Borders Music Strikes Wrong Notes

by Staff -- Publishers Weekly, 4/25/2005

Music continues to be the Achilles heel for Borders Group. Last week's announcement by the retailer that its first-quarter sales and earnings would not hit expectations was tied largely to a double-digit decline in its music sales, which in turn resulted in a 0.8% drop in same-store sales at Borders's superstores. The company had been looking for superstore sales to increase in the low single digits. Sales at Waldenbooks, which carries little music, came in close to expectations, with same-store sales off 3.0%. The (relatively) good news for book publishers was that Borders reported that comparable-store sales of books in the first period through April 18 were "slightly positive," though sales of bestsellers were down.

Borders has been working to downsize its music business, which is centered around such categories as jazz, classical and world music and accounts for 14% of annual revenue. A typical Borders superstore now carries approximately 25,300 titles of music in about 4,000 square feet of space, but as stores are remodeled, Borders is reducing the amount of space devoted to music and upping space for books, movies and gifts and stationery.

In an unrelated disclosure last week, Borders's proxy statement showed that Borders chairman Greg Josefowicz had a 21% reduction in take-home pay last year, to $1,008,733. Josefowicz's salary remained at $710,000, but his bonus was cut to $298,733 from $568,000. Vin Altruda, who earlier this month was named head of all Borders's domestic stores, including Waldenbooks, earned $433,714 in 2004, when he was responsible for Borders's superstores worldwide, a pay cut of 1%. Ric Vanzura, who is moving from head of Walden to take over international store operations, earned $344,397 last year, down 23% from 2003, due to a substantial drop in his bonus.