Estimated read time: 4-5 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
Jan. 13--The convergence of entertainment and eats in one-stop shopping moved closer yesterday when Starbucks announced it will promote movies, stock DVDs and carry best-selling books at its coffee stores.
The Seattle-based Starbucks chain already features selected CD titles by the Rolling Stones, Sly & the Family Stone and kindred artists, and some of its stores have companion Hear Music stores that allow customers to burn CDs.
Meanwhile, buyout firms reportedly are circling Borders Group Inc. after it reported better-than expected fourth-quarter sales, fueled largely by a 6 percent surge in book sales. The book and music chain has been converting its in-store coffee bars to outposts of Seattle's Best in a marketing deal with Starbucks, which owns the coffee brand.
A report by the Financial Times said a number of private equity firms are reportedly poised to pay more than $25 a share for Borders, putting the value of the deal at about $2 billion. Shares of Borders rose $2.29, or 10 percent, yesterday to close at $24.70 on the New York Stock Exchange.
The changes at Starbucks and Borders are part of a broader retail trend to grab disposable entertainment dollars from relatively upscale consumers on the run.
"This is a way for (the chains) to increase their average checks," said Ivan Feinseth, an analyst at Matrix Equity Research in New York.
He said retail studies show that customers who buy coffee and a cranberry bran bar, for example, tend to stay in stores longer and, more important, they pluck extra CDs and books off the shelves.
Starbucks and Borders foster a comfortable, homey ambience, replete with soft chairs and tables designed for reading and sipping lattes.
The chains also are countering moves by retail giants Wal-Mart Stores and Target, who have plunged into music, movies, books and coffee.
Combining entertainment goods with a caffeine jolt could be an enticing retail strategy because DVD, book and coffee sales are all percolating.
DVD sales in the United States set a torrid pace in 2005, jumping by 5 percent to $16.3 billion, according to Digital Entertainment Group.
Estimated book sales in 2005 also rose about 5 percent, to $30 billion, according to the Book Industry Study Group.
At Starbucks -- the largest U.S. coffee-shop chain, with about 5,500 stores -- sales reached $791 million for the five-week period ended Jan. 1, up 22 percent from the same period a year ago.
Starbucks said yesterday that its first foray into movie promotion will be "Akeelah and the Bee," a film produced by Lionsgate and featuring Laurence Fishburne and Angela Bassett. The company said the movie will debut in April and is the "inspirational story of Akeelah Anderson, a precocious 11-year-old girl who advances from the inner city of South Los Angeles to the Scripps National Spelling Bee."
Starbucks plans early screenings for baristas to boost word of mouth, sneak previews, spelling-related trivia games and promotions on its cardboard-cup sleeves. It plans to sell the movie on DVD when it is released.
"Over the past year, we viewed countless films and spoke with numerous studios in pursuit of finding the perfect film," Starbucks Chairman Howard Schultz said in a statement. "Just as we have demonstrated with music, we believe Starbucks can ultimately change the rules of the game for film marketing and distribution."
Shares of Starbucks closed yesterday at $30.96, down 16 cents on the Nasdaq.
Starbucks also said it will begin selling books later this year, and it has been expanding its music business. It sold nearly 3.5 million CDs in the fiscal year ended Sept. 30.
The company bought the Hear Music chain seven years ago and has created larger Hear Music stores attached to Starbucks coffee shops. Customers can choose from more than 1 million song titles and burn CDs while sipping lattes.
Starbucks won't display more than 20 CD and DVD titles at any one time in its stores so customers don't get overwhelmed, the company said.
While Borders said Wednesday that same-store sales at its superstores rose 2.2 percent in the fourth quarter, some observers said they would be surprised by a Borders buyout because the company is in a single-digit growth industry burdened by tiny operating margins.
"The prospects for (Borders) growing tremendously are not there," said Jim Milliot, business editor at Publishers Weekly.
The company, based in Ann Arbor, Mich., had no comment on acquisition rumors.
In announcing the sales data, Borders also raised the lower end of its earnings outlook for its fourth quarter from $1.70 to $1.80 a share, up from the previous view of $1.60 to $1.80 a share.
Analysts expect earnings of $1.70 a share, according to Thomson Financial.
Dereck Leckow, an analyst at Barrington Research in Chicago, said Borders stock got a boost yesterday because of the buyout speculation and the surprisingly strong same-store sales. He said strong book sales are a good sign because that is one area on which Borders has focused.
Borders' stock has been under pressure because the company is in an investment period, spending money on renovating its stores, Leckow said.
Bloomberg News contributed to this report.
-----
To see more of The San Diego Union-Tribune, or to subscribe to the newspaper, go to http://www.uniontrib.com.
Copyright (c) 2006, The San Diego Union-Tribune
Distributed by Knight Ridder/Tribune Business News.
For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.
