When bookstore megachain Borders filed for bankruptcy in 2011, it had completed its journey from corporate nightmare to free market victim—instead of killing independent bookstores, the mall staple found itself killed by more Internet-savvy competitors like Barnes & Noble and Amazon. But still, bookworms mourned its passing—present company included. Borders was where, as a kid growing up in the suburbs, I’d nurtured my childhood love of books. I found myself feeling surprisingly sentimental about its demise.
A few days before its final closing, I visited my local Borders location in Chicago to say goodbye. It already felt like a ghost town. Bargain hunters had picked over the remaining books, leaving the shelves half-empty and gap-toothed. Marked-down tchotchkes from the gifts section lay scattered on dirty carpeted floors. It was a depressing sight—a far cry from the well-stocked suburban Borders of my youth. A few months later, Borders was officially no more.
So imagine my surprise when, a year later, I spotted the familiar red Borders sign across the atrium of a huge shopping mall in Kuala Lumpur, Malaysia. It was after-hours, and the store was closed—but clearly not permanently. Behind the metal grille you could just see the sparkle of shiny new paperbacks, ready to be sold when the mall reopened the next day. It was like seeing an old friend raised from the dead. How was this possible?
It turns out that to bring a bankrupt chain back as a zombie, you didn’t need a voodoo ritual or a reading from the Necronomicon. All you needed was a franchise agreement.
A legal spell to raise the retail dead
When a company files for Chapter 7 bankruptcy liquidation, as Borders did, its creditors start selling off the company’s assets to pay its debt. Within the U.S., where all Borders locations were directly owned by the company, Borders’ creditors could sell off the physical stores themselves. Not so in Malaysia, where Borders is a franchise operated by Berjaya Books Sdn Bhd, a subsidiary of a large local conglomerate.
In most franchise agreements, the franchisor provides its franchisee with operating support in the form of contacts with vendors, training for employees, marketing support, and the like. But the franchisee usually has to invest their own money to buy equipment, insurance, business licenses, and rent, among other expenses. They also usually have to pay a one-time franchising fee and yearly royalties for the use of the franchisor’s logo. That’s why opening a humble Burger King location costs an average of $2.2 million.
It’s also why when a franchisor goes belly-up, the franchisee may still own enough resources to stay in business on their own. Some may decide to register a new trademark and launch their own independent business. But some may decide to stay in business under the name of their original brand.
Here’s where it gets tricky. The franchisor’s creditors now own its trademarked brand. They can continue to let the franchisees use them in exchange for royalties—or they might decide they can find a better deal somewhere else. Experts suggest franchisees in this situation band together to buy the trademark if possible—and if it’s worth it.
In Malaysia, Berjaya had good reason to stay in the brick-and-mortar books business. Amazon, which is often blamed for killing Borders in the U.S., hasn’t made as many inroads abroad, where customs regulations and taxes can make shipping expensive and difficult. And books in Malaysia are still pricey—a luxury good. As a 2013 article in English-language newspaper The Star pointed out, a single book in Malaysia costs on average more than four times the hourly minimum wage. (In the U.S., that ratio is between two and one.)
It makes sense, then, that Berjaya found the cost of operating Borders in Malaysia worth it—even if it had to be a zombie. At bankruptcy auction in 2011, it narrowly outbid Barnes & Noble to acquire Borders’ trademarks, country-specific domain name, and intellectual property in Malaysia for $825,000. Another winner at the same auction was Al Maya International Ltd., Borders’ main franchisee in the Middle East, which purchased Borders trademarks in five different countries for $500,000. Al Maya still operates Borders zombies in Oman and the United Arab Emirates to this day.
How to raise a zombie-chain army
Borders isn’t the only franchise that’s survived past its corporate parent’s demise. Three-quarters of new franchise systems fail within 12 years, leaving zombies scattered behind them.
Woolworth, one of the first five-and-dime-store chains, closed its last U.S. locations in 1997, after much more than 12 years in business—almost 120, in fact. Its zombies live on in Germany and Mexico, where former franchisees now own the Woolworth trademark, and continue selling the inexpensive toys, clothes, and other consumer goods that the brand was known for.
A little closer to home, a group of franchisees of Roy Rogers, a declining mid-Atlantic fried chicken fast-food restaurant (and another sentimental memory of my youth), negotiated for three years with former owner Imasco before finally buying the Roy Rogers trademark from them in 2002. Today they’ve spearheaded a revitalization of the brand, with new locations up and down the East Coast.
In some cases, the creditors who take over a franchisor’s brand will actively work to maintain connections with franchisees, as part of an effort to overhaul and resuscitate its brand. This is the case with Bennigan’s, the casual-dining chain that filed for Chapter 7 liquidation in 2008. Today, its redesigned website features 14 franchised locations in the U.S., with more on their way soon.
But most zombie franchises do face some challenges as they seek to draw upon their existing brand recognition. As the Bennigan’s Franchise Operators Association president told the Wall Street Journal,“A lot of people thought we were closed.” Freshly resurrected zombies may need to set aside money for a marketing campaign just to let consumers in their local area know that they still exist.
Borders’ expat zombies seem to have less trouble with that. (Perhaps news of brand bankruptcy doesn’t spread as quickly across international waters.) Borders Malaysia is still going strong, with nine locations across the country, four in Kuala Lumpur alone. And in September 2015, Al Maya opened a brand-new 16,000-square-foot Borders in Dubai’s Mall of the Emirates, which is less well known for zombies or books than it is for its indoor ski resort. We might not have an Evil Dead–style apocalypse on our hands yet, but for now, at least, it looks like the zombie chains are here to stay.