Bad Times at Borders

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Josefowicz also oversaw a major store remodeling, including a chainwide rollout of Seattle’s Best Coffee cafes. (Barnes & Noble already had a deal with Starbucks, forcing Borders to settle for the company’s lesser-known brand.) At the same time, he accelerated new store openings, adding forty-nine new locations in 2004 and 2005.

At first, the changes seemed successful: between 2005 and 2007, superstore revenue edged up from $2.7 to $2.85 billion. But the sales figures were dangerously misleading. All of the increase came from new locations; sales at existing stores were actually falling. Far worse, they were no longer making money. The popular Borders Rewards discounts alone were eating up 1 percent of the company’s revenue, even as rents and payrolls were rising. Between fiscal 2005 and 2007, operating income from the Borders superstores nosedived from 6.4 percent of sales to just 1.1 percent.

The company earned about $100 million in 2005. In the next two years, it lost a total of more than $300 million.

The company already had borrowed money to finance openings, remodelings, and a buyback program to boost the company’s stock price. Now the losses piled on more debt. This past January, Borders’s 2007 annual report showed $547 million in short-term debt—a threefold increase in just three years.