Borders Group executives earlier this month tied the company's failure to hit its third-quarter financial targets to hurricanes and elections. But interviews with a number of publishers—mostly at midsized houses—found the problems at the nation's second largest bookstore chain run deeper, with many citing a "cultural war" between management executives fixated on category management and old-line Borders employees focused on selling books. Add in some old management systems and the loss of key people, and the ingredients are in place for a company that is underperforming its chief rival in a number of areas: lower comp-store sales, lower sales per square foot (see chart) and higher returns.
A recurring theme among publishers was a lack of coordination between headquarters and the stores, as well as tension between executives and buyers. "There is a poor interface between the corporation and store managers," the head of one mid-sized publishing house said. The poor coordination results in a lack of execution in carrying out book promotions, this publisher said, noting that on some occasions stores failed to display all the titles that were part of the promotion. The sales manager at another publisher said that except around the holidays, Borders doesn't offer enough in-store promotional opportunities. "There's a merchandising problem," he said.
One prominent publisher decried what "seems to be a weird disconnect" between Borders's upper management, which comes mainly from outside the book business, and its more traditionalist buyers. It is a rift that favors the new guard at the expense of book and industry knowledge, the publisher said. Other publishers had a similar take. "Years ago, in its heyday, Borders was staffed by really knowledgeable book people who cared about each store. They still have incredible variety in their stores, and the shopping experience is good. But the book buyers are not given the tools needed to get books into the stores right away," said the president of a mid-sized house. The sales director of an independent house said upper management seems more interested in increasing shareholder value than in creating really good bookstores. This strategy can result in actions that look good in the short term, such as keeping inventories very lean, but are detrimental in the long term.
Several publishers pointed to employee turnover as a problem. "There is no stability," one sales manager said. "The staff is constantly changing. They have a lot of inexperienced buyers who are not managed by people with experience in the book business," one publisher said. He noted that since the departure of Phil Ollila as v-p, marketing for books in April, the climate toward publishers "has become more hostile than usual." Another publisher lamented the disappearance of summits with publishers and cited other examples as evidence that "they are not so welcoming" in hearing publishers' thoughts and concerns.
The mood was also cool toward Borders's category-management initiative. "I can't think of a single insight that's changed their business practice [as a result]," said one publisher, who called it "a consumer study that they basically got publishers to pay for." Another publisher said the focus on category management caused Borders "to take their eye off the ball" in other parts of the business. And another publisher noted that categories that have not yet undergone category management are ignored by executives.
Publishers gave Borders the poorest marks on backlist sales. "Borders can compete on sales with Barnes & Noble for a certain period of time, and then I don't know what happens," a sales director said. Another publisher attributed Borders's weak backlist performance to its old inventory systems, which, as more than one publisher observed, is particularly ironic since Borders's systems used to be the envy of the industry. Now, one publisher noted, B&N has better systems and B&N buyers are encouraged to "be a little more creative and try different things." As a result of weak systems, Borders even takes longer than B&N to replenish hot new titles, publishers said.
One sales manager confessed to being perplexed about what's happening at Borders. While his sales have gone up, so have returns, and the chain is buying fewer copies. While this may mean leaner inventory, this publisher is convinced it also means lost sales. And while his Borders sales have gone up, they have not increased at the rate they have at B&N and Amazon. "They keep falling behind," he said.
While publishers have plenty of issues with B&N—topped by proprietary publishing—nearly all agree that B&N has a team of seasoned book people. "When you go out with Barnes & Noble, at some point the discussions always comes back to books. That's not always the case with Borders," said one publisher. He added that the lack of faces associated with the company—or with book culture—compounds the problem. "When you talk about B&N, it's Len and Steve and Bob Wietrak and 10 or 12 people I can name right off the bat. Borders is an enigma."
Josefowicz Defends Record
While acknowledging that sales were disappointing, Borders chairman Greg Josefowicz said the company is still performing at a higher level than at any time in its history. Book sales year-to-date are ahead of the industry average and returns have fallen "significantly" for the last three years, Josefowicz said. "And our market share has increased," Josefowicz noted, adding that he didn't believe that would be possible if the company was not operating efficiently.
Josefowicz said the company continues to make significant investments in inventory as part of its strategy to distinguish itself from its competitors. And he vigorously defended Borders's backlist performance, maintaining that backlist is a particular strength of the company.
Josefowicz said that if vendors have had problems communicating with executives and managers, the company needs to do a better job of opening the lines of communication. "I'm very accessible," he said, adding that he is "unaware of any endemic problems" of publishers not being able to reach the people they need at Borders. Nonetheless, Josefowicz said, the company will redouble its efforts to be proactive in working with the publishing community. He encouraged publishers to inform him of problems. Borders wants publishers "to help us help them," Josefowicz said.
