Publishers Await The Marshall Plan

Publishers are anxious to hear new Borders Group CEO Ron Marshall's plan for reviving the struggling bookstore chain. Marshall, who was unavailable for interviews last week, spent part of his first days after succeeding George Jones contacting the heads of the major houses, but according to several executives, he gave no indication of what changes he has in mind for the retailer. Marshall is expected to travel to New York in a couple of weeks to talk to publishers about his ideas for the future. The support of the major houses is critical to Borders's survival; all the big publishers continue to ship books to the chain, although a few smaller presses have stopped supplying books.

The only hint about what Marshall may do came from a statement issued by Borders chairman Larry Pollock saying it is “imperative” that the company “more aggressively attack” initiatives that have helped the company to reduce its debt, improve cash flow, cut expenses and enhance inventory productivity. For the most part, publishers believed Jones had done a good job in beginning to turn around the company, although they were critical of two areas: Jones's decision to reduce the number of titles Borders sells as part of its inventory reduction program (which resulted in a flood of returns) and Borders's continued problems in executing some of the programs it had promised. Jones did acknowledge that Borders may have gone too far in cutting inventory and the chain had begun to restore certain titles to some stores.

The reduction in titles had contributed to a decline in third-quarter sales and was likely a factor in the chain's weak holiday results. Total sales at the chain fell 11.7%. Marshall Goldsmith, a management consultant and author of the business bestseller What Got You Here Won't Get You There (Hyperion), said Ron Marshall faces a “very, very difficult task” in turning around Borders, but one that is not impossible. He agreed with the widely held assumption that Marshall likely represents the last chance for Borders to get itself on firmer financial footing before it faces the prospect of going out of business. He said filing for Chapter 11 was a “viable alternative” to restructure the company, but that a less disruptive approach would be a quasi-bankruptcy, in which the company meets with various partners (publishers and landlords, for example) and convinces them that the best way to avoid Chapter 11 is to work out new terms. There have been reports that Borders is at least thinking about asking publishers to extend payment terms. The problem for publishers is that if they grant a change in terms for Borders, all other retailers will look for the same deal. That is something Peter Olson alluded to in his recent article in PW (Outlook 2009, Jan. 5) when he said publishers would be in danger of becoming bankers without the benefit of a possible bailout if they are forced to finance a greater portion of booksellers' inventories.

Goldsmith put forth the idea that Borders could look to become a niche bookseller, focusing on its concept and superstores, possibly as a private company.

Marshall signed a three-year deal with Borders that provides an annual base salary of $750,000 plus a signing bonus of $250,000. He is also eligible to receive bonuses and stock options. Jones received a severance package equal to 18 months base salary plus bonuses and an additional $510,000. Marshall's new top lieutenants, CFO Mark Bierley and executive v-p, merchandising and marketing, Anne Kubek, will receive base salaries of $375,000 and $325,000, respectively.