realizes it made a colossal mistake. The
stockholders realized it pretty quickly. They
put immense pressure on Kmart's board to dump
the now unwieldy book division. So in 1995, just
three short years later. Kmart spins the whole
thing off as a new publicly traded company. And
initially it was called the Borders Walden Group.
Which is such a tell, isn't it? It's a split
personality right there in the name. Even after
they got their freedom from Kmart, the new Borders
Group was stuck carrying the corpse of Walden
Books. It's an anchor. It was the anchor that
dragged them down for years. While they should
have been focusing 100 % of their energy and
capital on the superstore expansion, and more
importantly, the looming threat of the internet
management was constantly distracted. Distracted
by what? By trying to manage the graceful or
not so graceful decline of hundreds of money
-losing mall -based Walden Books stores. They
were actively subsidizing a dying business model
with the profits from their growing one. But
even with that anchor tied around their ankle,
the late 90s and early 2000s, I mean, for customers,
it felt like a golden age. This is when the experience
store really took off. They weren't just selling
books anymore. They were selling a lifestyle.
They codified the third place, that space that
isn't home, isn't work, where you can just exist.
In 2004, they struck that huge deal with Seattle's
Best Coffee to run the in -store cafes. Which
is funny, because Seattle's Best was, and is,
a subsidiary of Starbucks. Right, so it's a clever
end run. Barnes & Noble had the official Starbucks
-branded cafes, and Borders had the slightly
more indie feeling, but still corporate subsidiary.
And it worked. The smell of coffee, the comfortable
chairs, the implicit permission to sit and read
a whole magazine without actually buying it.
Borders made the bookstore a destination, a place
to hang out. And they were trying to innovate
in other ways, too. I mean, you look at their
concept stores in 2008. They had what they called
digital centers. I remember those. Little kiosks.
Yeah. They were selling MP3 players, digital
photo frames, early e -readers like the Sony
Reader. They had these ripple networks, video
monitors showing news and sports. They were genuinely
trying to be more than just a bookstore. They
were trying to be a culture and tech hub. They
were. They also introduced Borders Rewards, which
was a huge differentiator at the time. It really
was. You have to remember, Barnes & Noble had
a paid membership model. You had to pay them,
what, $25 a year for the privilege of getting
a discount. But Borders went with a free loyalty
program. The model was basically, give us your
email address and we'll give you coupons and
track your purchases. And people loved that.
It felt generous. It felt like a modern approach.
And it allowed them to build a massive database
of their customers' habits. And they had some
incredible successes. At their peak, we found
that the highest -grossing borders in the entire
United States was in Puerto Rico. $17 million
a year from one store. An incredible number.
They also had that massive, beautiful store at
the World Trade Center that was so tragically
destroyed on 9 -11. They were everywhere. They
felt invincible. But while the surface, the customer
experience, looked great, the foundation was
rotting away. And this is where we have to get
into the big strategic mistakes. The unforced
errors. Let's get into the three fatal errors.
Because looking back now with the benefit of
hindsight, these decisions seem almost calculated
to destroy the company from the inside. Let's
start with error number one, the big one, the
Amazon alliance. This. This is the decision that
will be taught in business schools for the next
century. It's a master class in what not to do.
So you have to go back to 2001. The dot -com
bubble had just burst spectacularly. Right. Pets
.com, Webvan, all these Internet companies had
gone up in smoke. And a lot of traditional brick
-and -mortar retailers were looking at e -commerce
and thinking, this thing is a money pit. The
logistics are a nightmare. Shipping is expensive.
Profit margins are nonexistent. So the prevailing
wisdom on Wall Street at that moment was let
someone else lose money on the Internet. We'll
stick to what we know. That was exactly the thinking.
And Borders Board looked at Amazon and they saw
Jeff Bezos. Just burning through mountains of
cash, building these enormous warehouses and
fulfillment centers. And they said, why should
we do that? That looks hard and expensive. Let's
just let them handle it for us. So in August
of 2001, Borders signed a deal to outsource their
entire online operation to Amazon. OK, I want
to be crystal clear about what outsourced means
in this context. If I, as a customer, went to
Borders .com in, say, 2003, I wasn't actually
buying a book from Borders. No, not at all. You
would click on a book. And the entire transaction,
the shopping cart, the payment processing, the
fulfillment was handed off to Amazon. Amazon
held the inventory in their warehouses. Amazon's
employees picked and packed the book. Amazon's
systems handled the shipping. Amazon processed
your credit card. Borders essentially put up
a sign on their own digital front door that said,
come on in. But for all your needs, please see
our biggest competitor located inside. I did
worse than that. They handed Amazon their most
valuable asset, their customers and their customers
data. They train their own loyal customers to
use and trust the Amazon platform. Yes. If you
were a border super fan, someone who loved the
physical scores and you went to their website,
the site effectively said, hey, this Amazon company,
they're great. We trust them. You should, too.
That is just it's strategically devastating.
For seven years, this wasn't a short term experiment.
From 2001 to mid -2008, Borders did not have
its own independent online retail presence. During
the most critical growth phase of e -commerce
in history. They were a ghost. They just abdicated
the entire field. And they let Amazon learn everything
there was to know about what Borders' best customers
bought, when they bought it, how much they were
willing to pay and what other items they were
interested in. And by the time they finally woke
up and realized the colossal scale of this mistake,
they ended the alliance in March 2007. but didn't
even launch their own independent site until
early 2008. It was completely game over. Amazon
had won. The war was over. You cannot take a
seven -year nap during a technological revolution
and expect to wake up and just casually reenter
the race. The switching costs for customers were
too high. People were used to the Amazon experience.
Prime was already gaining traction. And Borders
.com, when it finally launched, was a buggy,
feature -poor wasteland compared to the well
-oiled machine that Amazon had built, partly
on the backs of Borders' own customers. So they
outsourced the internet. That's a catastrophic
error in it. Error number one, error number two
feels like a direct sequel. The e -book fumble.
It's the exact same mindset. A failure of imagination.
A desire to outsource the future rather than
build it. We mentioned that their concept stores
were selling Sony readers, but that was just
selling hardware. Borders didn't launch a dedicated
branded e -book store until July of 2010. July
2010. Let's put that in context. The Amazon Kindle
was launched in November 2007. The iPhone and
the App Store, which revolutionized mobile everything,
came out in 07 and 08. The first iPad came out
in early 2010. So they were, what, nearly three
years late to their own party? They weren't just
late. When they finally arrived, they didn't
even build their own ecosystem. Look at Barnes
& Noble. For all their faults, they saw the threat,
and they invested hundreds of millions of dollars
to develop the Nook. It wasn't perfect, but it
was theirs. They owned the platform. They controlled
the customer relationship. And what did Borders
do? They partnered with a Canadian company called
Kobo. So once again, they're renting the technology
instead of owning it. They're outsourcing the
core competency of their future business. Precisely.
They had a desktop app. They had apps for the
iPhone and Android. But they were all just skins
on Kobo's platform. They had no control over
the destiny of the product, the pricing, the
features. The brand added zero value to the digital
experience. And the final insult came when they
went bankrupt. When Borders liquidated in 2011,
all those customer e -book accounts were just
transferred directly to Kobo. The Borders brand
vanished. The customer relationship they had
rented was simply handed over. It's a pattern
of failing to adapt. But the third error. This
one feels less about high tech and more like
Bad old -fashioned retail mismanagement. The
financials and the product mix. This is where
the debt spiral really begins. While Barnes &
Noble was smartly pivoting its floor space away
from media and more towards things like toys
and games and high -margin stationery. Categories
that are much harder to replicate and sell digitally.
Exactly. Amazon can't compete with a kid playing
with a toy in the aisle. Borders, on the other
hand, doubled down on music and movies. I remember
this so vividly. The music section at a Big Borders.
was massive. It took up a huge percentage of
the floor. Thousands of CDs. Those listening
stations everywhere. And in, say, 1998, that
was a brilliant play. CDs had high margins. They
encouraged impulse buys. But in 2006, 2008. We
had the iPod. We had iTunes. We had rampant piracy
from things like Napster. Streaming was right
around the corner. Physical media sales were
cratering across the board, and Borders was dedicating
its most valuable real estate, its prime ground
floor space, to a rapidly dying product category.
They were betting heavily on the past while the
future was literally eating their lunch from
the outside in. And financially, they were just
bleeding cash. The last year Borders ever turned
a profit was 2006. From that point on, their
income dropped by a billion dollars over the
next four years. A billion. So to keep the lights
on, to pay the rent on these enormous superstores,
they had to borrow money. They had to. And this
leads us to the 2008 loan. The terms of this
specific deal make me wince every time I read
about it. Set the scene for us. It's March 2008.
The global financial crisis is just starting
to rumble. The credit markets are freezing up.
It's getting very hard for struggling companies
to borrow money. Borders is desperate for cash.
They finally secure a loan for $42 .5 million
from a hedge fund, Pershing Square Capital Management.
And the interest rate on that loan? Twelve and
a half percent. Wow. Twelve point five. In the
corporate world, that is basically distressed
debt pricing. That is a we think you are about
to die interest rate. So put that in perspective,
a healthy company might borrow at what, three
or four percent? Easily. When you are paying
12 .5 % interest, you need to have massive growing
profit margins just to service the debt, let
alone invest in the business or turn a profit.
But Borders margins were shrinking, not growing.
And the stock price reflected that reality. It
completely collapsed. It went from over $5 a
share to 53 cents a share. It became a penny
stock. It was essentially worthless. So in the
middle of all this chaos, the Amazon mistake,
the e -book fumble, the financial death spiral.
Where was the leadership? Who was driving the
bus? Well, that was the other problem. The driver
kept changing. It was a constant leadership carousel.
You had CEO George L. Jones, who left with a
severance package of over $2 million. Which absolutely
infuriated employees who were seeing their hours
cut and stores close. Then Ron Marshall comes
in. He's CEO starting in January 2009. He lasts
exactly one year. Gone by January 2010. Then
Mike Edwards takes over as an interim CEO. Then
financier Bennett LeBeau takes control of the
board in June 2010. You cannot execute a coherent,
long -term turnaround strategy when the CEO changes
every 12 months. It's impossible. Every new guy
comes in, rips up the previous guy's five -year
plan, starts a new one, and then leaves before
it can even be implemented. It creates total
paralysis. And while the U .S. headquarters in
Ann Arbor was paralyzed by this chaos, the international
operations were already starting to collapse.
This is the part of the story that often gets
ignored, but the U .K. failure was a massive
harbinger of doom. Let's go across the pond then.
Borders U .K. and Ireland. Yeah, they had expanded
pretty aggressively over there. They bought a
smaller UK chain called Books Etc. back in 1997.
And for a while it was a huge success. They won
awards, chain book selling company of the year.
They had these beautiful stores, often with paper
chase stationery sections, which people loved.
So what went wrong? Why did it fall apart there
first? Well, the U .S. parent company, needing
cash, sold off the U .K. operation to a series
of private equity firms, first to Risk Capital
Partners in 2007, and then it was flipped to
Valco Capital Partners in 2009. So it was already
being treated like a distressed asset. Exactly.
And then the 2008 credit crunch hit the UK economy
incredibly hard. But the crucial fatal moment
came when the credit insurers withdrew cover
for their suppliers. OK, you have to explain
that for us. What does credit insurers withdrawing
cover mean? for a bookstore in a practical level.
OK, so normally a big bookstore chain like Borders
doesn't pay cash up front for the books on its
shelves. They order from publishers like Penguin
or HarperCollins, and they pay them on terms
maybe 60 or 90 days after receiving the books.
So they sell the book first, then pay the publisher.
Right. And those payments are guaranteed by a
third party, a credit insurer. If the insurer
looks at Borders Financials and says, whoa, these
guys look like they're about to go bankrupt,
we will no longer insure their debt to the publishers.
Then the publishers immediately stopped shipping
them books. Because they're afraid they won't
get paid. The supply line is completely cut.
Instantly. Overnight, the Borders UK shelves
started going empty and they couldn't be refilled.
In November of 2009, the whole operation collapsed
into administration, which is the UK equivalent
of bankruptcy. And then it got even messier.
It got very messy. Hachette, which is one of
the biggest publishers in the world, actually
took the administrators to court. Sued the bankruptcy
lawyers. Why? Because of something called retention
of title clauses in their contracts. Hachette's
lawyers argued that because Borders hadn't paid
for the books on the shelves yet, those books
technically still belonged to Hachette. They
sought a court injunction to stop Borders from
selling their books in the big everything must
go liquidation sale. That is absolutely wild.
Imagine you're a customer at a closing down sale
and a publisher runs in and says, put that Stephen
King down, it's ours. It was complete chaos.
The legal battle was fascinating, but the end
result for customers and employees was grim.
By Christmas Eve of 2009, every single border
store in the UK and Ireland was closed for good.
Gone. And that chaos wasn't limited to Europe.
The Asia -Pacific division, that's Australia,
New Zealand, Singapore, had its own very public
meltdown. This was the RE Group retail era. Similar
to the UK, in 2008, the U .S. parent sold its
Pacific operations to a private equity group,
Pacific Equity Partners. They bundled it with
some other local bookstores and called the new
entity RE D Group. And by 2011, they were toast.
By early 2011, RE D Group went into voluntary
administration. And this brings us to the infamous
and truly ugly gift card scandal. I remember
reading about this at the time. The customer
rage was palpable. And completely understandable.
Imagine this situation. You have a $50 gift card.
Maybe you got it for your birthday. You walk
into a Closing Borders in Sydney or Singapore.
You pick out some books. You go to the counter.
And the staff tells you, we can only accept this
gift card if you spend an equivalent amount in
cash at the same time. Wait, what? So if I want
to use my $50 card, I have to buy $100 worth
of stuff and pay $50 in cash right now? That
is correct. It was a dollar -for -dollar redemption
policy. That feels like a scam. That feels like
extortion. Give us more money to get your own
money back. It feels exactly like a scam to a
customer. Legally, however, it's a specific and
rather cold maneuver used during administration.
When a company fails, people holding gift cards
are considered unsecured creditors. Meaning they're
at the very back of the line to get paid. The
very back. Behind the banks, the landlords, the
big suppliers. Technically, the administrators
didn't have to honor the gift cards at all. They
could have just said, sorry, your $50 card is
now worth zero. So their argument was that they
were actually being generous by allowing them
to be used at all, even with that awful condition.
That was the cold legalistic argument. They weren't
trying to be fair to customers. They were trying
to clear inventory as quickly as possible to
raise cash for the secured creditors, the banks.
But try explaining unsecured creditor hierarchy
to an angry customer who just wants to buy a
book with a gift card. It destroyed whatever
was left of the brand's reputation overnight.
And in Singapore, the end was particularly abrupt.
It was. The flagship store at Wheelock Place
on Orchard Road, I mean, this was a landmark
in the city. It just shut its doors in August
2011. There was no warning for the public. They
just locked the doors one day. And the stock?
They had to hold a massive, humiliating clearance
sale at the Singapore Expo, a giant convention
center just to get rid of all the books. It was
a sad, ignominious end for what had been a premier
brand in the region. So the UK is gone. Asia
is collapsing in this really ugly way. And back
in the United States, the clock has finally,
finally run out. February 16th, 2011. Borders
Group files for Chapter 11 bankruptcy protection
in New York. Now, Chapter 11 is usually a reorganization,
right? It's not liquidation. It's an attempt
to save the company. That's the goal. Yes. You
get protection from your creditors. You freeze
your debts. You try to renegotiate your leases.
And you come up with a plan to emerge as a leaner,
viable business. And the numbers they filed were
stark. They were. They listed $1 .275 billion
in assets versus $1 .293 billion in debt. They
were officially underwater. Their immediate plan
was to close 226 of their most unprofitable stores,
about a third of the chain, and hope that was
enough to stop the bleeding. During this time,
there were rumors of buyers. White knights who
might swoop in and save the company. There were
some serious discussions. A private equity firm
called Najafi Companies kicked the tires. A company
called Direct Brands put in an offer for around
$215 million. Even Books a Million, their smaller
competitor, tried to buy a block of 30 or 35
of the best stores. So why didn't any of those
deals happen? Why couldn't a rescue be mounted?
Ultimately, the creditors rejected the offers.
The big publishers and the landlords who were
owed the most money looked at the terms of the
deals on the table and they made a cold, hard
calculation. And that calculation was? We believe
we will get more of our money back if we just
liquidate the whole thing. Sell the inventory,
sell the shelves, sell the leases, sell the brand
name for scrap. That is a chilling verdict for
a company. You are worth more dead than alive.
That was the final verdict from the market. In
July of 2011, the case was converted from a Chapter
11 reorganization to a Chapter 7 liquidation.
The rescue attempt was over. I remember walking
past the borders in my town during that final
phase. It was just grim. The signs in the window
printed on cheap red and yellow paper. Everything
must go. Nothing held back. Fixtures for sale.
You could buy the bookshelves. You could buy
the coffee counters, the cash registers. It's
the final picking of the carcass. By September
2011, the remaining 399 stores were all closed.
19 ,500 people lost their jobs. And then came
the final insult. Or, depending on your perspective,
the final victory for their rival. The data.
Barnes and Noble swooped in and bought the intellectual
property out of the bankruptcy auction. They
bought the trademarks, the brand name, and most
crucially, the border's customer list. The ultimate
victory. They didn't just beat their rival, they
consumed their rival's customer base. There was
a significant privacy outcry about it at the
time. The bankruptcy court actually required
that all Borders customers be given a chance
to opt out of the data transfer. I remember getting
that email. Yeah, you had until October 29, 2011
to actively tell them, no, do not give my purchase
history to Barnes & Noble. If you did nothing,
your data went straight to your former competitor.
And if you typed borders .com into your browser,
it just redirected you to the Barnes & Noble
website. A complete and total erasure from the
American landscape. As we found out, it wasn't
quite a complete erasure globally. And this is
the part of the outline that I find utterly fascinating.
The zombie brand. Brands are resilient things.
They can be incredibly hard to kill. Even when
the corporate body dies, the name itself can
linger on. In Malaysia, for instance, a local
company called Berjaya Books had held the franchise
rights for years. And their franchise agreement
allowed them to keep operating independently
of the U .S. collapse. Exactly. They were their
own business. They just paid a fee to use the
name and the branding. So while the U .S. stores
were being liquidated, the Malaysian stores kept
running. They even opened a massive new store
in Kuala Lumpur after the U .S. parent was dead,
claiming it was the world's largest borders.
They did. But even that has finally succumbed
to the pressure. of modern retail, the Malaysian
operations finally closed for good very, very
recently in August of 2023. But there was one
last holdout. If I get on a plane right now in
2025, where can I go to walk into a store with
a border sign lit up out front? You'd need to
fly to the Middle East. You'd fly to Dubai. A
company called the Al Maya Group purchased the
rights to operate the brand in that region. And
as of today, there are still border stores in
Dubai, Oman, Qatar, and Kuwait. That is just
bizarre. It's like finding a dodo bird alive
and well on a remote island. What are they even
like? It speaks to the power of that original
brand equity. In the Middle East, the name Border
still signifies a premium Western -style retail
experience. Now, if you go inside one, the product
mix has shifted quite a bit. There are a lot
more toys, a lot more stationery, but the logo
is there. The books are there. The ghost is still
operating. So we've traced this whole epic story
from a couple of math students in Ann Arbor inventing
a brilliant inventory algorithm to a global retail
behemoth that lost its way to finally a few franchise
outposts in the desert. When you look at the
whole arc, what is the key lesson here for you?
For me, it comes down to two business school
phrases, capital allocation and core competency.
Borders started to fail the moment they stopped
trusting their own expertise and started outsourcing
their future. They outsourced the Internet to
Amazon because they didn't want to learn the
messy business of e -commerce. They outsourced
their e -book tech to Kobo. They let Kmart's
discount culture dilute their premium brand.
And they allocated their capital poorly spending
money on stock buybacks and dividends in their
final years instead of making painful but necessary
investments in innovation. They forgot that their
value wasn't just selling books. knowing books
and knowing their customer. Tailwind was the
original recommendation algorithm, and they just
threw it away. And for me, the takeaway is about
the loss of that physical space. Borders, for
better or worse, defined the megastore era. They
created a space where you could spend three hours
and spend zero dollars, and that was part of
the business model. They were okay with that.
A community space. It was. And now that they're
gone, Burns & Noble is the last giant standing.
Independent bookstores are having a wonderful
resurgence, which is great to see. But that specific
megastore vibe, that big anonymous carpeted cavern
of books and music and coffee, it's gone. Unless
you're in Dubai. Right. Unless you're in Dubai.
So here's our provocative thought for you to
take away. Borders is gone from most of the world.
But the concept they perfected, the bookstores
at third place, is what both Barnes & Noble and
the thriving indie scene are now leaning into
heavily. Did Borders really lose or did their
original idea actually win in the end just without
them? And if you were in Dubai and you can still
walk into Borders today, is that a ghost or is
it a testament to the enduring power of that
original brand? It's a great question to ponder.
It is. If you're listening to this anywhere else,
support your local bookshop, whether it's a chain
or an indie. Because, as this story shows, these
things are more fragile than they appear. They
certainly are.