The Borders Group is threatening to greatly reduce music and DVD presence in its stores unless it gets significant buying concessions on the schedule with which it must pay for product.

But even if vendors make concessions, the chain still plans significant reduction. According to sources, Ann Arbor, Mich.-based Borders - which has been annually and significantly reducing its music SKU count from an average of 50,000 titles in 2000 to 11,500 SKUs at the end of 2007 - plans on reducing its music and DVD inventory by 70% over the next three-months, and it will affect nearly 97% of the chain's 515 superstores. It began with a "30%-off sales in 70 of its stores on Monday, with the rest of the chain's stores implementing an inventory sell downs in mid-March.

For music, the chain plans to continue carrying a full assortment - about 9,500 titles - in 14 stores, while another 135 stores will decrease its inventory to about 7,000 titles per store. The remainder of the chain will see their inventory reduced significantly: about 150 stores will only carry the top 25 music titles; while another 100 stores, will carry about 500 titles; and another 115 stores will be reduced to about 3,000 titles.

However, beyond the almost total liquidation planned for the 70 stores running a sale, the plans outlined above for the other stores are contingent on what kind of response it gets from vendors, sources say.

In a conference call with vendors, Borders executives basically told vendors that revised terms could change the final inventory model.

Current terms

Currently, music vendors typically allow for sixty days to pay for product, but they also run catalog sales that allow for payments to be extended by an extra 30-120 days. That means that retailers intermittently have the chance to buy catalog and have up to six months to pay for it, instead of the normal two-month window. But Borders appears to be pushing to make this type of dating a normal part of terms. At the best, it wants vendors to go to scan-based trading payment terms, which means paying for product when it is sold, also known as consignment but with precise payment terms; or it wants 365-days “dating,” the term for payment scheduling. At the least, it wants more dating for slower moving titles.

Sources say Borders is giving vendors about 10 days to come back to the chain with proposals. Borders plans a similar move for video, although its slightly less drastic than its plans for music.

According to its last 10-K filing (the next one is scheduled to be filed in mid-April,), Borders typically carries about 7,000 video titles, and sources say that about 15 Borders stores will continue to carry that full assortment, while 120 stores will carry a nearly full assortment of 6,000 titles. Another 135 stores or so will carry about 4,000 DVD titles. Finally, 135 stores will reduce to about 1,500 titles while 108 stores will carry mainly the top 100 DVD titles,

’The overarching goal’

Borders manager of corporate affairs Mary Davis confirms the broad stroke that the chain is analyzing its music and DVD assortment and that there will be some inventory reductions, but only gave a few specifics.

But she added, "The overarching goal to this new multimedia approach is to increase profitability within these categories while still meeting customer demand. We want to maintain a viable music and movie business, and to achieve this goal, we're going to put most of our DVD and CD inventory in stores where we have the highest sales within these categories."

Also she said that in stores where inventories will be reduced, inventory will still be tailored to meet the local market.

She said that the 70 stores currently conducting the sale will ultimately carry no more than, combined, 100 DVD and CD titles, which will be comprised of the best-selling titles and new releases.

As for the rest of the chain, she added, "we have divided our stores into four segments and we are still working out the details. Nothing is final."

When it was suggested that the other elements are dependent on the vendors response, she said its dependent on customer demand, and declined to comment further.

The majors

Label and distribution executives said it’s too early to say how they will respond. But Borders has asked for longer dating many times in the past, and each time have been formerly rejected by the majors, although the majors have since changed their overall approach in catalog marketing, and more often, provide extended dating to the entire market.