Wednesday, August 4, 2010

Wanna own some bookstores? Whupped by Amazon, Barnes & Noble is for sale

Barnes & Noble, the number one U.S. book store chain, is putting itself up for sale as business suffers in the battle for a leading role in the digital books market.

Company founder and top shareholder Leonard Riggio is considering bidding for the company as part of a larger investor group.

An auction for Barnes & Noble could draw interest from others, including billionaire investor Ron Burkle, and raise speculation about a combination with smaller rival Borders--which has been retrenching.

But valuing a deal for Barnes & Noble, beset by competition from Amazon.com and Apple in the electronic books market, could prove difficult. The company's share price has lost more than half its value in the last year.

"How do you value an asset for the future when the entire market is being essentially turned upside down?" said Forrester analyst James McQuivey. Morningstar analyst Peter Wahlstrom said the company was already trading close to his fair value estimate of $13 per share before it made the announcement. "This could make strategic sense for them, yes. But I don't want to exactly say it's a good decision," Wahlstrom said. Going private would allow Barnes & Noble to accelerate its investment in its digital book platform, he said.

B&N has recently cut the price of its Nook eBook reader, and announced that more retail floor space would be devoted to the product.

Burkle sought a controlling interest in Barnes & Noble earlier this year and is suing the company for blocking his efforts through a poison pill that makes it harder for B&N to be sold.

Burkle accused Chairman Riggio and directors of a "self-dealing scheme" to block  him from mounting an effective proxy contest or amassing significant voting power.

Hedge fund manager William Ackman, who holds a large stake in Borders, has in the past suggested the two companies could combine.

The pressure on Barnes & Noble to realign its strategy became clearer in June, when it reported a larger loss as it spent money to develop its Nook electronic reader, which is outgunned in the market by Amazon's Kindle and Apple's iPad.

Sales at B&N stores open at least a year had fallen 3.1 percent during its most recent quarter and the company gave a tepid sales outlook for this year. Potential  profit from the mass adoption of e-books is great. Chief Executive William Lynch said recently the company has a 20 percent share of the e-books market, a position that could lead to sales of $3 billion to $5 billion by 2013.

The more difficult part for the likes of Barnes & Noble has been managing its sales through the transition. Goldman Sachs estimates e-books will make up 12.8 percent of overall book sales in 2015, up from about 3 percent now.

I love to walk through my local B&N store a few times each month. Unfortunately for them, the store often functions as a showroom for Amazon.com.

I always buy a few magazines, and if I find a book that I absolutely must have immediatley, I'll buy it. But if I can wait two days, I'll order several books from Amazon at a lower price and avoid sales tax, and not pay for shipping.

Big, expensive bookstores have become dinosaurs. There are plenty of other places to buy coffee (and I'm not a coffee drinker) and I don't need a store to download eBooks. I'll miss the B&N stores, I feel sorry for the employees and landlords (my local B&N is in a new shopping center with a shuttered Circuit City), but I will not cry at the funeral.

Frequent B&N buyers can save money by spending $25 per year for a B&N “membership” that provides discounts online and in the stores. You’ll also get email notifications of special deals.

B&N offers a MasterCard with special benefits. After your first purchase they’ll send you a $25 Gift Card. You’ll also get an extra 5% back at B&N stores or the website (in addition to any other discounts you may receive). And, to sweeten the deal, you’ll earn one “Reward Point” for every dollar you charge anywhere else. Every time you reach 2,500 points, you receive a $25 B&N Gift Card.

Borders has a loyalty program for frequent shoppers, but unlike the B&N program there is no fee to participate. Members earn $5 in “Borders Bucks” for every $150 of qualifying purchases. There are also emailed coupons and special offers.

With the Borders Rewards Perks program, Borders cus-tomers can save with special deals from brands including Anne Taylor, Brooks Brothers, Dell, Sony, HP and Kohl’s.

Even with the membership benefits, B&N and Borders pricing can't match Amazon.com. People shop at these stores for immediate gratification or ambience--and that may not be enough to keep the stores open. (some info from Reuters)

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