Last bookstores standing may turn digital page
By David Gelles, Andrew Edgecliffe-Johnson and Claer Barrett
Published: May 22 2011 19:49 | Last updated: May 22 2011 19:49
The bookstore looked like something out of a post-apocalyptic Stephen King novel. Dust swirled in empty corners of the cavernous retail space, and forgotten, unwanted titles lay scattered on shelves once stocked with bestsellers.
This scene in Boston last month, at a branch of Borders that was going out of business, symbolises the plight of book retailers in the US and the UK.
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As consumers increasingly buy books online from Amazon and embrace e-readers, there are simply fewer bookstores needed to satisfy waning customer demand.
The impact of this new reality has been immediate. Borders and Borders UK have gone bankrupt.
And last week, Barnes & Noble in the US, and Waterstone’s in the UK, were in play as opportunistic billionaires sought to snap up companies whose value has plummeted in recent years.
Yet while Borders was unable to survive in an increasingly digital world, both Barnes & Noble and Waterstone’s are profitable, if inconsistently so. And the billionaires who seek to control these chains clearly sense some untapped value in the brands.
“They can obviously see an opportunity,” said John Makinson, chairman and chief executive of Penguin, which like the Financial Times is owned by Pearson. “This is a vote of confidence by some reasonably smart people. It’s a really positive day for the industry.”
Analysts and industry executives say opportunity exists at two levels. As the only major chains in their respective markets, both Barnes & Noble and Waterstone’s, if well-run, could thrive in the absence of bricks-and-mortar competition.
After all, the majority of readers still cast their eyes on paper, not pixels. “There is ‘last man standing’ value in this market,” said Mr Makinson.
“As Borders shrinks, there will be a lot of traffic from Borders stores to Barnes & Noble.”
Barnes & Noble turned a profit of $60.5m in the latest quarter, which included the holidays.
And while sales are falling at Waterstone’s, analysts expect it to post earnings before interest, tax, depreciation and amortisation of about £20m ($33m) at full-year results next month.
Alexander Mamut, the Russian billionaire who made a £53m cash offer for Waterstone’s last week, expects to grow profitability at the chain. He is advised by the investment bank Credit Suisse and has appointed ex-investment banker and celebrated London independent bookseller James Daunt as managing director.
Daunt Books has wooed affluent customers into paying full price for books that are available more cheaply online by creating a book lover’s paradise where titles are arranged to maximise discovery.
For example, travel books on Africa share shelf space with novels set in Africa, those written by African authors and non-fiction titles about the continent.
Bibliophiles also express nostalgia for book shops as public squares for the intelligentsia. “There is a natural place here for a national chain of specialist booksellers,” said Mr Mamut.
“I am also firmly of the view that there will be an enduring demand for physical bookshops, which are cultural centres within local communities.” John Malone, the billionaire whose Liberty Media has offered $500m in cash for a roughly 70 per cent equity stake in Barnes & Noble, is also looking for seasoned bookseller expertise to make his bid work.
Liberty’s offer is contingent on Barnes & Noble founder Leonard Riggio’s continued involvement in management.
But the more intriguing plot twist may be the one unfolding online. Barnes & Noble has made quick inroads into the booming digital reading market with its Nook e-reader, though it still trails Amazon’s Kindle.
Analysts say it is the opportunity to become a major e-book vendor that has attracted the bid from Mr Malone.
“It’s not about Borders being out of commission so Barnes & Noble can sell more physical books,” said Forrester Research analyst James McQuivey. “It’s about new digital customer relationships, and Barnes & Noble happens to have one of the strongest new platforms.”
E-book penetration is much lower in the UK than it is in the US today.
If Mr Malone is able to help Barnes & Noble develop an astute digital strategy, Mr Mamut may be able to create a comparable model for the under-developed British market.
These developments could lead to a world in which books indeed survive the apocalypse.
In such a scenario, there may be one dominant physical retailer in each market, Amazon for online sales, and various companies including Amazon, Barnes & Noble and Apple selling e-books.
In such a world, to be the last man standing may amount to a happy ending.
Copyright The Financial Times Limited 2011.
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