Borders hits the Web to boost sales
DETROIT - Borders Group Inc. is planning for a brighter future with an emphasis on new online products and a refocused effort on attracting new customers, despite weak sales in 2006, slipping margins and increased competition.
The Ann Arbor, Mich.-based book retailer said Thursday it lost $73.6 million, or $1.25 a share, for the three-month period ended Feb. 3, compared with earnings of $119.1 million, or $1.78 during the same period a year ago. The company also said sales for the fourth quarter were $1.5 billion, compared with revenue of $1.47 billion in the year-earlier period.
For the year, Borders officials recorded a loss of $151.3 million, compared to net income of $101 million in 2005. Excluding non-operating charges, income for 2006 was $24.3 million, vs. $112 million in the previous year.
"Clearly, our 2006 results were disappointing, as our company and the industry as a whole continued to face a challenging environment," said Borders Group CEO George Jones. "This performance is not indicative of this company's many strengths, and it's not where Borders Group is headed in the long run."
In response to the poor financial performance, the company has developed a strategic plan to generate "long-term value" for shareholders.
Borders will look for alternatives to improve its performance including the possibility of selling some of its overseas retail assets, as well as some of its Waldenbooks business domestically. Officials said they hope to reduce the number of Waldenbooks stores - smaller establishments usually found in large shopping malls - from 564 to about 300 by the end of 2008.
The industry's second-largest book retailer has 1,200 Borders and Waldenbooks stores around the world.
"Our company's performance has fallen short in an industry that is increasingly competitive, technology driven and price sensitive," said Jones. "We recognize the urgent need to go on the offensive and drive significant change."
He added that layoffs are not a part of the strategy.
Borders Group, which has about 150,000 titles in its stores, claims a 13 percent share of the retail book-selling market.
Increased competition from retailers such as Barnes & Noble, Amazon.com and Costco Wholesale Corp. has forced the Michigan firm's hand.
Company officials said they have hired Merrill Lynch & Co. to be an adviser on the possible sale of some of its 41 British stores and KPMG was contracted to advise on the disposal of the business units in Australia and New Zealand.
"This is a company that has been losing ground and market share for several years," Jones said. "Its focus previously was to cut costs. But we're taking a different strategy, and we're going to drive sales."
To that end, Borders plans on unveiling a new-and-improved Borders.com Web site in 2008 to refocus brand recognition and enhance customers' abilities to purchase a wide variety of books, music and digital material from Borders. The move would end a relationship Borders has had with Amazon.com since 2001.
Another vehicle to try to recapture market-share is to leverage the company's 17 million-member Borders Rewards program and transform it into a profit-making segment of the business.
"This database will allow us to deploy the Rewards Program as a revenue-generating vehicle," Jones said. "Our mission is to make Borders a headquarters for knowledge and entertainment, and we believe our Rewards Program gives us a compelling opportunity to achieve that at our superstores."
Jones, who joined Borders in July, previously served as president and CEO of the Saks Department Store Group. Prior to that, he held high-level executive positions at Warner Bros. and Target Corp.
The high-energy chief executive plans to make e-commerce and the use of digital products at Borders a key element in the future.
Borders recently signed an agreement with Grammy Award-winning songwriter and singer John Legend to exclusively publish and offer a book on the artist's life to be released in July. The book, which will contain a foreword written by Legend, will only be available at Borders.
The company also will publish and release a book by first-time novelist Nick Santora, an award-winning television writer and producer for shows like "Prison Break," "Law and Order" and "The Sopranos."
"No one has really done something like this before," said Jones. "This is a big avenue for us."
Company officials also are looking at possibly publishing unsigned authors from within their ranks of 35,000 employees, or even from its customer base.
Borders stock fell 73 cents to close at $20.70 on the New York Stock Exchange Thursday.