Borders Prioritizes Superstores, Cuts Waldens

ANN ARBOR, MI-As part of a strategic plan to reinvent the company after a difficult 2006, Borders Group will focus on its domestic superstores while closing 250 Waldenbooks units and cutting back investments outside the US, executives said at its fourth quarter conference call.

The company is developing a new prototype for its US superstores that will incorporate the latest digital technology. Remodels and new store growth will be slowed until the new prototype makes its debut in 2008.

“What we need to do now is stop playing defense when a good offense is required,” said George Jones, president and CEO. “Our vision is to make Borders a headquarters for knowledge and entertainment. Our strategic plan will revitalize our US superstores.”

The plan also will reduce expenditures on nearly all other businesses to refocus on the superstores. The mall-based Waldenbooks will be “right-sized,” Jones said, to become a 300-store chain after nonprofitable units are closed. Waldenbooks closed 124 units last year. The surviving stores also will be remerchandised.

“These used to be destination stores, but when Borders and our competitors opened superstores, it changed their role,” Jones said.

The company will “explore strategic alternatives” for the majority of its international segment, including superstores in the United Kingdom, Ireland, Australia and New Zealand, and Books etc.

“While sales have grown, they have not achieved the return on investments needed, and we have decided not to make significant further investments,” Jones said.

The company is not completely abandoning international business. Borders is continuing investment in Puerto Rico and Singapore as well as franchise operations in Malaysia and the United Arab Emirates.

“Overall, we believe Borders has global potential, and we will look to the franchise model to pursue growth overseas,” Jones said.

Investment will continue in Seattle’s Best Coffee and Paperchase, with plans to introduce Paperchase shops within its domestic Borders stores, and to open several freestanding Paperchase stores in the US this fiscal year.

The company posted fourth-quarter consolidated sales of $1.5 billion, an increase of 2.9% over 2005. Borders recorded a consolidated fourth-quarter net loss of $73.6 million compared with net income of $119.1 million for the same period in 2005.

For the full year 2006, consolidated sales were $4.06 billion, up 0.8%. The company recorded a net loss of $151.3 million in 2006 compared to net income of $101.0 million in 2005. Comp-store sales fell 2.2%.

Borders Group operates more than 1,200 stores worldwide.