Borders Leads Chains Downward

After falling 6.7% in the first quarter, total sales at the nation's three largest bookstore chains fell 7.5% in the second period and were down 7.3% for the first six months of 2009 ended August 1. The decline was driven primarily by the weak performance of Borders, where revenue fell 17.7% in the second quarter.

In a conference call discussing second quarter results and in an interview with PW, Borders CEO Ron Marshall said that during the just concluded quarter Borders engaged in a “flat-out sprint” to remake its superstores in time for the fall and holiday seasons. That effort focused on replacing much of its multimedia sections with more attractive products, including expanding its children's sections by about 20%, establishing teen departments and almost doubling the SKUs of toys and games. Because of the overhaul, stores looked like “construction sites” for part of the period, which disrupted sales, Marshall said, adding that it was important to complete the work by mid-August so that the stores would be positioned “to drive sales in the critical quarters to come.”

Heading into the second part of the year, Borders has scaled back its multimedia offerings to half of what it was last year at this time; multimedia now represents about 8% of revenue, down from a peak of 23% in 2002. The negative impact multimedia has had on Borders can be seen in the second-quarter comp sales figures in which music comps plunged 51% and DVD comps fell 48%. Poor multimedia sales, however, was not the only reason why Borders's comp sales significantly trailed that of its rivals in the quarter. CFO Mark Bierley also pointed to a reduction in inventory, including the overcorrection made at the superstores (trade book inventory at the superstores was down by 16.5% compared to last year); problems in specific categories, such as biography where separate departments were being established in the quarter; and lack of execution. Marshall said Borders has started restocking its superstores and expects inventory to be at appropriate levels by mid-September. To improve execution at the store level, Borders has hired a training company to work with district and store managers on how to focus better on improving the customer experience.

Like Barnes & Noble and Books-A-Million, Marshall said Borders has also seen price-sensitive consumers in the quarter. Sales were hurt more by a decline in the average ticket than a drop in shoppers, Marshall said. Sales of higher-priced hardcovers were “very challenging” in the quarter, Marshall said, part of the trend he called “rolling down,” as buyers of hardcover titles traded down to trade paperback and trade paperback buyers opted for bargain books or mass market paperbacks. Marshall sees room for growth for bargain books and said Borders will be not only expanding its selection in the segment to offer more price points and different categories but also changing the way the books are displayed. The company has also begun testing a new Paperchase display at its Penn Plaza store in New York, and if it proves successful Borders will roll out a new look for gift and stationery items at more of its stores.

Marshall agreed with other industry members who called the fall book line-up one of the strongest in many years, but said he was still concerned about the sluggish economy. “It's a formidable book lineup, but that has to be balanced against cost-conscious consumers,” Marshall said, before adding he was optimistic the retailer will see improvement in the second half of the year compared to the first six months.

Chain Sales, 2008—2009
(In millions)

Borders Group, Second-Quarter Results
($ in millions)