What's Up With Borders???

For the past month it seems that every time I open my daily Publishers Lunch or Shelf Awareness, I find a mention of something happening at Borders Group Inc.

Here are some of the items:

July 9: Spencer Capital Management reported buying a 6.8% stake in Borders Group, making them the fourth largest shareholder

July 11: Susan Yeager, who'd been with Borders for fifteen years left to join Harpers Children.

July 17: Susan Harwood was hired as Chief Information Officer at Borders at the same time Rick Vanzura resigned as Chief Strategy Officer and Executive VP of Emerging Business.

July 18: Bill Nasshan, Senior VP of Trade Books, resigned.

July 19: Myles Romero joined Borders as VP of Strategic Marketing and Entertainment Alliances. Teresa Wright joined Borders as VP of Merchandising for their Paperchase Division

I decided to do a little research. I came across a video of Shelf Awareness interviewing Borders CEO George L. Jones at the 2007 Book Expo at the end of May. I also found a Wall Street Journal (WSJ) interview dated July 16 by Jeffrey A. Trachtenberg, one of my favorite WSJ columnists.

Jones started at Borders last July 17 so he has just celebrated his first anniversary at the second largest U.S. bookchain. In the Shelf Awareness interview, he talked about the five initiatives he is championing:

1) Taking back the Borders website from Amazon.com. I reported on this back in November here. In April 2001, discouraged by the capital costs of setting up an online website, the former CEO made the decision to turn the Internet business over to Amazon.

Within four months of Jones' arrival last year, he made the decision to take the online business back. In the WSJ interview, he said, "First, I don't like turning our customers over to a major competitor. When somebody goes to borders.com and ends up at Amazon, Amazon gets the data and forms the relationship with the customer. Also, and this is a big point, we need connectivity with our stores. Our relationship with Amazon limits that connectivity. Also, our rewards program can't be part of it."

2) Selling off foreign stores. In March here, I reported that Borders had retained Merrill Lynch to help them unload the majority of their 73 superstores overseas. In the Shelf Awareness interview, Jones explained that Borders needs to focus its attention and capital on its U.S. superstores.

In April, 2005, Borders opened a franchise in Malaysia. In October, 2006, they opened another one in the United Arab Emirates (UAE). Jones says Borders will probably use the franchise model for overseas rather than the proprietary model.

3) Developing prototype stores. Jones told Shelf Awareness that the amount of the average transaction at Borders is up, but the number of transactions are down. In other words, there are fewer customers in the stores.

He wants to take advantage of natural traffic to bring more customers in.

When asked by the WSJ what the problem was, he said, "The Internet is clearly a factor. The other major factor is the mass retailers. There are a lot of books sold at Wal-Mart and Costco. Even though there is a limited assortment, customers see best sellers and other books, and that represents a lost visit for us, and that affects traffic."

He also told the WSJ: "We will have e-commerce offerings in our store that will let us do things to drive more traffic into our stores. It will also mean new opportunities for outside partnerships that can work online and in our stores. And it will let us take orders for books not in stock."

When asked to explain what he meant by "partnerships," Jones said, "Well, we have great travel and cooking departments. Say you are in those businesses. You know that the customers who are buying our cookbooks or travel books like to cook or travel. Some companies will want to reach them, both online and in our stores." He explained that Borders could put kiosks into their stores to show films of potential travel sites and connect with travel agencies so customers could learn about possible trips.

4) Proprietary publications. On June 11, Borders released its first "exclusive and proprietary" title, Slip and Fall by Nick Santora. Jones believes that Borders, by handselling the book, can make it a bestseller. [On June 25, Borders issued a press release saying that the book "debuted at #15 on today's The Wall Street Journal bestseller list in the fiction category."] If readers can only locate the book at Borders, this will drive traffic to Borders. He has plans to do additional proprietary books in future months.

5) Expanding the loyalty program: Jones told Shelf Awareness that Borders had made a mistake by not immediately responding when Barnes & Noble instituted its rewards program in 2000. Borders waited until February, 2006 to follow suit. To make up time, they did not charge for their loyalty program. They now have 18 million members in the new program. They took a huge hit during the Christmas season last year when customers cashed in their rewards all at once. Borders Group Inc. lost a record $151.3 million last year.

Now their rewards program has been revamped to offer smaller rewards more frequently throughout the year instead of once-a-year during the holidays.

One question that Jeffrey Trachtenberg asked that I found interesting was: "Borders now has some very large investors. What are the chances that the company will remain independent?"

Jones responded, "I can't comment. It's a matter of policy."

Keep an eye on Borders.