Borders Mimics Partner’s Pilates Gear to Spur Sales

Bloomberg

 

Borders Group Inc. President Michael Edwards says he has hit on a solution for reviving his money- losing bookstore chain: Be less like a bookstore chain.

Edwards, 50, has taken a page from Toronto’s Indigo Books & Music Inc., which prospered as Borders and larger rival Barnes & Noble Inc. lost sales. Indigo, founded by Chief Executive Officer Heather Reisman, brands itself a “cultural department store,” using books as bait to attract shoppers to other items.

Edwards is mimicking that strategy for Borders’ 500 superstores, whose sales have dropped for 10 straight quarters, after consulting with Reisman last year and joining the Borders board on a tour of one of her Toronto superstores in March. Indigo outlets feature items like Pilates balls and wine glasses along with copies of “The Girl with the Dragon Tattoo.”

“They’ve done a cutting-edge approach to providing well- designed, sophisticated products that seem appropriate to a book lover,” said Edwards, who reports to CEO Bennett Lebow. “We found that valuable for us as we think about the future.”

Borders, the second-largest U.S. bookstore chain, has posted four straight annual losses as online retailer Amazon.com Inc. and discount chains won customers. The closing of most of its mall locations and store remodelings failed to stem the losses, and the recession led to even deeper sales declines.

The growing popularity of electronic books adds another challenge. Barnes & Noble has devoted many more resources to e- books, betting millions to make and market the Nook reader and transform the company into an e-commerce retailer.

“We are now putting money behind that business because we see something real,” Chief Financial Officer Joe Lombardi said in an interview. Online sales, which include revenue from digital books, climbed 42 percent in the latest quarter.

Rival’s Edge

Barnes & Noble may have an edge in executing its plan because it has more cash to invest, said Michael Souers, a retail analyst for Standard & Poor’s in New York.

“If I had to bet on one or the other, Barnes & Noble is probably the better off of the two,” said Souers, who has a hold on shares of both companies. “But it’s still really unclear at this point. Doing nothing is not going to work, obviously.”

Borders, based in Ann Arbor, Michigan, rose 15 cents, or 14 percent, to $1.26 at 4 p.m. in New York Stock Exchange composite trading. Barnes & Noble advanced $1.52, or 9.4 percent, to $17.71. Indigo fell 10 cents to C$13.75 in Toronto trading.

Simple Concept

Edwards began working with Indigo last year after Borders spent $5 million on a 20 percent stake in Kobo Inc., a Toronto digital book provider partly owned by the Canadian chain. Borders started selling e-books from Kobo on its website in July, a year after Barnes & Noble entered the market, and also offers the Kobo e-reader.

Reisman, 62, founded Indigo in 1996 after earlier stints as a social worker, management consultant and beverage company executive. She also is the wife of Gerry Schwartz, who runs Onex Corp., Canada’s biggest buyout firm, and serves on Indigo’s board.

The concept for Indigo was simple: Millions of people love bookstores so much they would buy almost everything there if they could. In the company’s founding documents, Reisman coined the “cultural department store” phrase to describe her booklover’s paradise.

That idea became a reality at the chain’s first location, a 20,000-foot superstore in the Toronto suburbs, when it began offering a book series on fly-fishing and later introduced brass fly cases for C$30 ($29) that sold out. The store also offered fresh flowers, part of a plan to feature merchandise that “smelled amazing or looked amazing,” Reisman said.

Nursery Rhymes

These days non-book items make up 17 percent of sales, more than five times the amount in the 1990s. Reisman expects to double that in three years, partly by building store appearances around special events.

About 30 percent of books are bought as gifts, Reisman says, so it makes sense to pair the wine guides with the brie bakers in the entertaining section or nursery rhymes and pacifiers in the baby area. That’s paid off in sales per square foot, where Indigo’s rate was about $295, more than two-thirds higher than Borders’ $173 last year.

“They give you a lot more reasons to go shopping in their bookstores that have nothing to do with books,” said Antony Karabus, CEO of Karabus Management Retail Consultants, a subsidiary of PriceWaterHouseCoopers Canada LLP. “Those other chains just look like bookstores. Indigo looks like much more.”

More to Buy

Now Edwards wants Borders to look like more too. The chain started by hiring a branding firm, Big Red Rooster of Columbus, Ohio, to make over signs and store layouts to emphasize items other than books for this holiday season. The company also brought on Michele Delahunty-Cloutier, a veteran of retailers Chico’s FAS Inc. and Gap Inc., to oversee the changes as chief merchandising officer.

In the next two years, Borders will fill its superstores with stand-alone sections, such as areas where people can craft stuffed animals through the Build-a-Bear Workshop Inc. brand, that will differentiate it from Barnes & Noble, Edwards said.

“You create more shops within a shop, so you really know you are in a unique part of the store,” Edwards said.

Edwards chose this route because he expects half the chain’s books to be sold online in three years, and other items can boost profits because they have higher margins than books. His time working for defunct computer retailer CompUSA also showed him the wisdom of diversifying, he said.

Bookstores aren’t the first retailers to face down the two- pronged attack of new technology and increased competition. The key for book chains is how quickly and well they can execute their transformations, said Wendy Liebmann, CEO of retail consultancy WSL Strategic Retail in New York.

“The final nail hasn’t shown up, but somebody has the hammer ready to hit it,” Liebmann said. “The coffin has been built.”

Harvard Withdraws Support For Google Book Search
As Posted to Maximum PC


Harvard has fallen out with Google over the company’s recent announcement that it has reached an out-of-court settlement worth $125 million with authors and publishers. In view of the possible consequences of the settlement, Harvard has revoked its permission to Google to scan its in-copyright material for the Google Book Search service.

Harvard believes that the settlement will lend a commercial shade to the Google Book Search service and that “the settlement contains too many potential limitations on access to and use of the books by members of the higher-education community and by patrons of public libraries.” However, Google can blithely continue to scan Harvard’s out-of-copyright material.

Although the $25 million settlement is yet to be ratified by a judge, the Author’s Guild delightfully labeled it the "the biggest book deal in U.S. publishing history." The deal has opened the floodgates for millions of extra titles to be part of Google Book Search. Users will have the option of purchasing a book – the revenue will be split between Google, the publisher and the author – after previewing it; the service will allow them to preview 20 percent of the pages.

Google's Book Settlement Is a Ripoff for Authors
From the Wall Street Journal

To get through the 385 pages of mind-numbing legalese of the Google settlement, it might be better to be Nino Scalia, Bob Bork or David Boies. Preferably all three at once. Absent brain enhancement surgery, understanding this monstrosity by May 5, 2009, is going to be rough.

That's the date by which every author and publisher in America is supposed to decide whether to "opt in," "opt out," or simply "ignore" a vast compulsory licensing scheme for the benefit of Google. Most, about 88%, are expected to "ignore." That's because they know their online display rights have value, and the last thing they want is to be herded like sheep into a giant contract commitment.

After Google began digitizing the University of Michigan library in 2004, the Authors Guild, the Association of American Publishers and a handful of authors and publishers filed a class-action lawsuit for copyright infringement. Last November, those "class representatives" reached an out-of-court settlement with Google that would, if approved by the federal court, permit Google to post out-of-print books for reading, sales, institutional licensing, ad sales, and other publishing exploitations, by Google, online. The settlement gives the class-action attorneys $30 million; a new, quasi-judicial bureaucracy called the Book Rights Registry $35 million (more on this later); and $45 million for owners infringed up to now -- about $60 a title. It remains subject to a final fairness hearing, slated for June 11.

No one elected these "class representatives" to represent America's tens of thousands of authors and publishers to convey their digital rights to Google. Nor are the interests of this so-called class identical. There is nothing more individual in the world than a book, an author, a publisher, and the value of a contract. The aging baby boomers now flacking the settlement don't seem to understand that PDF scanning (how Google and everyone else digitizes books) isn't rocket science; it's cheap and easy. Books will be digitized without Google. But the Google settlement sets in amber today's overhyped role of the Internet, ruled by that great and magnificent Oz -- Google.

Sound like hyperbole? Consider this: Under the settlement, every rights-owner in America is supposed to hand over all their private contract data, on every edition of every work they ever wrote -- and every excerpt permission ever granted to others -- at the peril of losing the money Google will be making on their backs. This is a massive burden on everyone in the book industry, making us all, in effect, Google's data-entry slaves. Indeed, in most cases such information about every permission ever granted is unlocatable. It opens a Pandora's box of disputes and mistaken claims about who actually owns what.

Google's erstwhile adversaries are paid off with the aforementioned Book Rights Registry (BRR), which will compete with the U.S. Copyright Office and the federal courts. The BRR expects to read everyone's contracts to say who is owed what of Google's revenues -- net again of all its costs, which are sure to be huge. Our entire dynamic system of individual contract enforcement over time and changing individual proclivities is thus to be exchanged for a forced, immediate squabble over rights, and static databasing, right now, of determinations made by Google.

The Internet was supposed to eliminate middlemen, not pack multiple layers on. The BRR is in fact merely Google's contract negotiation and claims department. As in Hollywood, the settlement deal turns book authors into fully subordinated, last-in-line net residuaries. This reverses the economics of books.

Book publishers today are entitled to a share of the publishing partnership because they shoulder -- not lay off on authors -- all the costs of editing and publication and marketing. The author's net profit share, generally half, in books, is for his creation. The author's share rises against the publisher when the publisher's costs are lower, as in digital. If the author shoulders still more of those costs and burdens, the publisher's share should be reduced again. That doesn't happen with Google.

We already have a good system. It's called the system of private property and free contract, designed for dispersed, autonomous individuals -- not command-and-control centers. The U.S. Constitution grants authors small monopolies in their own copyrights. Author market power is talent-based and individual, not collective. This class action seeks to wipe all this out -- just for Google. But U.S. law does not grant any single publisher monopoly power to herd all of us into its list.

For private gain, the Google parties now seek to destroy the health in the system that individual bargaining preserves. Disputes will be fixed in arbitration with no access to federal courts which have often shown mercy to authors. Arbitrators will be "you sign it you eat it" line-parsing bureaucrats.

Say goodbye to your rights, forever, authors, if this mess goes through.