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Book industry may suffer in world without Borders

A woman reads in a Borders book store on Tuesday, May 22, 2007 in New York. Borders Group Inc. is expected to release quarterly earnings on Tuesday, May 29, 2007. (AP Photo/Mark Lennihan)

Book publishers reeling from low sales and lower prices of electronic books will suffer more if the United States' second-largest chain of bookstores goes out of business.

Last week, Borders Group Inc. said it was delaying payments to some of its vendors, including book publishers and distributors, as it searches for new financing to avoid violating the terms of its credit agreements early in 2011.

Borders' troubles would spill over into the world of publishers, agents and authors if its more than 600 stores went out of business.

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"It would have a significant, concrete and immediate impact on sales," said one publishing executive who requested anonymity as the person's business relationship with Borders is confidential. "We would just sell fewer books period."

Traditional book outlets such as Barnes & Noble and Borders account for about 49 per cent of book sales in the U.S. according to Albert N. Greco, professor of marketing at Fordham University who follows trends in publishing and retail.

While people can go to other retail outlets such as Wal-Mart, there are typically fewer selections.

Wal-Mart, for instance, carries around 1,400 to 1,700 titles, said Mr. Greco, while Borders' superstores stock well over 100,000 books.

"If the chain went out of business it could be a serious blow... the whole value chain could be adversely impacted," Mr. Greco said.

Publishers as large as Pearson PLC's Penguin, CBS's Simon & Schuster, Random House and News Corp's HarperCollins could lose between $10 million to $50 million in sales if Borders' goes out of business, Mr. Greco said. Some smaller publishers could go under.

Many publishers hope to get paid for inventory already supplied to Borders.

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"We're working diligently with our key publishers to work out these arrangements," said Borders spokeswoman Mary Davis.

Borders owes money to some publishing houses, likely dating as far back as September, the publishing executive later told Reuters. Ms. Davis, the Borders spokeswoman, was not immediately available to address that statement.

Book sellers typically purchase books at wholesale from publishers who are then paid within a 30 to 90-day window depending on the contract. Outlets are then credited for books that have been returned.

Barnes & Noble said on Tuesday the playing field should be even.

"We fully expect publishers will require Borders to pay their bills on the same basis upon which all other booksellers pay theirs," said Mary Ellen Keating, a spokeswoman at Barnes & Noble. "Any changes in publishers' terms should be made available to all."

Publishers could lose valuable marketing space if retail stores dedicated mainly to selling books closed. That in turn spills into sales of e-books and books purchased online.

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"Browsing is still a powerful marketing tool," said a second publishing source. "Typically when you buy a book online, you know you want that book already."

Over the years, Borders' has lost ground to its competitors, including online retailer Inc.

Goldman Sachs estimated that Borders' share of physical book sales slipped to 8.7 per cent in 2010 from 11.4 per cent in 2006. Meanwhile Amazon's share rose to 17.5 per cent in 2010 from 11 per cent in 2006.

With the popularity of the Kindle, Amazon gains even more traction with book sales. "It gives Amazon tremendous power," said Forrester Research media and technology analyst James McQuivey. "The Kindle is a way to have a persistent relationship with the customer."

Michael Norris, senior analyst at market research firm Simba Information, said Amazon's status as a seller of much more than just books makes it less collaborative as a partner to publishers versus traditional bookstores whose future depends exclusively on books.

"Because it (the book) is not a core product, Amazon has unbelievable power when it sits down with the publisher. They have very little to lose," said Mr. Norris.

"It's going to be a dangerous world for publishers if the only retailers left selling books don't have to," he added.

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