Bad Times at Borders

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The company plans to open four or five more prototypes and then start integrating their most profitable elements into the existing stores. Shrinking music departments will make room for mix-and-burn music download computers and “destination centers” focusing on travel, cooking, and wellness.

Last year the company revamped Borders Rewards to reduce costs and increase customer visits. Though Jones acknowledges that the customer loyalty program has hurt profit margins, he says it’s “a great way to build relationships with our customers” and target promotions. “We’re getting better and better on how to use it,” he says.

And this past May, Borders finally took back its online business. Execs say they expect the new borders.com to be profitable by next year.

Says Jones, “We’ve taken steps that we can to make great progress.”

While Jones was making over Borders’s public face, he faced even more dire problems behind the scenes: the company’s growing debts left it terribly vulnerable to the global credit crunch.