Over the course of the last year, Borders has steadily reduced the amount of in-store floor space dedicated to music, by 30%. Music now owns only 7% of the floor space in Borders stores. Considering their primary business is books, we can’t really complain too much.

The articles I’ve read have described the cut back as “a response to softening demand for CDs.” That seems like a bit of a self-fulfilling prophecy to me. If sales are down and you cut back shelf space, it stands to reason that with fewer titles to choose from, sales will decline even further. However, there is no doubt that a sales slump for CDs is occurring that precipitated the cut back.

Borders recently released a third-quarter sales report that showed both a decrease of revenue and profit in year to year, same quarter sales. Revenue store wide was down roughly 10% from the same period last year. Much of the decline could be a result of economic concerns in September and October of this year, which affected nearly all retailers in every market.

With the reduction of floor space dedicated to music products, Borders is increasingly interested in exclusive products that consumers won’t be able to find elsewhere.

Rural Rhythm Records, regularly places product in Borders stores, and has developed Borders exclusives in the past. I spoke with Sam Passimano from Rural Rhythm about the cut back, and how it might affect bluegrass music.

This actually has be going on for several months, so it is not really new for us. Several months back, (end of the 1st Quarter), they reduced their inventory and floor space dedicated to music products. However, they continue to support our new releases titles and show good sales on a weekly basis. They also are very aggressive with their Borders Rewards program and do a good job of bringing both book and music buyers into their stores.

That’s good news for bluegrass music.

Back in January, the NPD Group listed Borders as the fifth largest US retailer of music (tied with FYE/Coconuts). At the time Borders controled 3% of the market.

Despite the decline in revenues, Borders did improve overall financial operations.

Borders has successfully reduced debt, improved operating cash flow, lowered expenses, improved gross margin-excluding occupancy-and improved inventory productivity during a time of extreme economic challenge

In light of these improvements, Borders’ management announced it is no longer considering the sale of the company.