Wobbly Borders Gets New CEO, Turnaround Team

BordersThings are messy at Borders Group, with dismal holiday sales and a stock price so low it may lose its place on the New York Stock Exchange. So the Ann Arbor, Mich.-based company has tapped turnaround expert Ron Marshall as its new CEO, replacing George Jones, and has made other management changes in an effort to boost results.

Many retailing experts beyond the book sector will be watching the new team closely. Borders, like many other retailers, has been struggling for months with weak sales and persistent liquidity issues.

Most recently, Marshall was a principal at Wildridge Capital Management, and has worked on the Pathmark turnaround, as well as at Crown and Barnes & Noble. Borders also tapped Mark Bierley as its new CFO, replacing Ed Wilhelm, and promoted Anne Kubek to EVP/merchandising and marketing, replacing Rob Gruen. (Kubek had been SVP, Borders Stores.)

For the nine-week holiday period, overall sales fell 11.7% to $868.8 million. Results were worse at its Borders superstores, where sales fell to $652.2 million, representing a comparable-store sales decrease of 14.4%. And at its Waldenbooks Specialty Retail division, sales sank 16.4% to $161.7 million, while comparable-store sales slipped 8%.

The company also says that the NYSE notified it last week that because its stock price had fallen so low--below $1 a share for more than 30 consecutive trading days--it is "below criteria" for a NYSE listing. It will continue to trade, but with a special designation.

In its announcement, the company conceded that while progress has been made in reducing debt and expenses and improving its cash flow and inventory management, "it is imperative that the company more aggressively attack these initiatives to address its long-term future," board executives say in its release. "Borders is a powerful brand with millions of loyal customers who love to shop in the stores. These are tremendous assets that can be built upon once the balance sheet is strengthened and the company is on more solid financial footing."

Most retailers are struggling--with the International Council of Shopping Centers reporting that the recession, widespread discounting and poor weather combined to make this the weakest holiday selling period since 1970. But observers are wondering how much additional pressure retailers like Borders--already wrestling with balance sheet issues before the downturn--can withstand. By year end, such chains as Circuit City, Linens & Things, and Steve & Barry's had already filed for bankruptcy.

And Standard & Poor's expects the outlook to worsen. In 2008, its ratings actions moved both Office Depot and Limited Brands out of investment grade ratings, and about 78% of the companies it rates are currently below investment grade. "We expect that future rating actions will be decidedly negative again in 2009," it says in a recent report. "Our rating outlook indicates that 37% of retail ratings are in jeopardy, while only 7% have upgrade prospects. We also note that 29% of the 150 ratings are considered to be close to default."

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