A judge late Wednesday granted Borders Group approval on an interim basis to use $400 million of the $505 million in financing it has been offered to pay its vendors back and keep its business going, including honoring its loyalty program and gift cards.
The decision is the start of a lengthy and difficult process for Borders, which filed for bankruptcy protection on Wednesday. The No. 2 U.S. bookseller is attempting to successfully reorganize so it can emerge from bankruptcy protection a smaller and profitable company.
Borders is accepting bids in an auction for companies to run its store closings and clearance sales.
Hilco Group is the stalking horse bidder, meaning the liquidating service must be paid a breakup fee of $1 million if it is not chosen in the auction.
The auction was scheduled to begin Thursday. Store closings are expected to begin on Saturday, according to court filings.
Chief Judge Arthur Gonzalez of the Southern District U.S. Bankruptcy Court in New York did not rule Wednesday on Borders' plan to close 200 stores. In a filing CFO Scott Henry said Borders might try to close up to another 75 stores.
Henry's document revealed just how precipitously Borders' revenue declined in 2010, down 18 percent to $2.3 billion, from $2.79 billion in 2009.
He said the company's strategy going forward includes enhancing its loyalty program, aggressively expanding Borders.com and its e-book market share, offering more non-book items, cut costs and improve its customer service.
But Fordham marketing professor Al Greco said despite Borders' cautious optimism they still face major challenges. He said bringing in new top management with more book retailing experience might be a good idea for the chain, based in Ann Arbor, Mich.
"I'm not sure all this is going to work simply because all of the major competitive threats will only become more intense," as its chief rivals, Barnes & Noble and Amazon.com, grab the market share Borders will lose when it closes 200 stores, Greco said.
In an e-mail the company sent to its loyalty club members, Edwards tried to reassure customers that its stores are open for business and its rewards program, Web site and e-book operations and were all going to continue to operate normally.
"As Borders moves forward, our commitment to you is to be a best-in-class bookseller — whether it's our stores or Borders.com," he said in the letter.
A hearing to grant the approval of the financing on a final basis will be held March 15.
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