Losses continue for Borders Group as company eyes more 'non-book products,' digital strategy
(Note: This story has been updated with details of Borders' earnings call with investors.)
Ann Arbor-based book store chain Borders Group Inc. said this morning that it would focus on improving its in-store experience and pursuing more "non-book products" after posting a $46.7 million net loss in its second quarter ended July 31.
Borders reported this morning that its sales slipped 11.5 percent in the second quarter to $526.1 million, extending the firm's revenue contraction. Sales at stores open at least a year declined 6.8 percent over the same period. The company's $46.7 million loss was up from a $45.6 million loss during the same period in 2009.
Ann Arbor-based Borders Group Inc. reported another quarterly loss this morning.
File photo
Borders' stock (NYSE: BGP) was down a penny at $1.07 as of 10:13 a.m. The NYSE generally requires publicly traded companies to maintain a stock price regularly above $1 to avoid being considered for de-listing.
In recent months Borders has placed a heavy emphasis on improving its digital strategy, including sales of its e-readers.
But the company acknowledged that it must improve its in-store experience.
"As we grow our online and digital business, we cannot underestimate the importance of our brick and mortar presence," said Mike Edwards, CEO of Borders Group subsidiary Borders Inc., in a news release. "This will be top of mind as we work on improving the in-store experience by shifting our product mix to include additional non-book products that are both compelling and relevant, and providing an escape for our customers though an inspirational in-store environment and consistent customer service.”
Edwards' statements come after Borders announced this week that it had struck a partnership with Build-A-Bear, which will sell 28 products in Borders super stores.
Borders executives, discussing the earnings report on a call with investors, said they were committed to making changes to stores' product mix, layout and signage.
"A compelling in-store environment plays a key role in connecting with our customers," Edwards said.
Edwards told investors that the company would seek to create an "oasis-type environment" after internal research showed "that our customers come to Borders to escape the everyday pressures of life."
He said that starting at the end of September, Borders would integrate "inspiring new signs to enhance both shoppability and navigation while communicating value messages and important (new) releases."
Borders believes that e-readers and children's products are areas where it can drive sales.
"We are taking steps to transform our retail model, in part through high-impact strategic partnerships, like Build-A-Bear Workshop, that enable us to offer a compelling mix of lifestyle focused products,” Edwards said in a statement. “By offering a rich and relevant selection of product — both book and non-book — together with an exceptional customer experience, we will differentiate Borders from others in the marketplace."
The company recently appointed Michele Delahunty-Cloutier as executive vice president and chief merchandising officer. Edwards told investors that Delahunty-Cloutier's expertise includes "female-focused brand improvement and turnaround."
"Our research clearly is telling us that we have a predominantly female customer and we're a family and community-based destination," he said. "That is a significant difference relative to our competitive landscape."
Media members were not invited to ask questions during the conference
call with investors. The new CEO of Borders Group Inc., tobacco industry veteran
Bennett LeBow, did not participate in the call. Edwards reports to LeBow.
Borders has some 19,500 employees at about 500 stores throughout the U.S. The company, which recently laid off workers at its Ann Arbor headquarters for the second time in 2010, is believed to have fewer than 600 workers at its headquarters.
The company's second largest shareholder, New York hedge fund Pershing Square Capital Management, indicated in a quarterly letter released last week that it would support a merger with Barnes & Noble, which recently put itself up for sale.
"We have long believed in the strategic logic of a business combination between the two largest superstore companies," Pershing hedge fund manager William Ackman wrote in the letter. "We also believe that B&N’s chairman and largest shareholder is more likely to be a seller than a buyer of the company. We believe that any third-party acquisition of B&N will significantly increase the probability that Borders is included in a potential industry consolidation, because of the significant cost economies and other synergies that could be achieved in such a combination."
Borders, whose chief financial officer left two weeks ago, faces major challenges to its core business model. Online competitors like Amazon.com and big box stores like Wal-Mart and Target offer cheaper books, and physical store competitor Barnes & Noble has the better balance sheet.
Meanwhile, e-readers present a long-term challenge as Amazon's Kindle, Apple's iPad, Barnes & Noble's Nook and other emerging competitors jockey to secure a share of the e-books market.
Borders said Tuesday that it would reduce the price of the top two e-readers it sells, the Kobo eReader and Aluratek device, to $129 and $99.99, respectively. Borders this summer launched an e-book store developed by Toronto-based Kobo Inc. and hopes to have 17 percent of the digital books market within a year.
The company said in today's news release that e-reader sales "have exceeded expectations."
"Borders is now an industry authority on digital content and devices," Edwards said.
The firm on Tuesday introduced a new premium version of its Borders Rewards loyalty program in hopes of convincing more shoppers to make a purchase when they visit a store.
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
Anonymous
Thu, Sep 16, 2010 : 10:52 p.m.
I work at a Border's bookstore and the employees are treated unfairly by our general manager. Caroline Mcgrath is the general manager at store 0470. She micro manages all of us. I never had any type of anxiety when I started at this border's bookstore 4 years ago until she became general manager this year. A few nights ago I woke up in the middle of the night drenched. I hardly sweat. The other employees complain about her and I have brought this up with corporate but they haven't done anything about her. She is a toxic manager and uses her manager skills with negative reinforcement. She's unstoppable. Thanks for listening.
Fred
Wed, Sep 8, 2010 : 9:52 a.m.
First, Borders treats their employees like cr**. Second, there are hardly any employees at the stores anymore. And the stores are filled with nothing. Go in one and see how s p r e a d out the merchandise is. It is really a depressing atmosphere. Now they are going to add non-book merchandise? So what is a Borders store? Will anyone care?
Brian Bundesen
Thu, Sep 2, 2010 : 10:20 a.m.
Sadly, one step closer to the inevitable. It's hard to imagine how long they can sustain losses of $500K/ day. Back in the hey day of opening 40 Superstores/ year, Borders succeeded because of: 1) Dedicated, passionate and knowledgeable staff. 2) Bigger and more diverse book and music inventory than anywhere else (pre-internet, and pre iPod) 3) Welcoming, locally focused stores 4) Leading edge computer inventory management (at the time). Poor leadership and technology changes have been the big one-two punch. CEO's who thought Borders could be run like any other Big Box retailer come in, get their Golden Parachute, and go home. Technology. They coulda, woulda, shoulda been proactive and the leader, but were'nt and are now feebly trying to play catch up. My guess is that B & N waits for Borders to go BK, then cherry picks the stores it wants in good areas where they're not near by, and renegotiate those long term leases.
DonBee
Wed, Sep 1, 2010 : 5:20 p.m.
I go to Borders for Books and Magazines. The selection of magazines continues to fall (even for magazines that are still published). If they want to increase sales - stop putting books and magazines all the way to the floor and in magazine cases that make it difficult to see what is on the bottom. Start the books 18 inches off the floor and put the back stock on the bottom shelves. As folks get older, sitting on the floor to read the titles on the bottom shelves is a pain. The enthusiasm for books from the staff has fallen way off, as well as the knowledge about books. When is the last time you found a Borders person at the reference desk sneaking a read between customers? Put people in the stores that care about books. Want to draw more folks to the stores, make it easier for book clubs and writer's groups to hold meetings in the stores. Just my 2 cents (since I spend way more than that at Borders regularly).
actionjackson
Wed, Sep 1, 2010 : 3:11 p.m.
When Borders started farming out all of their labor to Ohio and out of area contractors they lost me. I support stores that use local labor and material in their construction practices. Same with Big Georges.
michiganexpats.com
Wed, Sep 1, 2010 : 2:44 p.m.
"Virtul" books are critical to the success of Borders. However I think they should also keep in mind that sometimes, people want physical books. I've always dreamed of have a library/study in my house. Why not have a library consultant in the stores? You can build the collection based on what you like (classics, biographies, romance novels, etc.)
GoneGoneGone
Wed, Sep 1, 2010 : 12:06 p.m.
Stupid. Why keep using the term "non-book products." It doesn't work. Why did they hire more idiot big box merchandising people? They've done it in the past and it hasn't worked--ever--and helped them get into this mess in the first place. Another thing: They spent like 5 million on their web site. When I searched for Jonathan Franzen's new novel, Freedom, yesterday, I discovered two things (to my dismay): First, it wasn't available as an ebook--still not as of today--and also yesterday-- the day the book was available to the public--the web site was still calling it a pre-order and only available to pre order online and wasn't in stores. Given that the novel has been reviewed not once but twice o in the New York Times before publication, that the author was on the cover of TIME, and that the book caused a controversy from female writers against the NY Times Book review--not the book--and that it is one of the most anticipated novels of the year let alone the early fall, this is pretty much inexcusable. I want to shop locally, give me the damned chance!
AlwaysLate
Wed, Sep 1, 2010 : 11:33 a.m.
"Borders is now an industry authority on digital content and devices," Edwards said. Oh please, Borders is only an industry authority on how to run a wonderful company into the ground while successive CEO's come and go with their golden parachutes! Non-book productsBorders has had those for years. Ever notice all the clutter and crap around the registers? Might as well be Dollar General! Its a damn shame!
ShadowManager
Wed, Sep 1, 2010 : 11:25 a.m.
I almost always give my money to one of the truly local and diminishing used book retailers in town, esp. the classic Dawntreader. I truly wish Crazy Wisdom offered more competitive...i.e. discounts, and coupons...for their new books as I'd spend all the money Borders has taken from me over the years there instead.
dawnsong
Wed, Sep 1, 2010 : 11:19 a.m.
Build-A-Bear? That's a joke, right? A bad, sad joke.
bunnyabbot
Wed, Sep 1, 2010 : 10:50 a.m.
like I commented on yesterdays article I give them 2 years tops. They will either go under or sell to a bigger bookstore. if they are looking for non book items to keep a book store afloat I would call that a concession that the bookstore is no longer viable.
javajolt1
Wed, Sep 1, 2010 : 9:54 a.m.
Stick a fork in Borders, they're done. There has been little continuity in leadership since the departure of Bob DiRomauldo left. Each time, a new CEO has done little, the losses widen and they leave after a year or so with a HUGE buyout. What a joke. Whatever happened to compensation tied to performance. A publicly traded company is looking more an more like the government: a stepping stone to a more lucrative position elsewhere. In this game of musical charies and jockying for position at Borders leadership, they have completely allowed the most valuable commodity to erode: time. Bad economy or not....the company is simply out of time and is praying for a buyout.
Donald
Wed, Sep 1, 2010 : 9:46 a.m.
I still refuse to go to any store in Arborland, for any reason, until the bus service is restored. I live in Ypsi, and go to Canton instead. But I've been going to Barnes And Noble about as often, because (SURPRISE) B&N usually has the book in stock.
Bob
Wed, Sep 1, 2010 : 9:38 a.m.
I think it's funny that Borders actually thinks "Build A Bear" will generate enough sales to save them....remember the debacle they had years ago when they purchased "All Wound Up"...a novelty toy store...that sure worked out well! As good as all that over priced gift cards and paperchase crap they are still trying to push....Too little too late Borders, you can't compete with the Amazon's and Wal-Mart's of the world!
JimB
Wed, Sep 1, 2010 : 9:33 a.m.
I agree with all of the posts. Yesterday, I recieved an e-mail from Borders stating that the order I have been waiting for, over 2 months, was now cancelled. I purchased the items since they were promissed in 2-4 weeks. Borders sent me messages stating that 'they haven't forgotten about me' and that my order will be shipped soon. Then, with no real explaination, gave me what looks as a half- hearted apology. Poor customer service, inconsistant store operations piled on to too high debt/earning equals big trouble.
ShadowManager
Wed, Sep 1, 2010 : 9:25 a.m.
I could have swore, just a few months back, Borders was gonna "take it back to basics and get back into just selling books"...this after trying and failing at moving into the new digital media, which happened after a period of trying to be community centers with cafes, after a period of trying to be musis stores along with books, after a time of doing the online thing, after period of trying to break into academic bookselling, after a.... Sensing a trend? They hop from one thing to another as the ship sinks! One thing they could do now though would be to improve the mood and quality of the local stores. They are gloomy and depressing now...with staff all walking around waiting to be canned. And the bathroom are atrocious. Hire some people to clean your bathrooms and makes the stores at least comfortable.
Rasputin
Wed, Sep 1, 2010 : 9:17 a.m.
@ Greggy_D, I'd also add: 6. Remove cafes from all stores 7. Stop selling paper products that are not related to books and take up too much floor space and generate too little revenue. 8. Generally, take it back to basics, just like back in the 80s.
Greggy_D
Wed, Sep 1, 2010 : 8:32 a.m.
1. Cut your book prices to match Amazon (or maybe 3-5% over). 2. Don't insult your customers by making them pay for a discount. 3. Partner with Amazon to sell the Kindle in-store. 4. Focus on books and e-books. Forget music, movies, and Build-A-Bear (you actually think Build-A-Bear is going to save your company?) 5. Hire a staff which is passionate and knowledgeable about books.
Somewhat Concerned
Wed, Sep 1, 2010 : 8:26 a.m.
Have any of their past non-book efforts worked? No, not even after doing expensive store remodels. They can't execute at the store level. Their selection of books gets smaller and smaller. If you have to order out-of-stock books online, you might as well go to Amazon for cheaper prices. The stores vary in how pleasant they are to visit. Even the same store varies from hour to hour. Borders still believes that it's more important to let its employees play whatever eccentric music they like rather than music that won't drive customers out the door. Outside Ann Arbor, Borders employees seem to be less interested, grumpier and stranger than employees at Barnes & Noble. I suspect that as long as Borders wanders from idea to idea - any idea other than selling books in pleasant stores with pleasant employees - they will flounder.