Borders opens bookshelves to digital services

When you walk through the doors of Borders' bgp new concept store, the place feels familiar. As with any big-box bookstore, you'll find a coffee shop over here and some strategically placed leather chairs over there. And, of course, lots of books.

But follow the table of books snaking off to the right, and you'll come face-to-face with Borders' newest retail strategy: a digital center where you can download music or books, burn CDs, research family histories, print pictures and order leather-bound books crammed with family photos — with help from clerks who know how to do those sorts of things and won't embarrass you if you don't.

Borders, the nation's second-largest bookstore chain, hopes to reverse years of sluggish sales by reinventing itself as a hub for knowledge, entertainment and digital downloading. Exhibit A is the new store that will open to the public here Thursday — the first of 14 that Borders plans to unveil this year. Borders' plans underscore the anxiety in the bookstore industry, which has been hurt by the growing footprint of online-only sellers.

Can it work? CEO George Jones thinks so.

"We had to build something that would cause the consumer to drive five or 10 minutes past the competitor's store to come here," says Jones, who joined the company 1½ years ago from Saks sks.

Since then, the notion of a Borders that seamlessly links the digital world with a physical store has been a top priority.

"I was thinking back on stores I'd been to, and I thought to myself, 'Was that a Borders or a Barnes & Noble?' " he says. "There's an opportunity to have a good experience at both, but they're not differentiated enough."

Barnes & Noble bks doesn't offer digital downloading and hasn't unveiled plans to do so.

At the Borders concept store, new themed book islands are built around lifestyle genres, including travel, cooking and health. The digital centers, meantime, are geared to welcome people of all levels of tech know-how. Staffers will guide customers through the process of burning music to CDs, downloading songs to most digital music players (except iPods, which, for now, work only with Apple software) or books to a Sony digital reader. They'll even print the cover art and fold it into a CD cover for you.

The strategy reflects Jones' effort to capitalize on the very technology that has helped flatten his stores' book and CD sales — and in doing so, perhaps overtake industry leader Barnes & Noble. Despite the economic slowdown, Jones says, traffic at Borders stores is up. Holiday sales for the nine weeks ended Jan. 5 rose 2.4% — which, in a tepid shopping season, was almost something to brag about. (Barnes & Nobles' same-store sales were off 0.4% in the same period.)

Grabbing customers

Working in Jones' favor: The average customer already spends about an hour in Borders, which makes browsers, in theory, susceptible to being pitched products well beyond books. Jones' hope is that the new store format — blending a warm, homey atmosphere with high-tech dazzle — will produce longer stays and more customers, from online music buyers to teens indifferent to books.

Working against Jones and other booksellers: When the economy slows, people may look for less expensive food and buy fewer or cheaper clothes, but they still have to buy such necessities. By contrast, bookstores must compete with other forms of entertainment for fewer disposable dollars. And they struggle to serve a younger generation that doesn't read nearly as much as their parents did.

Still, no one foresees the imminent demise of the major bricks-and-mortar chain bookstores. Helping offset the threat of declining readership: More than half the books sold in the USA, Jones notes, are bought by people over 50. With many of the vast baby boom generation entering their 60s, "the demographic trends are positive," agrees retail analyst David Schick of Stifel Nicolaus.

"The other side is, (bookstore chains) compete with everyone from mass discounters to, of course, Amazon amzn, and right now, the economy's slowing," Schick notes. "One of the things people do is go to dinner and stop at the bookstore. If they stop eating at the restaurant, does that mean the bookstore trip goes away?"

One of the saving graces for bookstores, say analysts, consumers and industry officials, is they offer people with shared interests a site to gather and socialize. The addition of coffee shops — which you'll find in nearly every Borders and Barnes & Nobles store — has accelerated the trend. Now, Jones hopes digital downloads can take the stores to the next level.

"Bookstores are typically the place that people like to go and congregate, so if (the stores) can monetize that, it's powerful," says Schick, who calls Borders' move "an attempt at evolution."

That's something that Amazon, for all its considerable market muscle, can't quite duplicate.

Pressure from online stores

"A bookstore is like an oasis, in a sense," says Sharonrose Francisco of Chicago, who favors Borders, but also shops at Barnes & Noble and occasionally at Amazon. "I love being surrounded by books."

Yet, Deutsche Bank analyst Dave Weiner notes that online bookselling still commands an edge over big-box bookstores and will continue to exert financial pressure on Borders and others.

"You're definitely seeing the market shift from the bricks-and-mortar guys to the online players," Weiner says. "The simple reason is that books are commodities, and superstores charge more. What is happening and will continue to happen is you're going to see prices at superstores come down."

Borders' Rob Gruen, executive vice president of marketing and merchandising, concedes that while stores are becoming more competitive on price, the physical stores can seldom match Amazon's pricing. "Customers," he says, "come to us not because of price."

Besides, Jones says of Amazon, "If you look at what they do, it isn't like they discount everything."

Some independent booksellers say they're managing well, too.

"The kinds of people who go to bookstores like to interact with other people who go to bookstores," says Hut Landon, executive director of the Northern California Independent Booksellers Association, which represents about 250 bookstores. "You can't reproduce that online, and many people feel you can't reproduce it in a chain store. It's big and impersonal."

Annie Philbrick, co-owner of independent Bank Square Books in Mystic, Conn., says her store struggles against Amazon discounts of 45% or more. She'd lose money on a book, she calculates, if she offered a discount of more than 42%.

Landon suggests that Amazon's splash into the book retail market has leveled out and that the most robust independent stores will survive. More than 100 independents have opened nationwide in the past three years, he says.

Yet, the major chains wield an advantage in technology. By the end of April, Borders plans to launch its own website and take back control of from Amazon, which has been operating the Borders site for nearly seven years. Under the arrangement, orders on Borders' website are filled by Amazon with Amazon's inventory and staff. Amazon gets credit for the sales, though Borders gets a percentage it won't disclose.

Once this change is completed, the interactive kiosks in Borders' stores will allow customers to do more online shopping in a store and even buy books, if they prefer.

Because it can't rely only on retired bibliophiles to carry sales into the future, Jones is betting that the changes will attract new, younger customers who are interested in music, movies and books.

A 2004 report by the National Endowment for the Arts found that the proportion of 18-to-24-year-olds who had read a book in 2002 was 52%, compared with 59% for the 35-to-44-year-old group.

While some older adults may have little interest in owning a digital music player, Jones says others may have gotten them as gifts but don't know how to use them. Still others lack time to navigate websites to put music on their players.

Jones, 57, says he falls into the latter category. "I'm an old guy," he says. Having a trained staff ready to help, he figures, will appeal to people like him.

While the move to digital has been fastest in music, Borders is applying the technology to books, too. It teamed with Sony during the last holiday season to launch a website selling 25,000 e-books that can be read on the Sony Reader Digital Book, which costs $299.

The Reader competes with Amazon's Kindle e-book reader, which lets users wirelessly download books, newspapers and magazines from Amazon without having to connect to or pay for a separate digital device. At Borders' new digital centers, customers will be able to download books to read on the 9-ounce Sony readers.

Landon, of the independent booksellers' group, has a different view. "I don't think that people who work on computers all day long want to go home and read a computer screen," he says.

A book's singular experience

Some shoppers agree that there's no replacing the sensory experience of an actual book.

"I feel like I'm at work reading a report," Jessica Zeigerman, of Cleveland, says of digital reading.

Sue Zacek, of Concord, N.C., says she loves "to curl up in a stuffed chair with a good book. Turning the pages just feels right," she says.

At the same time, Francisco says she also loves her Sony reader.

"I travel a lot, and on trips around the world, I have lugged books all over the place," she says. "I just purchased four or five books and loaded them onto the Reader for my next trip. It's nice to have several books available so I can switch books whenever I want."

For Borders, the move toward digital is, in large part, an attempt to leapfrog Barnes & Noble, the industry leader. Though Borders was first to add a cafe to a store, Barnes & Noble made a bigger splash when it added Starbucks sbux in 1990. Borders has Seattle's Best Coffee cafes, also owned by Starbucks.

In 2006, Borders started a free loyalty program; Barnes & Noble had begun its loyalty program in 2000 for $25. Customers earn rewards based on their spending.

"They had to do something to level the playing field," Schick says of Borders.

Borders' plans fit into the broader trends for shopping malls, many of which are evolving into open-air centers with restaurants, movie theaters and other businesses that encourage people to stay around — what retailers call stickiness.

"Lifestyle centers don't want two or three department stores; they want a Borders that's sticky," says Ken Nisch of the retail consulting firm JGA, which counts Borders among its clients. "This concept is going to be an ideal match."

Carty reported from Ann Arbor; O'Donnell and Kutz reported from McLean, Va.