UPDATE 1-Borders launches e-bookstore, says can catch rivals

Wed Jul 7, 2010 1:33am EDT

* E-book game just getting started - Borders Inc pres

* Borders' e-book store to offer 1.5 mln titles

* Smartphone apps for store also launched (Adds comments from CEO, detail, background)

By Phil Wahba

NEW YORK, July 7 (Reuters) - Borders Group Inc's BGP.N electronic bookstore went live on Wednesday and the head of its bookselling business predicted that it would quickly catch up with rivals and win a piece of the fast growing e-books sector.

The launch comes nine months after Barnes & Noble Inc (BKS.N) debuted its Nook e-reader and three months after Apple Inc (AAPL.O) introduced its popular iPad tablet computer, allowing both companies, and Amazon.com Inc (AMZN.O) which sells the Kindle e-reader, to get a big head start on Borders.

Borders urgently needs to win a piece of the e-books business: sales at its namesake superstores open at least a year and on its website fell 11.4 percent during the first quarter, the latest decline in a long streak. [ID:nN27121145]

But Mike Edwards, president of Borders Inc, the company's main operating business, said Borders was not at a disadvantage.

"We'll take market share just by turning it on," Edwards told Reuters in an interview last week.

Edwards said that Borders, the No. 2 U.S. bookstore chain by sales after, had data and e-mail addresses for the 38 million customers in its loyalty program and has about 700 stores at which it can promote its virtual bookstore, which he said will help it quickly catch up.

Borders said its e-bookstore will offer 1.5 million titles, including free books. Amazon says it offers 620,000 books as well as 1.8 million free, out-of-copyright titles, and Barnes & Noble says it offers 1 million titles.

"A lot of people have said, 'You're kind of late to the game,' and I'm saying, 'the game actually just started'."

But larger rival Barnes & Noble told investors last week that it has already won 20 percent of the U.S. e-books market since launching the Nook, exceeding its share of physical books sales.

Edwards, who estimated that Borders has about 15 percent percent of the U.S. physical book market, said Borders could snag a similar share of e-book sales.

Currently, about 5 percent of Borders sales, including physical books ordered online, go through its website, representing about $100 million this year. Edwards said online sales have soared by virtue of improvements to the web site.

In addition to the applications recently launched for Apple's iPhone and iPad, Borders on Wednesday introduced applications for Research In Motion's RIM.TO Blackberry smartphones and phones with Google's (GOOG.O) Android software to allow the downloading of books on a wider array of devices.

While Barnes & Noble and Amazon.com have relied on their own e-readers to spur e-books sales, Edwards said Borders has been wise not to get into the expensive game of developing devices, citing the sales-sapping price war that has erupted between his rivals. [ID:nN21234496]

On a conference call last week, Barnes & Noble said the cost of enhancing the Nook would weigh on results.

"I'm ecstatic that we decided we're not going to be in that game," Edwards said. "We are not a device maker -- we're a bookseller."

A Goldman Sachs report in April forecast that e-book sales, which make up 3 percent of overall U.S. book sales now, would rise to 12.8 percent by 2015.

RETHINKING SUPERSTORES

Edwards expects that ultimately 20 percent of book sales will shift online. Yet Edwards and Barnes & Noble Chairman Len Riggio both separately said store count would remain stable.

The two retailers run a combined 1,500 or so U.S. stores, a figure that Edwards conceded might be high in the long run.

"The store base at large would probably shrink," Edwards said of the industrywide store count.

But until then, a new battle is brewing: what to stock shelves with to replace book sales that go online. Borders is looking at what products would be compatible with books and the possibilities include kids products, consumer electronics and apparel.

"The pressure on us is not on the digital side," he said. "How you create that new retail experience, that's where the art is going to be."

Last month, financier Bennett LeBow, Borders' chairman and largest shareholder, was named chief executive of the company, and in March, Borders repaid a loan to Pershing Square Capital Management and secured access to $700 million in credit. [ID:nN03254228]

Now that Borders is on a stronger financial footing, the company can concentrate on "reigniting" the Borders brand, Edwards said.

"We're kind of a sleeping giant," Edwards said. "We will take our share." (Editing by Lincoln Feast)

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