Had Borders Group announced last year that it is implementing a long-term, ongoing business plan that will reform the company in a way that emphasizes working with publishers and other suppliers to better serve Borders's customers and increase sales, the book industry would likely have welcomed the initiative.
But in large part because the plan is called "category management," some in the book world have reacted with fear and suspicion, linking category management with such notorious general retail practices as stores selling shelf space and stocking control to suppliers, or big-box retailers dictating to suppliers. Moreover, because part of the plan involves publisher contributions to help fund consumer research and training and the institution of "lead" publisher partners in many categories, some have concluded that the plan includes preferential payments, misuse of co-op, and larger publishers blocking smaller publishers' access to Borders's stores. An inaccurate Wall Street Journal article and a somewhat wild-eyed "open letter" to Borders's CEO Greg Josefowicz from Ralph Nader and others have made matters more confused.
However, after spending two days at one of the workshops held by Borders to train both publishers and company employees in the application of category management, it's clear to PW that these fears are misplaced. As practiced by Borders, category management is a broad business plan that will take several years to implement and will fundamentally change how the company operates. Mike Spinozzi, executive v-p and chief marketing officer, called it "a business practice and philosophy, a general approach to retail." Speaking to publishers, he added, "Music and books are not on a tremendous growth path lately. We're offering a plan." He noted that participation in the plan by suppliers is not mandatory.
In large part, category management addresses a fundamental problem at a chain like Borders, which has more than 360 superstores and wishes to foster a management structure that has elements of standardization, while allowing for creativity. In this vein, Peter Frame, one of the workshop teachers, called the category management strategy "your presence when you're not there. This gives the many people who operate in isolation a clear indication of what they need."
Category management focuses on analyzing product categories using a variety of criteria, including: how important the category is to customers; how important it is to Borders's mission statement and its target customers; how Borders's approach and sales compare to its competitors'; and the category's long-term growth potential. During the process, which takes 15—20 weeks, Borders decides which of four classifications the category under examination fits into: destination, core, convenience or impulse. A destination category is one in which Borders excels and is a major draw for enthusiast customers. A core category is one in which Borders has an outstanding selection and delivers "consistent, competitive value," although perhaps not at the levels of specialty competitors. Convenience offers titles and products that help make Borders a "one-stop shopping" store. Impulse offers titles that "delight and surprise" customers, said Frame's colleague Bill Nasshan.
Borders has divided its products, including music, DVD and cafes, into about 250 categories. So far, it has classified six categories and is in the process of implementing tactics for this group. The company has also started on its second wave of such classifications, which altogether will cover about 35% of its business. A third wave is in the planning process. Matthew Gildea, associate director of Borders, called the first group's implementation "an experiment and test for us." Frame noted that in other industries, sales gains attributed to category management averaged 11% for retailers.
An important element of category management is the close involvement of suppliers. Borders hopes to remake its relationship with publishers from one focusing on buying and selling to sharing information about customers, markets, sales, merchandising and other pertinent material. Spinozzi called it a "collaborative relationship" that is "fact-based and customer-focused."
Each category will have a "lead" vendor, a publisher who cooperates with Borders in doing and contributing to paying for consumer research and for training. The consumer research consists mainly of interviews of Borders customers as they are leaving the store and telephone surveys of consumers. Over time, costs for both research and training should go down. Although the vendor contributions have raised ire in the industry, Borders feels comfortable with the arrangement. The company is making "a big investment," Spinozzi said, and can't afford all the costs. Moreover, lead suppliers benefit from the information gleaned—and from the increased sales that should result from better business practices. Already, Spinozzi said, Random House, the lead vendor for the beginning readers category, and HarperCollins, the lead vendor for food and cooking, have changed certain aspects of their publishing program based on information learned as a result of the process.
Perhaps the biggest misconception about category management is the role of the lead vendors, whose designation is not "permanent." They do not buy or take space, determine or recommend titles, or block other publishers. Still, some publishers wonder why more of them can't be involved in "lead" roles in a category. Spinozzi commented: "It would be inefficient to have everyone involved" at that level. He did add that a few categories may have "co-lead vendors." Still, "non-lead vendors" benefit from the work of Borders and the lead vendor. The category business plan, which doesn't mention titles or publishers but includes information about the category and Borders's plans for it, is shared with all vendors in the category. The company stresses that it wants as much information as possible from all suppliers. The collaboration may turn out to be so close that Borders, which may find opportunities for proprietary publishing, may also publish with vendors.
Although only large publishers have been named lead vendors so far, smaller publishers may well be named lead vendors as the company moves to analyzing categories "with a larger participation of smaller publishers," Spinozzi continued. For example, in poetry, small publishers will "add a lot of value: they have understanding and capability." Other categories in which smaller publishers may have leading roles including test preparation, philosophy and women's studies.
Many Borders store layouts are not "customer friendly," Gildea said, and the company will use plan-o-grams in some cases. At the same time, however, stores will be encouraged to retain their individuality. Frame noted that the implementation of category management "will not be effective if all stores are vanilla. Borders needs to have each store be a unique experience. You have to balance excitement in the store with reliability."
Category management requires more to be examined than just what the customer sees. Nasshan explained: "Back-office operations need to be buttoned up" to help Borders operate smoothly. In that vein, various departments of suppliers and Borders need to work together. As Nasshan put it, "Get your finance geeks to talk with our finance geeks." Systems, supply and logistics employees at Borders and suppliers should also be communicating with one another, he said.
Some publishers participating in the recent workshop wondered how the style and substance of sales calls at Borders would change, noting that in the past, offers to provide general market information were often rebuffed. Frame said this will no longer happen, and he encouraged reps to bring "consumer insights. If it's all about 'me me me' and 'sell my stuff,' that's not right." Spinozzi said Borders will likely have "more frequent conversations with publishers. They will be more proactive; we will share more information." Some changes may be made in how Borders and publishers meet and communicate. "Borders knows what goes on in Borders," Nasshan said. "But vendors know about what goes on in the market. We want vendors to look at Borders as if we were running the business based on what you know."