In his first public comments since taking the helm of Borders Group at the beginning of the year, CEO Ron Marshall said he has four priorities in working to turn around the nation's second largest bookstore chain, starting with getting the retailer's “financial house in order.” His immediate goal is to create enough financial stability to allow the company to survive, and then to increase shareholder value. In the just concluded fiscal year, while the company posted a $184.7 million loss from continuing operations, it did have a $128 million increase in cash flow, while cutting its debt by over 39%. Marshall said Borders will do “whatever is necessary to get back on firm financial footing.”
“We will make unemotional business decisions,” Marshall told PW in an interview. His focus will remain on cutting costs in 2009, a year in which he sees the negative sales trends of 2008 continuing. Borders plans to reduce expenses by $120 million this year, a figure that includes $70 million in newly identified cost savings at both the store and corporate level. Most of those savings will come from improvements in efficiency, since Marshall said he doesn't anticipate making any more “grand announcements” about cost reductions this year. Capital expenditures will be reduced to $15 million from $79.9 million last year. The reduction will mean few, if any, new store openings. Marshall did not seem eager to expand Borders's concept stores, noting that those stores have provided the company with a chance to learn some new things about the business, which it has incorporated into its superstores. In particular, the success of the children's sections at the concept stores led the company to broaden its children's sections in its superstores (the children's area had a 16.3% positive comp in the fourth quarter). By shrinking the space devoted to music and movies, Borders will expand its cooking and health and wellness sections and add a biography section, Marshall said.
The company closed 112 Walden mall stores last year, bringing the current count down to 386 outlets. In the long run, Marshall sees Borders operating between 50 and 60 Walden stores, but until it gets to that number, Marshall views Walden as a “tactical asset” that needs to be properly managed. There are 240 Walden stores whose leases expire within the year, and Marshall sees that as a chance to gain some financial flexibility. In its 10-k filing, Borders said it has raised the profitability level that Walden stores must meet to be kept open.
If the turnaround of Borders is to be successful, the chain will also need to improve its execution. “We need to do just about everything... a lot better,” Marshall said, noting that he sees a lack of execution as the primary difference between Borders and its competitors. The company is establishing benchmarks and metrics to hold all employees accountable for their performance, Marshall said.
The type of store Marshall would like to create would return Borders to its roots as a place that caters to serious readers. That can be created, he said, by having an editorial point of view that includes promoting certain books that Borders's buyers feel need more attention. Improving Borders's in-stock position is another priority, and Marshall noted that the company has cut its order cycle from 12 to four weeks and hopes to reduce it more. Providing books in a timely fashion is one way to stay relevant to your customers, he said. Marshall is not planning on putting much time into expanding Borders's publishing program. “I don't think that really moves the needle,” he said. He does acknowledge that Borders can't cut its way to profitability. “We must do better on the top line,” he said. One way to do that is to change its relationship with its 32 million Borders Rewards members. Instead of focusing on what books are being discounted, CFO Mark Bierley said Borders wants the messages it sends to its members to talk about the content of books and about authors.
Despite the difficult market conditions, Marshall said there is enough time to return Borders to profitability. In the 10-k, Borders stated that “based on current internal sales projections, current vendor payable support and borrowing capacity, as well as other initiatives to maximize cash flow, we believe that we will have adequate capital to fund our operations during fiscal 2009.” The report added, however, there is no assurance that Borders will meet its sales projections or that it will maintain its vendor payable support or borrowing capacity, “and any failure to do so could result in us having insufficient funds for our operations.”
|Source: Reed Business Information, Borders 10-K|
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