Publishers breathed a sigh of relief last week when Borders announced that it had reached a new financing agreement that enabled it to pay back its $42.5 million loan owed to its largest shareholder, William Ackman, as well as providing the struggling retailer more capital and time to try to turn around its operations. Interim CEO Mike Edwards used the conference call discussing year-end results last week to outline his vision for revitalizing Borders and getting the chain back into the black. While publishers are pleased that Borders remains a competitor to Barnes & Noble, they are growing skeptical about its ability to improve sales and will certainly be closely watching its same-store sales performance, which was awful again in 2009, down 14.0% at the superstores (including a 10.7% decline in book sales) and 8.5% at the Walden Specialty Retail segment.
Perhaps the best news out of the conference call was that Borders has no plans to drastically cut its number of superstores, although CFO Mark Bierley said the retailer is having discussions with its landlords at locations where leases are up for renewal; 25 superstore leases expire during the year. Borders closed seven superstores in 2009, finishing the year ended January 30 with 508 superstores. It also closed 212 outlets in the Walden unit, finishing the year with 175 locations. Capital expenditures in 2010 are expected to stay close to the $17.9 million spent in 2009 as the company works to improve existing locations rather than open new outlets.
Edwards said he understands that Borders faces challenges in reversing the sales slide, but outlined four steps he believes will increase foot traffic and the average ticket sale. The first is to improve the in-store experience, something that includes getting more inventory and having the right titles at the right stores. He ticked off a number of initiatives that Borders has already started, including the in-stock guarantee, a program that Edwards said Borders will grow, as well as its boutique shops aimed at kids and teens. The retailer is also looking at adding nonbook items that complement its core offerings. (Previous CEO Ron Marshall believed that Borders needed to get back to its bookselling roots. Despite the debate over how many books Borders carries, books' percentage of total sales stayed even in 2008 and 2009 at about 67%). And despite recent cuts in store personnel, Edwards said Borders has devised a new staffing model for its stores aimed at getting more personnel on the sales floor.
Edwards also vowed to revamp the company's rewards program, which, despite having 37 million participants, Borders “has not done enough to leverage its strength.” He said the program will be enhanced and will use data to tailor promotions to individual members. Edwards said Borders will also invest in other marketing programs to “acquire” more customers.
Using more social media and emphasizing the ability of its stores to serve as community meeting places is the third part of Borders's growth strategy. Edwards noted that average ticket sales are higher during events and promised a “robust” events schedule for the year.
Upgrading Borders's online and digital businesses is the final piece of the growth strategy. Edwards said there is “tremendous upside” at Borders.com, which had a $14.7 million sales increase in 2009, its first full year of operation after Borders ended its relationship with Amazon in May 2008, putting online sales (excluding in-store kiosks sales) at $60.4 million last year. Edwards said Borders will try to emphasize its position as a “neutral expert” in the digital wars, and could offer as many as 10 different e-readers this summer. Its Kobo-developed e-reader and e-bookstores are expected to be available by the second quarter, and the company plans to rollout “Area e” shops dedicated to digital products and services to all stores by the fall.
