Borders Group Inc. (BGP) posted a wider-than-expected second-quarter loss as the bookseller pushed to get its long-promised revamping in place by Christmas, as well as position itself for a more solid future.

The No. 2 brick-and-mortar book retailer behind Barnes & Noble Inc. (BKS) took major steps in reducing space and inventory, making its biggest pullback yet from the floundering music and DVD categories, where inventory was cut by half.

The move freed up space to expand what Borders sees as higher-margin areas like children's departments with large arrays of educational toys and games. Borders also during the second quarter opened departments for teenagers. The areas include young adult books, popular graphic novels and some apparel like T-shirts, backpacks and jewelry.

Borders plans to expand its gift and stationary departments to all 515 stores, corralled all its biography books into designated sections and is planning to expand its bargain book business.

The efforts come as Borders is dealing with the cultural shift of book buyers migrating to online sites and discounters, amid a lingering downturn for retailers in general and Borders in particular.

"There is an urgency," Chief Executive Ron Marshall said in an interview with Dow Jones Newswires.

Marshall joined the company in January at the behest of Pershing Square Capital Management L.P., its largest shareholder, which had dismissed Border's executive team at the start of the year. The company subsequently remade its board. Marshall has overseen three rounds of lay-offs while reducing debt and cutting expenses.

Borders is fighting to avoid the kind of shakeout that has happened in other corners of the retailing industry. Consumer electronics retailer Circuit City Stores Inc., for example, shut down all its retail outlets earlier this year, strengthening the position of rival Best Buy Co. (BBY). Elsewhere, the liquidation of rival Linens 'N Things Inc. helped Bed Bath & Beyond Inc. (BBBY).

Marshall said Borders' restructuring, which requires stores be revamped, has caused disruptions. As a result, sales have been lost to rivals like Barnes & Noble, Amazon.com (AMZN), as well as mass merchants like Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT).

"Borders is trying to be a category killer, but right now it's only a weak number two," said Scott Testa, professor of business at Cabrini College in Philadelphia. "The situation can be especially troublesome in this economic environment."

Marshall acknowledged the recession is not the only cause of the company's woes, saying he has "a laundry list" of changes to make, like more promotions and crisper in-store operations to improve sales.

Borders has also struggled financially, having to restructure and receive extensions on its debt as a way of avoiding the prospect of bankruptcy. The successful debt restructuring caused Borders shares to jump in the spring after bottoming at 34 cents on Christmas Eve. The shares were recently off 25 cents, or 6.7%, to $3.45.

Border is going into the back half of the year with $179.3 million less debt, net of cash, compared with a year ago, the company said.

For the quarter ended Aug. 1, Borders posted a loss of $45.6 million, or 76 a share, compared with a loss of $9.2 million, or 15 cents a share, a year earlier. The latest results included 55 cents a share in restructuring and other charges. Without the charges, the 21 cent a share loss was wider than the 17 cent a share loss analysts polled by FactSet Research were looking for.

Revenue decreased 18% to $624.7 million, which was below analysts' projections for $645.8 million. Same-store sales at U.S. Borders superstores decreased 18%, while the figure fell 11% at the mall-based Waldenbooks segment, which the company has been shrinking. International sales rose 10% excluding currency changes.

Gross margin fell to 22.9% from 24%.

-By Karen Talley, Dow Jones Newswires; 212-416-2196

(Jeffrey Trachtenberg and Joan E. Solsman contributed to this article.)