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Borders Group Presents Long-Term Strategic Plan to Focus on Core Domestic Superstore Business

Plan Includes New Proprietary Borders.com E-commerce Site in Early 2008, Strategic Alternatives for International Segment, and Continued Right-Sizing of Waldenbooks

ANN ARBOR, Mich., March 22 /PRNewswire-FirstCall/ -- Borders Group, Inc. (NYSE: BGP) today presented a detailed strategic plan for the future that will revitalize, refocus, and ultimately reinvent the company to achieve its mission to be a headquarters for knowledge and entertainment. The strategic plan includes:

  • Revitalizing the domestic Borders superstore business to achieve, by 2009:
    • Consolidated EBIT margins of 5% to 6% compared to 1.8% in 2006, driven by sustained same-store sales growth in the low- to mid- single digits at domestic superstores.
    • Improved inventory turns of 2 times compared to 1.6 times in 2006.

  • Refocusing investments toward transforming domestic superstores while significantly reducing investment in segments that have not provided a satisfactory return, including the International segment and Waldenbooks Specialty Retail segment.

    • The company will explore strategic alternatives for the majority of its International segment, including its U.K., Ireland, Australia and New Zealand superstores and Books etc. business, and will look toward its successful franchise model for future international expansion in new markets.
    • Highly aggressive efforts, which began in the fourth quarter of 2006, to right-size the Waldenbooks Specialty Retail segment will continue in 2007 with the goal of reducing the number of Waldenbooks stores from 564 at the close of 2006 to approximately 300 by the end of 2008.

  • Reinventing the company by leveraging innovation, technology and strategic alliances to differentiate Borders in the marketplace, including the debut of a new proprietary e-commerce site in early 2008.

Borders Group Chief Executive Officer George Jones said, "Our company's performance has fallen short in an industry that is increasingly competitive, technology driven and price sensitive. We recognize the urgent need to go on the offensive and drive significant change. We have begun to take decisive steps to once again put Borders on a path to profitable growth, and believe that we have an opportunity within our domestic superstore business to build on our key assets -- a powerful brand, a strong network of store locations, knowledgeable employees, and nearly 17 million loyal members of our Borders Rewards(R) program who love our superstores -- to unlock profits through improved same-store sales. Our energy and resources are focused on this core business segment because the superstore is the foundation of our brand: it's how we grew into the respected name we are today and we believe it is the key to our future. I have great confidence in the abilities of our management team, with recent key additions, to achieve our company's goals."

As Borders Group enacts its long-term strategic plan, management does not intend to provide guidance on future sales or earnings. It is expected that 2007 will be a year of transforming and stabilizing -- but not significantly improving -- financial performance. Through execution of its strategic plan, management anticipates returning to earnings per share growth in 2008, and continued growth beyond that year.

Management does not intend to confirm or comment on sales and earnings estimates prepared by analysts or other third parties. Investors should not interpret management's determination not to comment on estimates prepared by analysts or other third parties as an indication that Borders Group believes these estimates are correct or that the company's financial results are expected to be consistent with the estimates.

Revitalizing Domestic Borders Superstores

Steps for revitalizing the U.S. superstore business have already begun with the improvement of key retailing practices such as:

  • Maximizing key items, impulse items, feature tables, end caps and queue lines;
  • Increasing effectiveness of merchandise presentation;
  • Improving merchandising, assortment planning, replenishment and supply chain effectiveness;
  • Enhancing the effectiveness of marketing and promotional tactics; and
  • Ensuring consistency of execution across the chain.

To further improve superstore results, the company will also leverage its rapidly growing Borders Rewards program, which has nearly 17 million members who represent an attractive base of affluent, educated customers. The program will be used to drive revenue through partnerships with other organizations, while employing customer data to tailor promotions that meet specific customer needs and interests. The company will soon announce modifications to improve the profitability of the Borders Rewards program, incorporating experience gained over the past holiday season.

The company is designating several "Destination Businesses" in lifestyle and other categories that Borders will become known for among customers. In addition, stores will feature highly localized title offerings that reflect demographic and regional trends on a store-by-store basis.

Going forward, to support efforts in merchandising, assortment planning and supply chain, the company is refocusing its investment in merchandising systems with a priority on enhancing the current core Borders superstore system. The company's long-term systems direction and overall technology strategy will be under the leadership of a new Chief Information Officer, expected to be named soon.

Borders will minimize investment in remodeling its existing stores until it has realized progress in development of a new concept store prototype, which the company began working on in the second half of 2006 assisted by an external design consulting firm. The new concept store will bring together destination businesses, technology and experiential elements that will dramatically enhance the shopping experience and set Borders apart from the competition. In 2007, the concept store will continue to be refined and key elements from it will be applied to the existing store base as appropriate. The first of the new concept stores is expected to open early in 2008.

Investment will continue in Seattle's Best Coffee and Paperchase, both of which have been successful at driving same-store sales increases in their categories and provide a solid return on investment. Borders Group will also continue to introduce Paperchase shops within its domestic Borders stores, and will open several freestanding Paperchase stores in the U.S. during this fiscal year.

The company is also planning to publish exclusive and proprietary books to distinguish the Borders brand and drive high margin sales. Numerous agreements are already in process to publish titles by celebrities, undiscovered talents, and others who will create buzz about books that will only be available at Borders. Through this initiative, the company is leveraging its ability -- via its extensive store network and Borders Rewards e-mail database -- to develop bestsellers on its own.

Refocusing Investment -- International

Borders Group will explore strategic alternatives for the majority of its International segment, including its U.K., Ireland, Australia and New Zealand superstores and Books etc. business. The company has retained Merrill Lynch & Co. to assist in the process for its U.K. and Ireland businesses as well as Books etc. and KPMG's Corporate Finance practice for the Australia and New Zealand businesses. This effort will not include the company's successful Paperchase business, Puerto Rico stores, or the franchise operations in Malaysia and the United Arab Emirates (UAE). Furthermore, the company's operations in Singapore will be maintained to support the franchise operations.

Jones said, "We've seen solid performance in our Asia Pacific stores and improving trends in the U.K. and Ireland. These are excellent businesses with dedicated employees and a talented management team. Still, for us to be successful in reaching the goals we have for the domestic superstore business, we must significantly reduce investment in the International segment and explore strategic alternatives.

"We are pleased with the franchise agreements we have in Malaysia and the UAE because they have proven to be successful. The franchise model requires little capital investment from Borders Group but yields high profit and growth opportunities. We believe that the Borders brand has great global potential and long-term we will look toward the franchise model for growth in new markets overseas."

The company noted that there can be no assurance that the exploration of strategic alternatives will result in a transaction. The company does not intend to disclose developments with respect to the exploration of strategic alternatives unless and until it has determined a specific transaction or course of action.

Refocusing Investment -- Waldenbooks Specialty Retail

In order to better focus resources on its core U.S. superstore business, Borders will continue its current efforts to right-size the Waldenbooks Specialty Retail segment. Specifically, the company plans to:

  • Continue to execute an aggressive program to close under-performing stores, working with an outside firm and the company's landlords to facilitate optimum exits;
  • Retain only stable store locations that meet acceptable profit and return on investment objectives, and in those stores, change product mix and format to drive sales and profitability.

The company closed 91 locations in the fourth quarter of 2006 for a total of 124 store closures within the year. Borders Group's target is to close an additional 250 under-performing stores over the next two years, thereby reducing the number of Waldenbooks Specialty Retail segment stores from 564 at the close of 2006 to approximately 300 by the end of 2008.

"Our plans for Waldenbooks are no reflection on the many hardworking employees at these stores," Jones added. "We appreciate the contributions of these employees and their devotion to this long-standing brand. As is our practice, we will take steps to minimize the impact of these changes on affected employees, including working hard to place as many employees as possible in other positions within the company."

Reinventing the Company Through Innovation, Technology and Strategic Alliances

In order to drive significant business improvements, enable technology deployment and cross-channel experiences, Borders will also develop its own Borders.com e-commerce Web site. The new proprietary Web site, which has been under development since Fall 2006, will roll out in early 2008. It will allow Borders to extend successful in-store programs like Borders Rewards to the Web and give customers a live, e-commerce solution using existing in-store Borders Search computer stations when they want to special-order items. In addition, the existence of the new Borders.com will also allow the company to enable key partnerships that will build incremental revenues and margins and facilitate other technology and cross-channel opportunities that benefit Borders customers.

As part of the development of Borders.com, the company is consolidating its Web properties into a single infrastructure. This will facilitate a seamless cross-channel experience that will integrate the in-store and online experiences.

The addition of new "Digital Centers" in Borders stores will enable customers to learn about, interact with, and purchase new digital products -- such as audio books, e-books, MP3 players -- and services such as downloading and personal publishing that complement the Borders brand. The company is in the process of exploring several potential arrangements for key partnerships with respect to its digital offerings. The digital services can be made available both in-store and online as a result of the Web initiative.

"We need to reinvent our business to exploit the rapid changes taking place in how consumers access information and entertainment," Jones said. "Our ultimate goal is to make Borders a vital community gathering place where people come together to see, touch, interact, and learn -- online and in- store."

Jones concluded, "I am confident that by focusing on the transformation of the domestic superstore business -- through improvements in merchandising and marketing, consistent execution, technology, innovation, and partnerships we believe in -- we can return Borders Group to profitable growth and produce solid returns for our shareholders. Many of the steps we have outlined today are already underway, and we look forward to providing an update on our progress in May when we announce our results for the first quarter."

Conference Call Today

The strategic plan, as well as Borders Group's fourth quarter and full- year 2006 results will be presented by Chief Executive Officer George Jones and Chief Financial Officer Ed Wilhelm on a conference call for investors at 9 a.m. Eastern this morning. The call can be accessed via the company's Web site at www.bordersgroupinc.com. For reference, in advance of the call, the company will also post a presentation outlining the strategic plan online at www.bordersgroupinc.com.

About Borders Group

Headquartered in Ann Arbor, Mich., Borders Group, Inc. is a leading global retailer of books, music and movies with more than 1,200 stores and over 34,000 employees worldwide. More information on the company is available at www.bordersgroupinc.com.

Safe Harbor Statement

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. One can identify these forward-looking statements by the use of words such as "projects," "expected," "estimated," "look toward," "continuing," "planning," "guidance, " "goal," "will," "may," "intend," "anticipates," and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address matters such as the company's future financial performance (including earnings per share growth, EBIT margins and inventory turns, same-store sales growth, and anticipated capital expenditures and depreciation and amortization amounts), its strategic plans and expected benefits relating to such plans (including steps to be taken to improve the performance of domestic superstores, the exploration of strategic alternatives with respect to certain international operations, the downsizing of the Specialty Retail Segment and the development of a proprietary website) and its intentions with respect to dividend payments and share repurchases.

These statements are subject to risks and uncertainties that could cause actual results and plans to differ materially from those included in the company's forward-looking statements. These risks and uncertainties include, but are not limited to, consumer demand for the company's products, particularly during the holiday season, which is believed to be related to general economic and geopolitical conditions, competition and other factors; the availability of adequate capital to fund the company's operations and to carry out its strategic plans; the performance of the company's information technology systems and the development of improvements to the systems necessary to implement the company's strategic plan, and, with respect to the exploration of strategic alternatives for certain international operations, the ability to attract interested third parties.

The company's periodic reports filed from time to time with the Securities and Exchange Commission contain more detailed discussions of these and other risk factors that could cause actual results and plans to differ materially from those included in the forward-looking statements, and those discussions are incorporated herein by reference. The company does not undertake any obligation to update forward-looking statements.

SOURCE Borders Group, Inc.

CONTACT: Investors, Ed Wilhelm, +1-734-477-4245, or Media, Anne Roman, +1-734-477-1392, both of Borders Group, Inc.

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