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Borders struggles to make payments

It wasn't all that long ago that the name Borders meant "wow."

The national chain was so hot in 2002, for example, that a man calling himself Philadelphia's poet laureate tucked slips of his own verse into books resting on shelves at the too-cool-for-school Borders near Rittenhouse Square.

These days, Borders' Philadelphia location has a less-swanky address on the east side of South Broad Street; others have vanished entirely. And as 2010 ended, news emerged showing how truly far the onetime envy of behemoth bookselling has fallen.

Battered by the radical shift of consumers to purchasing and reading digital books over the Internet, the Michigan-based corporation that owns Borders said it had halted payments to some vendors while trying to renegotiate debt terms with lenders, all to avoid potentially running out of cash.

There was "no assurance" that Borders Group Inc. "will be successful in refinancing its senior credit facilities or restructuring its vendor-financing arrangements," spokeswoman Mary Davis said in a statement.

Failure to renegotiate new terms with vendors and lenders, Borders said, could lead to violations of its loan terms in the next few months, "and the company could experience a liquidity shortfall."

Though its woes have been building for more than a year, if not longer, the dramatic development showed how, in this age of rapidly changing technology and media, there is mercy for only the sharpest of companies.

"It got in trouble with stuff on the debt side, and also it hasn't made the move to digital as quickly as Barnes & Noble" did, said digital-book-publishing expert David Carnoy, executive editor at Cnet in New York, which rates and reviews consumer products. "But I think Borders has been going downhill for several years.

"This isn't just something that happened in the last few months," Carnoy said. "They just hadn't been able to get out in front of their decline."

In May 2009, Borders says, it had about 1,000 stores, including those in its Waldenbooks chain. In the past 14 months, it has shed 200 mall-based Waldenbooks, leaving it with just 507 Borders Superstores and 169 Waldenbooks and Borders Express stores.

On Wednesday, Borders announced that it will close a distribution center in Tennessee, one of three nationwide.

All booksellers have been under the gun in this changing digital age, but industry observers say Borders has stumbled acutely while its main rival, Barnes & Noble, has better distanced itself from the precipice Borders now faces.

One big mistake, according to Cnet's Carnoy: Borders fell behind in the race with Amazon.com and Barnes & Noble to introduce electronic book-reading tablets and an online store for selling e-books.

The wildfire popularity of digital books made matters worse for sellers still struggling with an earlier-generation threat: shoppers ordering paperbound books online instead of at bricks-and-mortar stores.

Consider the meteoric rise of e-books: In 2009, overall net sales of books were up 4.1 percent over the previous year; e-book sales skyrocketed 176.6 percent, according to the Association of American Publishers.

That continued into last year, too, as e-reader tablets being sold by Amazon (Kindle), Barnes & Noble (Nook), and Apple (iPad) exploded onto the market. Once a tablet is bought or given as a gift, e-books are swiftly purchased and downloaded to the portable gadgets, observers say.

For the first 10 months of 2010, e-book sales increased 171.3 percent compared with the same period a year earlier, while overall book sales were up just 3.4 percent, according to the publishers' association.

Barnes & Noble realized it had to play catch-up to online retailer Amazon, and so, two years ago, it aggressively pursued online sales, Carnoy said.

"And then," he said, "it came back with the digital readers." Barnes & Noble introduced the Nook -- its own version of Amazon's popular Kindle -- in October 2009.

Borders did not introduce its Kobo Wireless eReader until May. Unlike Barnes & Noble, Borders does not own the technology, said spokeswoman Davis, but is instead an investor in the company that does.

Barnes & Noble also put a management team in place with digital experience, Carnoy said: "They're banking on digital at this point to save them. I don't think Borders went ahead and did that."

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