BordersIf bankruptcy marked a very sad Chapter 11 for Borders (BGPIQ.PK), the marketplace has now written an even more tragic epilogue for the big-box bookseller.

Borders plans to start liquidating the rest of its stores Friday. The company will probably disappear completely from the retail landscape by September.

On a purely emotional level, this is a sad development for bricks-and-mortar booksellers and book lovers alike. I'm sure most of us have spent plenty of time browsing the aisles of Borders and its rival Barnes & Noble (BKS) over the years.

That said, emotional responses don't change hard reality. Borders' financial condition and weak competitive positioning eventually finished it off.

Believe it or not, there are some bright sides to Borders' death. While the bookstore may be shutting down, its long and tragic tale provides plenty of fodder for investors. Use these lessons to ensure that your future investments have a happier ending.

1. Act Like Everyone Is Out to Get You – Because They Are

Amazon.com's (AMZN) very first step into the bookselling scene boded ill for big-box booksellers like Borders. Suddenly, any title readers' hearts desired could be quickly delivered to porches and front doors across the country, often at a major discount.

Bricks-and-mortar retailers were at a disadvantage, since physical shelf space is by its very nature limited. The big-box chains had a financial incentive to stock best-sellers, since they appeal to the greatest number of consumers.

But e-books and e-readers like Amazon's Kindle weren't the only problem for Borders and its book-centric peers: Rivals of all stripes also carry those same best-sellers, including formidable one-stop shopping discounters like Target (TGT), Wal-Mart (WMT), and Costco (COST). This gave consumers one more reason to skip the bookstore and shop for beach reads while picking up fare for picnics. In the end, Borders lost far too much blood (and competitive traction) in this dog-eat-dog industry.

2. Don't Believe the Hype

For years, Borders had an interesting asset: major shareholder William Ackman, founder and CEO of Pershing Square Capital Management. Ackman often acted as an evangelist and even swooped in to play savior, throwing financial lifelines to the long-struggling company.

Ackman apparently believed the bookseller would ultimately turn things around, telling CNBC in February 2010 that he thought a Borders bankruptcy was a "low probability event." He even described Borders as a "more attractive risk/reward than Barnes & Noble."

Many investors likely felt comforted by that expert opinion at the time. Some might have thought this meant Borders was a deep value stock. Reality proved otherwise.

Sometimes, even the smartest people have financial and personal reasons for wanting to believe in the best-case scenarios. Investors must always use caution when weighing others' opinions, even when those people are highly respected members of the investment community.

3. Borrowers and Gamblers Beware

Taking on too much debt proved one of Borders' worst moves. It entered the recession owing too much money to creditors. Slowing or decreasing sales, high debt obligations, and a sluggish overall economy can become a toxic, and possibly deadly, combination for any company.

After Borders' bankruptcy, investors still traded its beaten-down stock. They were probably banking on a white knight coming in and buying up what was left. Obviously, that was a dangerous gamble on a fairly outlandish fairy tale ending.

Severely beaten-down stocks are often beaten down for a very good reason. Bankrupt companies are incredibly risky bets. Investors should never forget they could be left with what such a stock's really worth: $0.

4. One Man's Demise is Another's Opportunity... Eventually

Borders' demise should be a benefit to rivals over the long haul. However, in the near term, it makes life difficult. A desperate, drowning company can pull others down as well.

Barnes & Noble recently reported that Borders' liquidation sales had hurt its own quarterly sales and driven the surviving chain to a worse-than-expected quarterly loss.

Rivals will likely see little benefit until Borders is completely gone, since its going-out-of-business sales will probably continue to pull book-buying customers into its stores.

However, once Borders has shuttered its last store, it should spell opportunity for rivals (public, private, and mom-and-pop bookstores alike). It could even be an opening for innovative new retail concepts that craft creative ways to lure in bibliophiles (and their book-buying dollars).

Hope for More Heroic, Inspiring Stories

Try to shake off the admittedly depressing elements of Borders' final death rattles. Instead, remember that creative destruction is part of the marketplace. It often results in better futures than we can foresee or imagine, even when the landscape looks bleak.

Borders' demise could pave the way for far more inspiring and heroic tales of businesses that spark a heightened passion for reading, better serving book lovers of all kinds. Better yet, these new ventures could become far better investments than Borders ever was.

Motley Fool analyst Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Costco Wholesale and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Amazon.com, Costco Wholesale, and Wal-Mart Stores and creating a diagonal call position in Wal-Mart Stores.


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24 Comments

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Condley

If online sales was the trend for the future of book sales, then why didn't Borders get into the online business? This is another fine example of a corporation not giving their customers what they want. Instead Borders kept doing what they wanted to do, and not what their customers wanted them to do. Amazon must be laughing at their stupidity. To quote Sam Walton, "The secret of successful retailing is to give your customers what they want, and really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience. You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or pretends you're invisible."
Your competitors don't put you out of business. Your cutomers do when they quit doing business with you.

July 20 2011 at 11:12 AM Report abuse rate up rate down Reply
1 reply to Condley's comment
Sanjuana G Enriquez

Borders contracted its online sales to Amazon. That simply gave away much of the market to Amazon itself

July 26 2011 at 7:21 PM Report abuse rate up rate down Reply
Pllc15

Analogous between Blockbuster and NetFlix. Borders failed to transition to the internet. However, I personally prefer toing to a bookstore the old-fashion way.

July 20 2011 at 11:09 AM Report abuse rate up rate down Reply
Davis10Oregon1

That action is currently under way in several cities . One Miami Springs Branch just recently excaped the axe .

July 20 2011 at 10:56 AM Report abuse rate up rate down Reply
Jim

Everyone who spends time in any store and only spends a couple of dollars on a coffee adds to the retail problem along with no sales tax when buying online

July 20 2011 at 10:39 AM Report abuse rate up rate down Reply
dray907023

ANOTHER THING THATS COMMING IS THE CLOUD COMPUTERS, TABLETS .WHICH WILL MAKE THE MICRO SOFT SYSTEM COMPUTERS OBSOLETE NOBODY WILL FIX THEM OR HAVE TO LOAD SOFTWARE INTO THEM . IF IT BREAKS TOSS IT AND GET A NEW ONE. . NO MORE WAITING FOR IT TO LOAD UP OR SHUT DOWN

July 20 2011 at 9:55 AM Report abuse rate up rate down Reply
Euftis Emery

Companies that can't compete or do not keep up with technology should die to make way for new business concepts that can thrive. The auto and banking industries should never have been bailed out by the government at the taxpayers expense.

Hopefully, in the future government will get a clue and stop throwing money at corporate dinosaurs that should become extinct.

Euftis Emery

July 20 2011 at 9:35 AM Report abuse rate up rate down Reply
1 reply to Euftis Emery's comment
Sanjuana G Enriquez

But would the US economy be hurt so much by those industries going out all at once?

In the case of the bookstore closing, it wouldn't hurt the US economy to have Borders go.

July 26 2011 at 7:23 PM Report abuse rate up rate down Reply
dray907023

THIS IS THE NEW ELECTRONIC WORLD WE LIVE IN . NEXT IT WILL BE BANK BRANCHES THERE WILL BE A FEW LEFT IN SUPER MARKETS HERE AND THERE WITH REDUCED STAFF . BUT THE STAND ALONE BANK BRANCHES WILL BE GONE IN LESS THEN 3-4 YEARS .

July 20 2011 at 9:27 AM Report abuse rate up rate down Reply
1 reply to dray907023's comment
Sanjuana G Enriquez

Doubt it - We all need to meet people in person every now and then

July 26 2011 at 7:23 PM Report abuse rate up rate down Reply
LEE Resolution

Sooner or later, they're going to start getting rid of libraries. Next, public book burnings.

July 20 2011 at 8:56 AM Report abuse rate up rate down Reply
1 reply to LEE Resolution's comment
Sanjuana G Enriquez

Nope. Libraries are thriving. They are becoming computer use centers and community centers

July 26 2011 at 7:23 PM Report abuse rate up rate down Reply
Truwriter

Love bookstores, always will but unlike most people who say that I actually shop there. The same people who love Obama and ignore his actual conduct on major issues are thye same types who think that they are bookstore people but end up shopping on line to save 10%. The major hurdle for bricks and mortor booksellers is that the people who should be there buying books are there reading magazines and drinking coffee and happy that they are seeming to be intellectual, coffee drinking and cool. They just don't actually support books stores or read books.

July 20 2011 at 8:24 AM Report abuse rate up rate down Reply
frank1946

IF Borders had served Market Populations besides large Malls (i.e. Downtowns) where they could become
part of the Neighborhood instead of boring Mall Projects they could have made it !

A whole generation of Retail Experts have gone broke in Malls and ignored smaller markets where they
could have had a Monopoly !

Still going on, America has a 35 % surplus of commercial space with no tenants in the Suburbs !

July 20 2011 at 1:43 AM Report abuse +1 rate up rate down Reply
2 replies to frank1946's comment
Truwriter

Yeah and interstate highways are made of roses. People shop in malls and thats why they are there. No conspiracy, its stacks of stores in one place. People who work don't have the time for the "shopping experience" they are busy working. Small bookstores would still be in business if you actually bought books there instead of driving by and thinking how cool you would look starnding in there. They close because people don't buy there. They are not government agencies in liberal utopia, they are businesses.

July 20 2011 at 8:27 AM Report abuse rate up rate down Reply
Sanjuana G Enriquez

They DID open in areas other than malls. Usually in shopping centers in suburbs

July 26 2011 at 7:24 PM Report abuse rate up rate down Reply