The biggest book retailer Barnes & Noble is on the block. As the bookstore struggles to compete with cheap Internet pricing models and e-books, it is seeking a buyer to swoop in and save the company. But the question is: who would buy it?
First, you have to wonder what traditional book retailer could survive if Barnes & Noble is struggling. It has all of the advantages of scale. The retailer even began flirting with e-books with its Nook, though the Amazon Kindle and Apple iPad provide fierce competition in that sphere. The company that once put small bookstores out of business through its novelty of scale might fall pretty to other innovations by failing to stay at the cusp of what's next.
In a Reuters article on the news, one analyst comments on the potential sale of Barnes & Noble:
"How do you value an asset for the future when the entire market is being essentially turned upside down?" said Forrester analyst James McQuivey
This captures the key challenge that Barnes & Noble faces. Some assume that digital books are the future, but it's unlikely that paper books will disappear entirely. How does Barnes & Noble strike a balance? In a best-case scenario its business strategy will have to evolve as the market does -- and we don't know where it will end up even in the medium-term.
Moreover, consider the difference between the business strategy of a company like Amazon and Barnes & Noble. Amazon doesn't need pricey retail outlets. That eliminates a huge amount of overhead and labor costs. This was the first problem Barnes & Noble encountered. It responded by trying to develop a healthy online presence, but those costs didn't disappear.
And now there's a new, more serious obstacle: e-books. Amazon saw this coming, and got involved with the young market a little sooner than Barnes & Noble. Think about how different the business models are for e-books versus regular books. A retail store front provides no tangible advantage whatsoever.
The bigger difference, however, is inventory. Traditional bookstore buy thousands of physical copies of books. This includes shipping costs, storage costs, losses on unsold copies they can't send back to the publisher, discounts on hard-to-sell titles, etc. An e-bookstore has none of that. It has no physical inventory, but only needs a software infrastructure and some electronic storage space, which could probably fit in a few rooms.
So not only is it really hard to know how much to pay for a retail bookstore like Barnes & Noble, but it's unclear that it's worth anything at all. Perhaps the company could survive if its retail stores are massively reduced in size and quantity, and its Nook is aggressively marketed. But it would certainly be a risky acquisition, which would likely result in a pretty low price.
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