May 20th, 2002
Borders Sets Out to Make the Book Business Businesslike
By Jeffrey A. Trachtenberg
Wall Street Journal
Is selling books like selling frozen food?
Borders Group Inc., the country’s second-largest book retailer, has told leading book publishers it intends to transform the cozy, age-old buying relationship that has determined what books are placed on shelves and in what quantities.
Eager to boost sales, Borders says it will emphasize market research, a discipline largely shunned by an industry that prizes creativity as much as profit. Book editors buy manuscripts largely on the basis of personal taste; and unless an author has a track record, books are sold to the chains largely on faith and buzz. Now Borders will begin aggressively using such techniques as focus groups, exit interviews and polling—and ask publishers to help pay the freight.
Borders’s new tactic is known as category management, which started in the grocery business in the late 1980s. The plan calls for Borders to choose publishers to co-manage each of 250 categories, ranging from thrillers to sports, based on their expertise. These "captains" will be involved in determining which titles will be carried, the number of titles, and how those books will be displayed. In return, they will help pay for market research. Category captains are expected to influence which books will be chosen in their discipline, but Borders itself has the final say on which books will be purchased.
"This is an industry that can use some shaking up," says Gregory Josefowicz, Borders’s 49-year-old chairman and chief executive. As a 16-year-old, Mr. Josefowicz bagged groceries at what is now Albertson’s Inc.’s Jewel/Osco Division, a food and drug chain, and stayed for 22 years, learning about category management firsthand. He rose to president before resigning in 1999 to join Borders as president and chief executive.
Although book retailers closely monitor their sales and know exactly which titles are selling, Borders believes more market research could answer other questions: which books are bought on impulse; which categories may sell better if jacket covers are facing outward; what types of books should be grouped together.
Borders will also rethink where sections are located in its stores; how much space should be allocated to each category; whether books should be configured by author, by subject, by age; and what is stocked. Other issues: Will stores be heavy on bestsellers, or do they need key books in, say Native American herbal medicine? And how will the chain emphasize variety instead of duplication? Pricing, too, is up for grabs.
One of the major determinants of what books a retailer will stock is the huge promotional dollars publishers pay for window and other in-store displays. But there could be trouble if market research suggests readers aren’t interested in those books.
"There’s a conflict between making money buying books, and making money selling books," says Donald Stuart, a partner in Cannondale Associates Inc., a consulting firm in Wilton, Conn. "There are a lot of incentives for buying in quantity and then promoting in the store. And those short-term incentives can hurt what is best for the category." Borders executives agree, saying they plan to focus more on reader needs.
Borders’s major competitor will be watching. "Mr. Josefowicz is a serious guy," says Leonard Riggio, chairman of Barnes & Noble Inc., the country’s largest book retailer. "He’s bringing some of his experiences in the supermarket business to bear, and maybe he’s onto something."
Other booksellers are more skeptical. Richard Howorth, the owner of Square Books in Oxford, Miss., says the book industry has rejected other efforts to apply retail science. "A book is a unique product, and every new title presents new challenges," he says. "This isn’t the same as selling prescription drugs or screwdrivers."
The plan promises to be expensive for publishers, who say that Borders is charging about $5,000 per publishing employee to explain how the new process works. Dozens of publishing employees have recently paid up and flown to Borders headquarters in Ann Arbor, Mich., to learn about the program. Borders declined to discuss the fees, saying the information is proprietary. In addition, category managers are expected to pay about $110,000 annually to help defray the initial costs of marketing research associated with the program, publishers added.
What’s in it for publishers? A seat at the table where the major decisions are being made. While category managers can’t pick all of their titles, they will have the opportunity to shape a department that resembles their lists. A spokesman for Borders says that all publishers will share the benefits of the market research.
Still, some publishers view the strategy as simply a way for Borders to get publishers’ money. Others question the premise that category managers can be neutral. Speaking to the latter, Larry Schulsinger, a vice president of Management Ventures Inc., an advisory group in Cambridge, Mass., says: "Most suppliers will say the reason that they’ve been picked by Borders is because they dominate the category, so they’ll play by the rules. Otherwise the noncategory captains will mutiny."
So far, Borders has chosen category leaders in three publishing areas. HarperCollins Publishers Inc., the book publishing arm of Rupert Murdoch’s News Corp., has been picked to head the cooking and romance categories, while Random House, a unit of Germany’s Bertelsmann AG, has been selected to lead the early-readers category, ages four to seven years old. A Random House spokesman declined to comment on the publisher’s relationship with Borders.
Josh Marwell, a senior vice president of sales at HarperCollins Publishers, describes the new process as "intellectually interesting" and says it should lead to identifying consumer trends. "Say a store has a travel department in which 60% of the books are aimed at international travel, and 40% domestic," he says. "If research shows more shoppers are traveling domestically, then the mix is wrong. Hopefully, this will work."
In the cooking category, Borders has already learned from exit interviews and phone interviews that an estimated 25% of the books sold are being given as gifts.
- Posted by Gregory Krupey on April 28th, 2006