Big-box bookstores — a sales strategy invented by Barnes & Noble Inc. — have become both a growing retailing channel and cultural phenomenon during the last decade. These megastores have become new-age libraries usually located in high-traffic areas attracting many would-be customers who simply go there to pass some time but end up buying something, anyway. The formula has worked well for Barnes & Noble, the industry leader. Now, its main rival — Borders — wants a bigger page of the market.
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Borders announced Thursday, March 22, that it was refocusing its strategy and planned to:
- Open more megastores
- Cut in half the number of its mall-based Walden Book stores
- Focus on e-commerce
- Re-evaluate its international business plan.
"Our company's performance has fallen short in an industry that is increasingly competitive, technology driven and price sensitive. We recognize the urgent need to go on the offensive and drive significant change," Borders CEO George Jones said in a Thursday earnings press release explaining the new strategy.
The company currently has 499 superstores in the U.S. and 68 outside the U.S. Borders is betting some of its megastore expansion plans on its respectable 2006 fourth-quarter sales at its domestic superstores, which came in at $960.3 million, an increase of 2.3% over the same period in 2005. Overall, sales at domestic Borders superstores for 2006 increased by 1.5%, at $2.75 billion. It's a big gamble because profits are slim in the book industry, real estate in metropolitan areas is expensive and the market maybe saturated with Barnes & Noble's existing 680 superstores around the nation.
However, Jones thinks there's room in the market for two book retailers that offer superstores. He's betting his company on that model, believing it will produce greater sales and ultimately a profit. Jones, at the same time, is under pressure because Borders reported Thursday a fourth-quarter loss of $73.6 million, or $1.25 a share. Hedge fund Pershing Square Capital Management, which owns 11% of the company, may also look to replace him or even buyout the company if better results don't happen soon. — Gerald Magpily
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