Tuesday, February 15, 2011

Why Barnes & Noble shouldn't be happy about the bankruptcy of Borders? (hint: Waterstone's)

The Wall Street Journal reported yesterday that Borders is expected to file for Chapter 11 within days. Some might see it as good news to Barnes & Noble, which we'll be able to increase their market share, but we also see here some important lessons that actually should make B&N worried more than happy.

The upcoming bankruptcy will mean more business for B&N at least in the short term. According to the article, Gary Balter, an analyst at Credit Suisse estimates that B&N could add more than $1 billion in sales if Borders is eventually forced out of business.

Sounds great, right? But the article also includes an history lesson that could be worth even more to B&N, if they get it right.

The article mentions that "Borders already has had some experience: Its U.K. stores were liquidated in 2009 by their owner at the time, Valco Capital Partners, part of U.S.-based firm Hilco Trading LLC. Those stores had approximately 4% of the U.K. market."

What happened then? Philip Downer, the former Borders U.K. chief executive, estimates that half of that market share was redistributed to such retailers as Amazon and HMV Group PLC's bookstore chain Waterstone's. According to the article, HMV Group said last June it expected Borders's U.K. exit to improve Waterstones's net margins by 3% to 4% in the long term. The company said it had seen improvement in the performance of Waterstones following the exit of Borders.

So far so good, but the article is revealing that last month HMV Group said it would close 20 Waterstones stores (TheBookSeller reported last week that 11 Waterstone's stores will close by the end of this week) following a disappointing holiday season. According to the WSJ, the money-losing bookstore chain, the largest in the U.K., has become the subject of takeover speculation.

Waterstone's and B&N are not the same, but the lesson of Waterstone's is still too important to be ignored - even if a book chain might benefit in the short-term from the bankruptcy of a competing book chain, there's no guarantee it won't face the same destiny in the near future, especially when it deals with the same risks and threats on its traditional business model.

Author Seth Goldin is quoted in the WSJ article saying that "what's unfolding now is the penultimate step in the demise of bookstores in general. That means what will be published in the future will have less to do with what bookstores carry and more to do with what readers tell each other about new books." Borders learned it, Waterstone's is learning it and there's a very good chance B&N will learn it very soon, unless they start working fast on a strategy that will transform their brick and mortar stores back into assets.

You can find more resources on the future of bookstores on our website at www.ecolibris.net/bookstores_future.asp

Raz @ Eco-Libris

Eco-Libris: Working to green the book industry!

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