Friday, March 23, 2007

New Strategy at Borders

Lots going on in the publishing world. It will probably take a couple of days to cover everything that happened while I was away.

Most importantly tonight is all the activity over at Borders Books. The Wall Street Journal (WSJ) had a lengthy article yesterday by Jeffrey A. Trachtenberg, one of my favorite reporters. I've mentioned Trachtenberg's stories multiple times in this blog over the last twenty months.

Earlier this month, on March 8, the Borders Group announced they would hold a discussion on March 22 on "the company's fourth quarter and full year 2006 financial results" and would "outline its strategic plan for the future." Pretty big clue that the fourth quarter was not going to be a winning one.

Yesterday, had this to say about the Borders' results:

[T]he company recorded a consolidated loss in the fourth quarter of $1.25 per share, which compares to consolidated earnings per share of $1.78 for the same period in 2005. For the full year . . . Borders Group posted a consolidated loss of $2.44 per share compared to consolidated diluted earnings per share of $1.42 for the prior year.

Yeah, there was a reason for that heads up about the forthcoming results.

After the results were announced, Borders led the promised discussion, describing how they planned to turn things around. The WSJ summarized those plans.

The article began by saying, "For six years, Borders Group Inc. has pursued a distinctly unfashionable strategy: betting big on bricks and mortar while paying little attention to the online world. Now with online sales capturing an ever-increasing share of the book business, the No. 2 book retailer is reversing course."

Trachtenberg was referring to the fact that, in 2001, instead of focusing on the Internet as the future of marketing, former Borders CEO Greg Josefowicz opted to turn over the company's online business to

[B]usiness trends have proved Borders' strategy wrong. While sales at U.S. bookstores have sagged--down 2.9% last year, according to preliminary estimates from the U.S. Census Bureau--online book sales have soared. Online retailers in 2006 accounted for 13% of the overall book market, up from 2% in 1998, according to R.R. Bowker LLC, which tracks the book industry. (WSJ)

Today the man who replaced Josefowicz eight months ago, new CEO George Jones, announced the following initiatives:

1) Revitalizing the 499 domestic superstores: "Borders is working on a prototype of a new superstore design that will include a digital center. The centers will enable customers to purchase a variety of digital products, including music and audiobooks." The company is also expected to start replacing its CD inventory with downloadable music. Finally, the WSJ reported the company will "provide such services as personal publishing," which I assume means self-publishing. The first of these newly redesigned superstores is expected to open in 2008.

A press release issued by Borders yesterday said, "The company is also planning to publish exclusive and proprietary books to distinguish the Borders brand and drive high margin sales. Numerous agreements are already in process to publish titles by celebrities, undiscovered talents, and others who will create buzz about books that will only be available at Borders."

At the same time, the company plans to close 264 of its 564 Waldenbooks, those smaller stores mostly located in malls.

2) Refocusing investment on the international front: The press release also said that with the exception of "the company's successful Paperchase [stationery retail] business, Puerto Rico stores, or the franchise operations in Malaysia and the United Arab Emirates" and the company's operations in Singapore, Borders will be seeking "strategic alternatives" for its international operation. Borders has retained Merrill Lynch & Co. to help them unload the majority of its 73 superstores overseas.

3) Reinventing the company through technology and strategic alliances: Borders will develop its own website independent of

Trachtenberg reports that, "In addition, the nearly 17 million readers who now participate in the Borders Rewards program will be able to earn customer benefits through online purchases, something they can't do currently with Amazon."

“We need to reinvent our business to exploit the rapid changes taking place in how consumers access information and entertainment,” Jones said. “Our ultimate goal is to make Borders a vital community gathering place where people come together to see, touch, interact, and learn – online and in-store.” (Borders' press release)


David said...

I wonder how many jobs will be lost by yet another example of bad decision making on the part of a company officer who won't lose his or her job because of it, in this process. That seems to be way of big business. Me CEO - you grunt. I make a bad business decision, YOU lose your job

Maya Reynolds said...

David: There's no question that the closure of 264 Waldenbooks and the overseas stores is going to leave a bunch of people unemployed.

I'm unclear about the change of focus in the superstores. Will they need a more technically inclined employee in their digital centers? If so, there may be a shift in the type of superstore employee needed, displacing the current salesclerks.

On the other hand, operating their own website will require hiring a group of new staff. Certainly not the same number that will be displaced, but still a substantial number.

As you say, it is always the "grunts" who are at risk of unemployment in any industry change. All the more reason for employees to keep upgrading their skill sets throughout their careers. Getting complacent can be dangerous.

Thanks for posting.