Borders halts payments to publishers

The book retailer loses two execs and struggles to keep up with Amazon and Barnes & Noble

While Amazon is announcing wildfire sales of its Kindle and Barnes & Noble is boasting record-high sales over the holiday season, Borders is struggling to keep up.  The company told publishers last week that it will have to delay payments owed to them, the New York Times reported Tuesday morning.

The company has been on a steady downward decline as of late.  In December, Borders Group posted miserable third quarter sales that fell to $470.9 million, representing a 17.6% decrease compared to 2009.  Its online store also suffered a loss of 8.6% compared to 2009.

By contrast, Barnes & Noble saw a 4.9% decrease in its total retail sales to $975.2 million, compared to Q3 2009 when sales reached $930.8 million.  Its Web sales, however, were up 46.7% to $176.7 million, compared to $120.5 million the year before.  Barnes & Noble also announced Monday that its sales soared 9.7% during the holiday season and the company saw its highest sales day ever on December 23, 2010.

Borders executives will be meeting with publishers in New York later this week to discuss the company’s plans to get back on track by potentially refinancing.  While some publishers are rallying behind Borders, the National Book Network has halted further shipments to the retailer.  

It looks like one way Borders has attempted to shift more aggressively into money-making mode is by changing the company’s rewards program to a freemium model. 

Borders Rewards has been around for years, allowing members to receive coupons for 30-50% off in their email, but Borders Rewards Plus launched in September to allow members to upgrade for $20 a year and get 10% off of all in-store and online purchases, as well as 40% off hardcover best-sellers and 20% off selected hardcovers.  Savvy shoppers might note that this is virtually identical to Barnes & Noble’s member program, except for the fact that a Barnes & Noble membership costs $25 a year.

But the rival rewards programs probably have less to do with the difference in the two book retailers’ sales than the mass movement of readers towards e-books.  Barnes & Noble has followed this shift by developing and aggressively marketing its e-reader, the Nook, which is among the Kindle’s top competitors.  In a recent JP Morgan survey of 1,000 Internet users, 45% had heard of the Nook, compared to 76% who had heard of the Kindle and 84% who had heard of the iPad.  

In its Monday announcement, Barnes & Noble credited the Nook with the company’s record high sales.  Borders’ Kobo, while cheaper than most other e-readers on the market, has not fared as well.  At launch, the device had no wireless access.

Additionally, Borders lost two of its top execs this week.  On Monday, general counsel Thomas Carney and chief information officer D. Scott Laverty resigned.

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