Borders transforms stores, management to boost business

Borders Group has been cleaning house for the holidays, hoping a fresh approach and an executive shake-up will restore profits after several consecutive quarterly losses.

Shoppers will find new sections for biography and teenage readers and fewer DVDs and CDs, as well as more soft-covered seating to make browsing more comfortable and more display tables to showcase new releases.

Behind the scenes, the Ann Arbor-based bookseller has installed new leadership and cut costs across its payroll, operations and supply chain to stay afloat in an industry battered by Internet sales and the rising popularity of electronic books.

The country's second-largest bookseller changed its business strategy after suffering a rocky 2008 -- and a dire holiday season last year -- that saw a spate of Borders stores close nationwide (including a downtown Detroit location), the departure of CEO George Jones and a potential delisting from the New York Stock Exchange.

The far-reaching "very necessary, but highly disruptive" changes hurt sales in the second quarter, which ended Aug. 25, but will strengthen the company in time for the all-important holiday season, CEO Ron Marshall said.

Borders, which reported a $46 million second quarter loss, is not alone in its struggle to attract shoppers. Retailers across the country continue to suffer as consumers cut back, choosing instead to save or pay down debt.

"Trade books are purchased with discretionary dollars," said Albert Greco, a marketing professor at Fordham University's Graduate School of Business in New York.

But low prices mean books are affordable for most consumers: "The price of a mass market paperback is about the price of breakfast at Denny's," he said.

Greco estimates industry revenues will be down 4 percent to 5 percent this year, cushioned by a slew of pre-holiday releases from best-selling authors, including Jon Krakauer, John Grisham and James Patterson.

Among the most visible changes inside Borders stores are the scaled-back offerings of music and DVD selections. Borders has been losing sales to electronic downloads and Internet-based rental businesses, such as Netflix. The category now represents 8 percent of Borders' sales, compared to 23 percent in 2002.

Reducing multimedia floor space has allowed Borders to expand the children's section by 20 percent at many stores and to sell more toys and games.

For older readers, a new store-within-a-store, Borders Ink, offers young adult titles, graphic novels and related paraphernalia such as pencil cases and bookmarks.

Borders will use social media such as Facebook and Twitter and beef up its roster of in-store events to promote new .

Streamlining stores

The company is also consolidating other book sections, such as crafting, "which would maybe have 12 categories in it, and narrowing it down to six to make it easier to shop," said spokeswoman Anne Roman.

The company is also beefing up its cafe and in-store Paperchase stationery businesses. Paperchase, which sells greeting cards, pens and journals, is part of more than 335 Borders stores and will be rolled into 150 additional locations.

"The important thing is that our stores today are better positioned now than they were a year ago to drive sales in the critical quarters to come," Marshall said.

Last year, same store sales were down 14.4 percent for the holiday season, the nine-week period ended Jan. 3, 2009. Sales for all stores were down 11.7 percent to $869 million.

Management changing

A new team is at the helm to guide Borders' transformation.

In addition to Marshall, who has extensive experience in retail and corporate turnarounds and joined the company in January, Borders has named a new chief information officer, senior vice president of marketing and senior vice president of merchandising and distribution, as well as three new zone vice presidents.

The new executives "understand what flawless execution is about," Marshall said.

The company also created a position for vice president of marketing revenue and reorganized U.S. management of its United Kingdom-based Paperchase subsidiary. Half of the company's 10-person board will be replaced at the board meeting Thursday.

"The strategy seems to be a smart one," Greco said. "They have done everything that's humanly possible to strengthen the company and make it more competitive."

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