Mar 23, 2008

Economies: discretionary spending crisis loomsBy ChiefOfficers.net

When money gets short, quiet pursuits are the first things to go.

It would be interesting to hear what psychologists say about why the first major retail casualty of the USA’s looming financial crisis has been a bookshop. And not just any old bookshop – Borders.

Borders has weathered the storm of on-line book retailing better than most – or so it appeared. With the largest bookshops in markets such as Singapore and Malaysia (albeit with a policy of shipping American editions of books – including those by English authors – to countries that use English English) the company was banking on markets where internet sales were not so rampant.

And, of course, Borders has its own on-line shop – but appears to encourage only US purchasers.

Outside the USA, there are twenty shops in Australia, three in Malaysia, one in Singapore, four in New Zealand, one in Dubai and forty in the UK – where a number are in out of town retail parks. Borders also owns the chain “Paperchase” in the UK which sells cards, writing paper and gift wrapping. In addition, it owns the “Books, etc.” chain which holds a lower market positioning.

But a year ago, on 23 March 2007, The Guardian said that Borders was to dispose of its UK holdings to concentrate on its “struggling” US market. A sale of the UK operations eventually took place in September last year – but not to any of the purchasers suggested six months earlier – they went to Luke Johnson, the founder of Pizza Express who sold that business several years ago and became chairman of Channel 4 TV.

Now, the US struggle has become a crisis and it has borrowed (not taken investment of) more than USD40 million from its largest shareholder, Pershing Square Capital Management. Pershing may have taken the view that a loan was a better option that investment after Border’s share price plummeted 25% last week – and Borders suspended its dividend but not its shares.

The company has called in investment bankers JP Morgan and Merrill Lynch – both of which are themselves battered and bruised by the US credit crisis – to review all available options for the companies.

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