Booksellers: Contemplating Life Without Music and Harry Potter

Bookseller Borders (BGP) reported wide Q3 losses, lower traffic and a struggle to reorganize and pay down debt. Interesting trends emerge from Borders Group's Q308 conference call:

Music is disappearing from stores. Does this mean it's all going online to iTunes (AAPL) now?

We have reduced floor space dedicated to music in all of our stores by about a third on average. Music now occupies about 7% of our total floor space. The space previously occupied by music was reallocated to growth categories such as children’s books and bargain books.

Gifts and stationary and bargain books continued to show a comp sales performance that outpaced the total store while music, a low margin category continued to show a significant decline in comp sales.

What will drive book future store sales without J.K. Rowling?

Q: What was the change from a year-on-year improvement perspective?

A: In the second quarter we were cycling against Harry Potter in the prior year. That was the biggest driver.

Real estate:

I think the occupancy deleverage in the quarter is a little worse then what we experienced in the second quarter but not much to your point and certainly not in relation to the sales differences between the quarters.

The expense reduction initiative that we’re undertaking is all encompassing and it includes occupancy going after occupancy reductions, and we’re in discussions with landlords on many, many of our store leases and with efforts to get reductions where we can, to get buyouts that are satisfactory to us and to landlords so there’s again a part of our overall expense reduction initiative does include going after occupancy and we’ve have had some success to date there.

Comments

[mollytjm:]

luckily, 'Twilight' (series) is doing a great business and bringing tweens, teens and even some of us older folks, into the bookstores to buy.
having said that, music sections will be smaller and smaller until finally they will be gone. hopefully the bookstores other aspects, books, toys, gifts and cafe, can take up the slack.

2008 Dec 02 03:41 PM

[Michael57:]

I don't understand how they can claim that the absence of Harry Potter the past year made such a big difference in gross profit numbers, since they were actually making almost no profit on HP. The analyst who said that was a good response must not know much about the book business.

2008 Dec 08 11:26 AM