Chains Stumble Out of Gate

With only Barnes & Noble posting a sales increase among the major bookstore chains in the first quarter ended May 3, total revenue for the top three book retailers inched up 0.3%, to $2.07 billion. Similar to B&N and Books-A-Million, Borders said sales were weak throughout the quarter, with April the softest month. In addition to slow customer traffic, there was no new title that matched the sales performance of The Secret in last year's first quarter. Borders CEO George Jones said in a conference call there was some rebound in May, but that the company was being conservative in its projections for the current quarter, particularly since last year's second period included sales of Harry Potter and the Deathly Hallows. And also like its competitors, Borders said it has decreased the amount of discounting it is doing at its stores in a bid to improve margins.

Borders had the worst same store sale performance among the chains, with overall comps down 4.1%. Without the impact of music, which fell nearly 26%, comp sales were down 1.7%. Book same-store sales fell 1.2%. Borders is working to reduce the amount of space devoted to music and estimated that the category, which had represented about 9% of revenue, will fall to about 7%. The retailer has also dramatically cut its music inventory, by 32%, as part of its overall strategy to cut total inventory, and Jones emphasized that inventory reduction remains a top Borders goal.

Another objective is to reduce expenses. Borders has a plan to cut costs by $120 million over the next 18 months. About half of those cuts will come in the corporate office to reflect the company's smaller Walden and international operations, and the balance will take place in stores and distribution centers. The reduction in the field will include eliminating positions as well as in “nonpayroll” items such as energy, though no specifics were provided.

The conference call occurred one day after the launch of the revamped Borders.com, and Jones said that “at minimum” the e-commerce site will break even this year and will definitely be profitable in 2009. He also said the company's other major initiative, the performance of the concept stores, “has exceeded expectations.” Nine new stores have been opened to date, with five more planned.