Fierce competition forces top booksellers to retool

By Associated Press  |  March 23, 2007

NEW YORK -- A sluggish book market and intense competition from rivals like Amazon.com and Costco are forcing the nation's top two booksellers, Barnes & Noble Inc. and Borders Group Inc., to rewrite the rules on the book business.

Both reported disappointing fourth-quarter results yesterday.

Borders, which reported a loss, plans to cut the number of Waldenbooks stores in half, to about 300 by the end of 2008, and is considering the possible sale of most of its international businesses. The Ann Arbor, Mich., company said it aims to focus more of its efforts on its domestic Borders superstore business and better tailor those stores to local markets.

It will be developing a consolidated Borders.com e-commerce website, ending its six-year partnership with Amazon.com, and plans to publish exclusive books by celebrities, first-time authors, and others under the Borders name.

"We need to reinvent our business to exploit the rapid changes taking place in how consumers access information and entertainment," chief executive George Jones said.

Borders is working on a concept store prototype that will be refined this year and is expected to be unveiled in early 2008.

Barnes & Noble, which eked out a small profit increase in the fourth quarter, has focused on further sweetening its deals to its best customers. It already operates an e-commerce site and has developed a publishing business through its acquisition of Sterling Publishing.

In a conference call with investors, CEO Steve Riggio emphasized the need to offer customers better deals -- even if it hurts profits in the short term -- saying that industry growth is slower than in the past and competition is fiercer.

"We're just trying to increase what we have by making it easier for people to shop both online and in the stores. And you know, giving them a better deal," he said.

Competition from discounters like Wal-Mart Stores Inc., which can afford to slash prices on books, has squeezed profits at Barnes & Noble and Borders, which have responded with their own discounts.

There have been rumors about private equity buyouts of the nation's top booksellers. A report from Goldman Sachs analyst Matthew Fassler issued Wednesday said it would make sense for Barnes & Noble, the larger operator, to buy Borders, despite "significant regulatory hurdles."

The companies declined to comment.

Barnes & Noble reported fourth-quarter profit of nearly $127 million, or $1.84 per share, versus a profit of $123 million, or $1.76 per share, in the year-ago period. It forecast a loss for the first quarter.

Borders reported a fourth-quarter loss of $73.6 million, or $1.25 per basic share, compared with profit of $119.1 million, or $1.78 per diluted share, in the previous year. It uses basic per share results for a loss and diluted per share results when it sees a profit.