David Roche Q&A

<p><em>Joel Rickett spoke to Borders UK chief executive David Roche this morning (24th September) following the <a href="&quot;http://www.thebookseller.com/news/45494-borders-announces-sale-of-uk-arm... buyout of the chain from its US parent</a>, finalised last Friday.</em></p>
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<p>JR: How have you balanced working on the buyout bid with running the business?<br />
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DR: It has certainly taken a good chunk of time. But as retailers we never take more than half an eye off the stores &ndash; we get daily feedback which tells you how they are doing. We've remained focused on the business, both in terms of day-to-day running and where it needs to go longer term. In certain areas we've put our foot on the pedal. For example the deal with Amazon to host our website runs out in the Spring, so rather than sit and wait, we've been exploring all avenues and trying to pre-empt that. We have a 100-day plan that has kicked in, so we have hit the ground running. Irrespective of the deal, we were determined to have a mindset to that we'd stay on our own two feet.<br />
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JR: Have you managed to avoid a staff exodus?<br />
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DR: You get targeted by headhunters seeing who they can pinch. One or two have left the [head office] buying and marketing teams, but we've held onto our really key people. Staff love the brand &ndash; it's a very flat pyramid, and everyone gets a chance to contribute to the direction. At store level we devolve responsibility for outreach, local marketing &ndash; all the elements that make them more part of their local community than our competitors. With this [sale] announcement it will be interesting to see how many people express an interest in joining us.<br />
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JR: Have you spent much time with Luke Johnson?<br />
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DR: I had nothing to do with him before this process &ndash; although obviously I knew of him &ndash; and the deal precluded contact up to a certain point. He's going to be very interesting to have in the book world. He's clearly well read and very bright. I'm looking forward to his fresh pair of eyes but sensitivity and empathy for the industry. He clearly shares the same values in terms of our position and the marketing and power of the Borders brand.<br />
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JR: Will he be a hands-on chairman?<br />
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DR: I'm sure he's capable of spinning plates better than anyone, but he does have a large portfolio of companies as well as chairmanship of Channel 4. I imagine he'll confirm the strategies and priorities, then we'll liaise on a routine basis to make sure that steer is adhered to (and is the right direction). He has already been out and about visiting stores.<br />
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JR: Did you have any contact with WH Smith during the sale process?<br />
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DR: No. There were other bidders that the management team presented to, but they were all from private equity firms. During the bid process Borders Group kept us at an arm's length from the deal &ndash; it was entirely a Borders Group decision. That helps avoid any conflict of interest.<br />
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JR: &pound;10m seems a very low price.<br />
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DR: It's a price that enables us to get on and deliver the strategy that we've agreed. The expectations are stretching but achievable. I didn't want to work for a business where there was a massive hockey stick that anticipated market share gains that were miles ahead of the market trend, or that involved massive cost cutting and huge sales assumptions. So I'm delighted it's an achievable plan.<br />
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JR: Is the Borders UK &amp; Ireland business currently profitable?<br />
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DR: Yes, but a couple of million profit on &pound;223m turnover is a lot of effort [for little reward]. Our first focus is on cash generation and cost control because we have to pay our bills. Sales and profit follow out of that.<br />
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JR: Will you benefit from a reduced contribution to the US parent group?<br />
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DR: Yes, that will make a significant difference. Risk Capital stated that we are now virtually debt free with &pound;75m net assets &ndash; the deal has transformed the accounts.<br />
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JR: Rising rents must be a massive challenge for Borders.<br />
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DR: With new stores, you expect their first three years to be on a much higher maturation curve of like-for-like performance than with mature stores. Given that we opened 13 stores in the last 18 months, we are expecting to see our like-for-like figures grow. Having paid out the capital we've still yet to get benefit of that maturation. But yes, it is difficult to grow faster than the inevitable rent and rates increases. Part of the benefit of having large stores in flexible formats is the ability to change the mix and adapt, to benefit from fast-growing products. That allows you to sustain an environment where you continue to have books as your primary format. The better everything around the books performs, the better you can pay your bills.<br />
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JR: Luke Johnson has already talked about new products, so what's your plan?<br />
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DR: We've spent a lot of time looking at the essence of our brand and our customers. Everything we might sell has to remain true to that brand essence, and also has to be something our customers are actually asking for. Luke Johnson mentioned toys. We already have toy concessions in our Oxford, Cambridge and Leicester stores with a company called Fun Learning. They are educational toys, very aspirational rather than Mickey Mouse licensing, and they sit alongside our children's offer quite comfortably. That's telling us there's a market that parents and children are looking for; it gives us an all-round family offering. Also there's a gap in basic stationery - at the moment if a student asks for printer paper we have to send them elsewhere. That's crazy and we need to talk to Paperchase about filling that gap. Computer games are an area with huge growth, and our customers always asking for them - if you stock music and DVD there's a high street expectation that we you sell games. We do that ourselves or through partnership, it's an area to look at.<br />
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JR: Is the store estate in good shape?<br />
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DR: It's new so there's not a massive amount of capital expenditure required [for refurbishments]. Where expenditure is needed is on new systems. At the moment we have systems tied into the US, and there's a transitional service agreement &ndash; they'll continue to supply till we're can switch over. Planning is at an intermediate stage.<br />
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JR: Are you looking to build an equivalent of Waterstone's stock system Phoenix?<br />
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DR: Phoenix is a bespoke system that would take years to replicate. Our needs are not as complex &ndash; we don't want to become too introspective. We need a basic system to allow little-and-often ordering on a daily basis. <br />
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JR: How many stores are under threat of closure?<br />
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DR: Luke Johnson has said a handful, and that's true across both brands [Borders and Books Etc]. We are constantly reviewing every store as matter of course. The biggest issues with Books Etc were Trafford and Lumley St, and getting rid of those two sites has changed the profile considerably. Once we have a new systems platform and complete control of the finance department, we won't be replicating workload or creating considerable extra cost. We'll be able to go back to judging each store on its own merits.<br />
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JR: Does Books Etc have a future?<br />
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DR: The Books Etc brand in London is very strong. It has been neglected, and we need to turn to turn the spotlight back on it. I see no reason why if they not incurring additional cost, they can't remain as standalone stores. I don't believe the Borders Express format is the future&mdash;it was a pliot that we won't be rolling out any further.<br />
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JR: How much freedom will you have from the US to pursue your own direction? Will Borders brand guidelines constrain you?<br />
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DR: I don't see it being an issue. We have a brand license agreement, which is similar to a franchise deal. For example in the United Arab Emirates Borders don't sell multimedia, which we see as being part of the Borders DNA.<br />
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JR: Where does your confidence in the future of the business come from?<br />
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DR: I always bang on about unique market position Borders has. I genuinely believe there's growth in that whole middle market, upwards from people who've only read Dan Brown. Richard &amp; Judy is the most spectacular phenomenon I've seen - taking <em>Star of the Sea</em> or Victoria Hislop and making them sell hundreds of thousands of copies. That money is swapping from spending on other things &ndash; its evidence you can convert people by good recommendation. But they are only prepared to take risks and learn if they are in a comfortable environment and have lots of reasons to visit. We have multiple formats, a genuinely relaxed environment, and staff who enjoy talking to customers rather than hiding behind counters. We also have a great market position &ndash; better range, service and environment than supermarkets and Smiths, with a less intimidating experience than Blackwell and Waterstone's.<br />
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JR: What's your message to publishers?<br />
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DR: Make sure that you are not cutting of the lifeline to those areas which develop new authors and break new talent. Relying on any one channel is biting the hand that will eventually feed you.</p>