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Business & Tech

Borders to Close as Possible New Tenants Wait in the Wings

Uptown Managing Partner John Hogan said two retailers are interested in leasing the space that will be vacated by Borders by the end of April.

Uptown Gig Harbor’s bookstore will close by the end of April, but the space may not be empty for long. The mall’s management is already in discussions with two retailers interested in leasing the 23,000-square-foot site, according to John Hogan, Uptown’s managing partner and a principal of Citation Management in Fife.

“Before the store closes, we should have a replacement retailer to announce,” said Hogan, adding only that the two candidates are not bookstores.

In a move that had been widely anticipated, Borders Group, Inc. today announced it had filed for Chapter 11 bankruptcy and would close 30 percent of its 650 retail locations as part of that process. The Gig Harbor store is one of 200 locations slated for closure, according to a list on the book retailer’s reorganization web site. A second Washington store, in Lynnwood, is also on the list.

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The national book and music retailer has operated its stores primarily under long-term leases. It has hired DJM Realty, a New York-based real estate consulting and advisory firm, to find new tenants for those stores that will close. This afternoon DJM posted a listing for the Gig Harbor store on its web site. The asking price to take over the lease, which expires Jan. 31, 2018, is $17 a square foot.

“It’s really unfortunate. We really loved Borders being in the community,” said Hogan, noting that Borders management has yet to contact him about the closing of the Gig Harbor store. “Now there will be no national bookstore between Silverdale and Tacoma.”

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Nor had they approached him about the possibility of re-negotiating its lease with Uptown. The company had first sought to avoid bankruptcy last month by arranging a $550 million secured line of credit with GE Capital. In order to get those funds, it had to meet several requirements, including obtaining more favorable lease terms with landlords.

“I still haven’t received anything from them. This was news to me today,” he said. “If they would have approached us to re-negotiate the lease, we would have entertained it.”

Even so, Hogan, like others, had been aware of a possible Borders bankruptcy, so he had moved preemptively to set other plans in motion. “I feel very positive about having a replacement store soon,” he said. But the space still may be empty for a period if, as is likely, the new tenant requires the space to undergo a new architectural design and permitting process.

Most people expected that the initial closure list would be made up of the 169 stores operating under the company’s Waldenbooks specialty retail segment, Hogan said. So he was somewhat surprised to see that the initial 200 closures were Borders superstores and expects another round of closures representing Waldenbooks will be coming later.

“I had heard that Gig Harbor was definitely a growth market store,” said Hogan.

But apparently being in a growth market wasn’t enough for the ailing book retailer, whose sales have plummeted in recent years. When companies are forced into reorganization, they must make quick decisions, said Hogan. Stores open the longest that have established a stable sales history and customer base are considered the low risk stores to keep open.

The timing of the Gig Harbor store’s opening was unfortunate as well. It opened in October 2007, just as the recession was getting under way and only months before the financial crisis caused consumers to curtail their spending.

However, Hogan pointed to the consumer-spending shift to online retailers, like Amazon.com, as the biggest nail in the coffin to brick-and-mortar stores, like Borders. Online retailers don’t have to pay sales tax in states where they don’t operate physical stores. That’s a huge tax advantage, said Hogan.

“Over $30 billion in state sales tax throughout the country is being avoided with online retailing,” he said. “States and local communities are feeling the pain from that. If people don’t patronize businesses within their community, they will have fewer choices and will have to rely more and more on online stores.”

Meanwhile, Borders, in a press release, said that its stores will continue to serve customers “in the normal course," which includes honoring its Borders Rewards, gift cards and other programs. The company also expects to make employee payroll and continue its benefits programs for workers. The Gig Harbor store has employed 26 people.

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