Bookstore – Transform & Roll-out!

Activist investor William Ackman of Pershing Square Capital Management says that despite the 76 percent drop in shares of Borders Group bookstore company in the last three years, he believes the stand-alone bookstore chain could transition into a mini-shopping mall where the bookstore houses other shops to diversify its revenue stream and remain relevant to consumers.

Ackman are looking into ways to attract other companies that might want to strategically combine with Borders so that they could sell merchandise or provide services that could also appeal to the same consumers spending their time in the bookstore.

“Books will continue to be the anchor of the bookstore,” Ackman says. “What’s interesting about Borders is not so much the fact that they sell books, but the fact that average consumer spends an hour in the bookstore. There’s a lot more value that can be extracted from a bookstore.”

Borders are already selling a variety of products beyond books, including CDs, DVDs, stationeries, and gift cards. Ackman hopes educated consumers with higher income would spend an hour in the bookstore and buy other things. He keeps throwing ideas off – why not sign a deal with Apple to have an Apple store within every Borders? Consumers could then drop off their iPod and have staffers load the music player with the 100 greatest hits of all time while browsing books.

Earlier this year, Borders launched several concept stores in the country with the help from retail consulting firm JGA. It is reported that customers could download songs to most digital music players (except iPod) or electronic books to a Sony digital reader, capitalizing on the technology that has flattened the sales of traditional music CDs and books.

“It’s an ideal match with Borders repositioning to be about information and entertainment,” says Ken Nisch, chairman of JGA. “I use the term ‘stickiness’ because people will spend more time to look at more categories.”

Nisch says one of the saving graces for brick-and-mortar bookstores as compared with the online only Amazon.com is they offer people with common interests a place to hang out. He adds Borders in the Time Warner Center building in Manhattan is a good example. With the Dean & DeLuca café inside Borders, he says Ackman’s idea resembles a lifestyle center that could have many other types of activities going on that supplement the income.

Ackman’s Pershing Square Capital Management is already the largest shareholder of Borders. Its stake could rise from 17 percent to 28.8 percent if the hedge fund exercises warrants to acquire nine more million shares, according to a recent regulatory filing. The bookstore company has lost more than $300 million since its 2006 fiscal year.

“We bought Borders shares initially at $19,” says Ackman. “That’s like putting a stake in the ground saying the company is worth more. I believe with the new strategy, we will ultimately make a fortune. We have a lot of motives here making the investment, including a possible merger with Barnes & Noble.”

~ by supermann on May 6, 2008.