Location, Location, Location
August 4, 2010 at 8:47 am 36 comments
Location, location, location. That’s the mantra of what drives value in the real estate industry. However, the modern version might well be, “Location, just less of it.”
Today, Barnes & Noble (NYSE: BKS) announced it is putting itself on the block, looking for a buyer as it struggles to survive in a world of digital books.
[Frankly, I'm not so sure it's digital books that are causing the problem so much as online purchases. Certainly, digital books are growing wildly, but off of a very small base--according to Publisher's Weekly, they amount to only about 1% of the market. So maybe not a short-term catastrophe, though it's certainly a future threat.]
Either way, the problem with Barnes & Noble is real estate. One of the key ratios by which they are measured is return on assets–and with their large number of expensive stores, the fewer pricey books they sell, the more the operating metrics plummet. It’s almost like reverse leverage.
For years now, booksellers have sought other means to drive traffic into their retail outlets, peddling music and videos, opening in-store cafes, offering reading areas, etc. All to generate a higher return on their store “assets”.
I have this strange feeling of deja vu.
Blockbuster (BLOKA.PK) now trades on the Pink Sheets for exactly the same reason. They too were fixated on driving traffic to their stores. They too operated under the assumption that their true competitive advantage was their locations, and they had to keep earning a return on those assets. This caused them to make some rather odd decisions, such as enticing people to drive to their stores just to fill up a media player with movies to take home. Meanwhile, Netflix ate their lunch shipping discs (and now simply bits) directly to customers.
Similarly, Amazon (and others) killed Toys R Us, who had a similar problem with too much real estate and the accompanying high overhead. Why drive your car to the crowded store (along with acquisitive children badgering you for every bright and shiny thing they see) when you could have Christmas delivered to your door? And cheaper too.
It’s really a shame, as I still enjoy browsing in bookstores. Checking up on favorite writers to see if they have something new. Finding an unfamiliar author to take a chance on. But there’s no question they are struggling.
Probably some private equity firm will buy Barnes & Noble, and turn it around, as was the case with Toys R Us. Perhaps even Blockbuster will survive. Stranger things have happened. However, one thing is for sure:
There will be a lot fewer locations.
Disclosure: I hold no position, either long or short, in any stocks mentioned here.
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Entry filed under: Consumer, Digital Media, Internet, Media. Tags: Amazon, Barnes & Noble, Blockbuster, Netflix.
by Michael Mauboussin
1.
izziedarling | August 4, 2010 at 9:24 am
Very good. It is interesting how the Big Guys gobbled up/wiped out most independent bookstores and now karma comes to bite them. Lack of bookstores = dumber America. If that is possible.
2.
sweetman | August 4, 2010 at 9:26 am
Great post,
This might provide some hope for the small book stores that used to be a lot more plentiful before the huge chains. I do agree that the whole publishing industry is in for an enormous change due to the electronic book but I’m hopeful it creates more readers. There is just so much other than books that scream for consumers attention–kind of a sad reality.
Cheers
3.
margaritavillage | August 4, 2010 at 10:06 am
Quite a paradox–In the ’80′s and ’90′s all of the “big box” retailers moved in and put the “mom and pop” operations under to a large extent, and now only a decade or two later, it’s the internet that’s putting extreme pressure on the major retailers. Back then many experts said that companies like Amazon would never survive because no amount of future profits could justify their startup and operating costs, etc. and that their business model was essentially flawed for that reason.
These days there’s almost nothing that you can’t buy on the internet, or even directly from the manufacturer in many cases. The truth is that the retail model seems to have broken down, and being an “authorized dealer” or reseller means almost nothing in many industries. One wonders what will happen when more manufacturers realize that they can leverage the internet and “e-commerce” in order to sell directly to the marketplace with virtually no dealers or direct salesmanship at all?…
Two things ocur to me–one is that I wonder what people will do with their time once everything’s automated and there’s no where left to shop? The second is that I wonder what will happen to prices once big manufacturing is in control of the distribution and sales of it’s own products–Can anyone say “Ticketron”?
At any rate, it seems that we as a society may have inadvertently underestimated the public’s need for instant gratification, as well as overestimated the social value of traditional shopping models.
Although I do occaisionaly make purchases online, I mainly use it for research and comparison and have to admit that I find it at least somewhat surprising that so many people will purchase something of value “sight unseen” from someone that they’ve never met and don’t have any way to reach other than via the internet.
I think the day is coming where only one or two of the largest retailers will still be standing, and when the rest of us will be essentially forced to do business online, regardless. I just hope that the trade-off that we’re making winds up being worth the potential costs…
4.
photographyfree4all | August 4, 2010 at 10:09 am
I love a good bookstore – usually that isn’t Barnes and Noble/Borders. It’s quite often the smaller local bookstore. Oh sure, the selection may not be as wide, but the atmosphere is always so much better. Great post!
5.
CrystalSpins | August 4, 2010 at 10:16 am
Personally I like going to the bookstore to look at and buy books. I like getting the books immediately instead of having to wait for them to be delivered — but they are SO much cheaper online!
Crystal
http://www.crystalspins.com
6.
dennisfinocchiaro | August 4, 2010 at 10:17 am
The day of the physical store is ending, which to me is sad. I love just browsing sometimes, heading to Borders and wandering the aisles. I certainly hope they don’t die. Great article!
http://www.denwrites.com
7.
lbwong | August 4, 2010 at 10:18 am
Great information! With more people making purchases online, organizations need to adapt to consumer trends to stay ahead of the competition. Barnes and Nobles may have been looking too much at the short-term return rather than long-term. Thanks! LB
8.
SallyK | August 4, 2010 at 10:22 am
I love a “brick and mortar” bookstore, browsing the aisles, people watching etc. However, I can’t afford to buy books anymore. I do notice a lot more patrons at my local library. Maybe we are becoming a culture of “communal readers.” Not a bad thing when you consider how many trees go into the paper for books… North Coast Muse @ http://sally1029.wordpress.com
9.
The Gates of Lodore | August 4, 2010 at 10:37 am
Pretty soon pants manufactures will go out of business. Why? Because soon people will have no reason left to put on a pair and go out of the house. I figure underwear and pajama manufacturers would be a good investment, because people will be wearing them out quicker as they shop online.
10.
Catherine | August 4, 2010 at 10:47 am
I do love walking through a good bookstore, randomly picking up books and seeing what I find. I hope that they don’t disappear all together – without them, I will only purchase books based off of reviews, the shipping costs and if it’s cheap on half.com. Not the best for expanding my reading collection! Great post, congrats on being Freshly Pressed.
11.
Robert Bain | August 4, 2010 at 10:54 am
I don’t think the days of the physical store is ending – just changing. The great big stores are the ones that came along and made it tough for the little guys and now the little guys will have their day again. The massive stores will close and the little guys offering specialty niches will flourish – if they do it right – they have to change to survive as well. Price and convenience are two things we like about online book buying – the little guys have to figure out what those other things are people love about book stores and expand upon them. Having a coffee while book shopping is always nice, neighborhood locations, friendly staff that recognize you. People watching is huge – we want to engage with someone other than our pixels.
12.
TheIntentionalSage | August 4, 2010 at 10:55 am
I, too, enjoy going into bookstores and perusing the shelves for an author I’ve never heard of in a section I like reading from… or, seeing a new book published by an author I admire. It would seem that bookstores are beginning to be phased out and this is somewhat saddening. I wonder if we will lose that spontaneity of finding an unknown author on the shelves because we won’t be looking for that unknown author in a keyword search online.
With Love and Gratitude,
The Intentional Sage
13.
Leah | August 4, 2010 at 11:36 am
I’ve always enjoyed browsing Barnes & Noble. But sadly, I can’t say I’m shocked about this news. They seemed to operate on the older way of doing things, with discounts given to best-sellers, or their B&N members (which you had to pay to be a part of). I think if you want to survive as a larger bookstore, you have to take the Borders approach, which is discounting a lot and sending out coupons every week, encouraging everyone to join their free affinity program, and also rely on the Web. I will miss the literary-ness of B&N though.
14.
monicasawhney | August 4, 2010 at 12:12 pm
I have always enjoyed the experience of going to bookstores and particularly enjoy the ambiance Barnes & Nobles has but with the way the market is changing, B&N has to change too. It is so much cheaper to go online and purchase or swap books and I know that I’m guilty of going into a book store and then going home and purchasing it online. It will be interesting to see what comes of this move…
Monica
http://www.balleindianfood.com
15.
vijay | August 4, 2010 at 12:34 pm
interesting topic…
16.
sayitinasong | August 4, 2010 at 2:33 pm
Unfortunately I do see bookstores disappearing and making way for even more internet shopping… interestingly in the UK Borders already folded… cannot compete with Amazon…
17.
rubiescorner | August 4, 2010 at 3:28 pm
There are the bookstores that have used books. These may always be with us. This is an interesting subject.
18.
lovemeanyway | August 4, 2010 at 3:37 pm
I know that as a graduate student, I always hear students telling each other to buy there textbooks online because it is cheaper, and it truly is. Bookstores though hold a lure of their own, you just can’t browse through the pages of a book the same online. It will be interesting to see what happens with these large stores.
Great post and congratulations on Freshly Pressed.
19.
onsundaymorning | August 4, 2010 at 3:58 pm
It’s sad to say, but it’s not surprising to see many of the names that are on this list. Most of these companies (Toys R Us and Blockbuster) have been struggling for the better part of the decade. Yes, other companies had a hand in taking them down, but this is what happens to companies that loose sight of who their customer is and fails to make changes in their business model to accommodate new technology and trends.
I hate to sound so cynical since I worked for and shut down a store that went bankrupt and I do feel for those who work at those places, but on the other hand I can’t say that I am shocked.
20.
rivkachka | August 4, 2010 at 3:58 pm
Great post. I share the sentiments about enjoying the atmosphere of an actual bookstore. Even if the biggies fold, I hope there will still be plenty of smaller retailers. Generally, I prefer to go to a library, especially if it’s to take a chance on a new author. .
21.
Olivia | August 4, 2010 at 7:15 pm
I wondered about the house you have used for illustration.. Very nice looking neat villa..
Appreciate your thoughts,
Congratulations..
22.
lifeintheboomerlane | August 4, 2010 at 7:43 pm
As an indie author, it breaks my heart to see the decline in the number of independent bookstores. I recently read that Amazon is selling about 70% of all books being purchased. I don’t know if that statistic is true, but they do sell the most books and their sales are growing. And, while the chain stores won’t carry us, Amazon does. Bookstores will have to continue to reinvent themselves as gathering places and as places where more than books can be purchased.
23.
wordsfromawoman | August 4, 2010 at 10:10 pm
Good post.
I thought Borders was very vulnerable to the weak economy. It came therefore somewhat of a shock to hear that Barnes & Nobles is seeking a buyer.
Ultimately, it’s up to us, consumers, what world we want to live in: if we want a few stores around that include a bookstore where you can browse, then we shouldn’t buy all our books online.
http://www.wordsfromawoman.wordpress.com
24.
ડૉ. ભરત મકવાણા ‘મિત્ર’ | August 5, 2010 at 2:03 am
Sir you are absolutely right, an unfamiliar author are struggling a lot!
25.
xrvolume | August 5, 2010 at 2:05 am
Hey! Great Post and thanks for sharing it. Love the books Love the coffee!
your friends, XR VOLUME
26.
Phuong Anh | August 5, 2010 at 3:50 am
This is interesting
27.
gmomj | August 5, 2010 at 5:17 am
Interesting post.
This is just the nature of the way the world is moving. Although the romasntic sentiment of browsing a bookstore has it’s nostaldic appeal who really has time for it anymore but maybe retirees and the lucky few stay at home parents looking for distraction. I haven’t had the luxery of browsing a bookstore in years and buy all lit./wants /needs and desires off
of the internet. It’s quick easy and painless. I even get our family’s meds from an internet pharmacy so I avoid that hassle as well.
I work several jobs as does every member of my household. They work or are in school.
One has to go with the changing times.
Kindle is on my wish list for this Christmas.
I love books but don’t want to deal with anymore clutter and besides my husband must have at least a thousand in his library. One less thing to argue about,…
Neat post….
Have a good day…
It’s 6:15 in Baltimore and I am off to work.
http://gmomj.wordpress.com/2010/08/02/sisterstheres-a-new-aviary-problem-canarial-diseasecherpes-dont-worry-its-tweetable-waving-flag/
28.
StageISSet | August 5, 2010 at 7:03 am
A complete rip off they r….sick
BTW nice post
29.
cegrundler | August 5, 2010 at 10:01 am
There are numerous elements that have led to this point, many of which have already been covered in previous comments. I agree, the big box stores have all but wiped out the mom and pops which I why I go out of my way to shop at the corner hardware store over Home Depot and the like. But there is another reason why B&N is struggling and that is the current publishing climate. Publishers these days are only interested in proven big name authors and a rare debut by someone who might get the Oprah seal of approval. I do understand; there’s great time and expense involved in that printed book you see in the store, and everyone from start to finish expects to be paid. This is reflected in the price of new books, and that pricing limits those of us with a budget as to how many we can purchase. For new authors looking to reach readers the traditional doors are nearly impossible to break through, and IF they do, their sales must be exceptional or it is unlikely any of their future books will see distribution… unless they consider the electronic route.
I was on the traditional path. I had an literary agent for my novel. I even had a publisher on the verge of sending over that coveted contract… that is, until the economy went into a tailspin and the publisher cut jobs and put the brakes on all new acquisitions. Looking back I’m glad I dodged that bullet or my book would have been orphaned, the property of the publisher but unlikely to move forward for years if ever. To put it simply, that would have sucked. The quest to find another publisher turned out much the same and finally my agent and I parted ways. And in the end, after much research and debate, I chose to jump into the e-pool. Within days readers have been finding my book, reading samples and choosing to buy. My sales continue to rise. Through Amazon I can sell my book for less than a traditional publisher yet receive higher royalties. Yes, it is true that without the traditional gate-keepers of the publishing world, agents and editors, there will be many less than stellar books available, but readers can reader samples and check reviews before buying. And ever since Amazon made free Kindle aps available for multiple platforms, it’s no longer necessary to own a Kindle just to access their ebooks.
The geography of publishing is changing. And while I still enjoy my paperbacks, most purchased at the local used book store, my Kindle allows me to afford to read new authors who like me, commercial publishing has passed over. I predict the time will come when agents and publishers will no longer be swamped by authors hoping to be published, and those authors who build sales and a fan base through e-word of mouth, will have no need or desire to seek out those agents and publishers.
C.E. Grundler
http://cegrundler.com
http://cegrundler.wordpress.com
30.
NeillO | August 5, 2010 at 10:35 am
Well considered post…
If memory serves B&N made their bones as a remainder clearing house in the 70′s and grew from there. I wonder who will pick up the left over inventory they leave behind? Maybe they will reinvent themselves and not reduce the number of locations but instead reduce their size. As such keeping much smaller quantities of inventory on hand, a coffee shop and kiosks for ordering the books browsed (either directly to your reader or hard copy via the mail).
31.
cheneetot08 | August 5, 2010 at 12:44 pm
Sure looks like a wonderful place to get away and release some stress. Mind if I ask where was this picture taken?
32.
sarahnsh | August 6, 2010 at 12:34 am
I must say that I’ve fallen into Amazon.com’s spell when it comes to buying books. I just really like the availability of it, how cheap I can get the books, and even added up with shipping its still not as much as Borders or Barnes and Noble.
Personally, I am a Borders girl, but I know both of them are struggling. I wish it wasn’t true, because like you I like to browse books at a store and I think it’s important to still have book stores so you have a way to meet the author and just seeing the books on the shelves and browsing can be nicer than online.
33.
Scott Berry | August 6, 2010 at 11:23 am
Wow! Thanks for all the comments. Being Freshly Pressed sure has been fun. Way too many good points for me to answer individually, but here are some random thoughts:
I don’t think all stores are on their way out–not even bookstores. But the economics have to rationalize somehow. The right business model might be Goldilocks: not too many stores, but not too few either. Of course, the more digital the product, or the cheaper to store and ship, the fewer stores there will be. Anybody remember browsing a record store?
What is replacing the act of finding an untried author while browsing bookstores? Recommendation engines.
What will replace brick-and-mortar shopping time? We’re already living it. Facebook, online games, social media, blogging, twitter, etc.
On the other hand, if you have time to read books, you have time to browse a bookstore. Any other conclusion just seems silly to me.
Regular readers will know I’m not that big on electronic books and the Kindle. I don’t think they (yet) hit a large enough part of the market, though perhaps they’ll one day become useful enough to do so. Too many people like the feel of holding a book and very few need to carry multiple books at the same time.
That said, I agree that electronic publishing is and will be good for the independent author. However, I had also hoped print-on-demand technologies would take up some of that slack. Imagine enjoying a cuppa Joe at the local bookseller while your very-limited-run book prints/binds for you?
For those who asked, the photo is of Berry Hill Mansion, an historic home in Kentucky. I sure wish I was the Berry in question, but in any case iit did have my name, so I thought it was appropriate to appropriate it. So to speak.
Oh, and @Gates… I’m buying Pajama and Underwear futures. Thanks for the smile!
Have a great weekend everyone.
34.
Dave | August 9, 2010 at 5:06 am
That’s what happens when you ignore technology trends and cling to old business models!
–
Trindaz on fedang
35.
Lindea | August 11, 2010 at 5:00 pm
Oh no, my worst nightmare would be if the bookstores disappeared.
Do you know where that pic of Barnes and Noble is taken?
36.
Scott Berry | August 11, 2010 at 6:46 pm
Nope, sorry, don’t know where that particular B&N is.