Borders Bookstore's Demise Seen As Small Boost To Barnes & Noble

NEW YORK (Phil Wahba) - Bookstore chain Barnes & Noble Inc (BKS.N) will eventually feel a modest boost from the liquidation of its largest rival, Borders Group Inc, but still faces stiff competition and an industrywide decline in book sales, Wall Street analysts said.

Borders (BGPIQ.PK) said on Monday it would close out its 399 remaining stores by September after failing to find a buyer willing to keep it in business. [ID:nN1E76H1LQ]

Barnes & Noble, which operates 717 superstores, will struggle during its rival's going-out-of-business sales, and then benefit as it wins former Borders shoppers, according to analysts.

But Barnes & Noble's real growth will come from its popular Nook e-reader and increasing sales of e-books.

"Barnes & Noble is not grabbing a larger slice of a growing pie," Morningstar analyst Pete Wahlstrom told Reuters on Tuesday. "It would be more compelling news if the bookselling industry had found a point of stabilization."

According to a Goldman Sachs study last year, Amazon.com's (AMZN.O) sales of physical books last year, as opposed to e-books, surpassed those of Barnes & Noble. Amazon is the top seller of digital books.

Barnes & Noble shares were up 3 percent at $17.75 on Tuesday morning.

Barnes & Noble, which put itself up for sale last year, is currently assessing a $1 billion, or $17 per share, bid by John Malone's Liberty Media Corp. (LINTA.O)

Wahlstrom said the effect of Borders' bankruptcy on Barnes & Noble's attractiveness as a buyout target was "nominal."

Same-store sales at Borders had been suffering double-digit percentage declines for years. Overall sales fell from $3.4 billion in the year ended February 2007 to $2.3 billion last year. Barnes & Noble has fared better, with more modest declines in comparable sales.

Still, Barclays analyst Alan Rifkin said in a note to clients on Tuesday that Barnes & Noble could grab between 10 and 15 percent of Borders' 2010 sales, which would lift Barnes & Noble's revenue as much as 4.5 percent.

Yet the benefit could be short-lived, Rifkin warned, "given the significant shift from brick & mortar to E-readers."

Last week, Janney Capital Markets analyst David Strasser said the next round of store closings by Borders, to occur in more desirable locations, will hurt Barnes & Noble more than the previous Borders shutdowns, since more shoppers will be lured away from B&N for the closing sales.

A possible benefit to Barnes & Noble could occur if it moves into attractive locations vacated by Borders, though Morningstar's Wahlstrom said this would happen only in a handful of locations.

(Editing by Matthew Lewis)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[Michelle OCallaghan]

05:07 AM on 07/24/2011

When Borders first announced they were closing some stores, in February; I did some research. It seems that 45% of all book sales in the USA are made at major chain stores that are NOT bookstores, such as Costco, Walmart, Target, and chain grocery stores, like Kroger. They either have better prices, or they are more convenient, since you have to shop there anyway, for other stuff. 25% of book purchases are made at book stores. 25% are purchased online, as physical books. The remaining 5% are ebooks, such as Kindle, Nook, PDF, etc, or audiobooks, or physical books that are purchased from book clubs or mail order cataogs. The success of Kindle books didn't make the cut, it just made the cut deeper. The economy didn't do it either. The big book stores need to find a way to compete with the big (and cheaper) everything stores.

[NVEnvy07]

06:55 AM on 07/21/2011

I wonder what will happen with the Kobo E reader..

[oftenon]

03:32 PM on 07/20/2011

I've quizzed too many happy e-book converts -- talking serious bookish folks -- to not think pulp and ink is in a death spiral.

[blueken]

11:35 AM on 07/20/2011

OMG, R U KIDDING? WHO NEDS BOKS? DUH, LOL. Someone please shoot me.

[born 2b different]

12:38 PM on 07/20/2011

2 smrt 4 skool

[blueken]

01:43 PM on 07/20/2011

Word that, brother from a different mother.

[Sundialsvc4]

09:35 AM on 07/20/2011

Don't look for Barnes & Noble to be very far behind them.

If you want a book, you will go to exactly one place in the world to buy one: Amazon.

Why? Because it pays no sales taxes. Thus, it instantly has a 10%-or-more price advantage over any and every "brick and mortar" store.

The tradeoff, of course, will be that there will now be no place to go to slurp coffee while browsing the book and scanning the bar-code on the back to automatically add the book to your Amazon shopping-cart... which there are now several "apps" available to do. I have watched it dozens of times. The level of the coffee cup goes down and down, and, when it is nearly done, the book is turned over and the little phone comes out. "Bleep!!" The book goes back onto the 'library' shelf.

[Sethj8888]

11:06 AM on 07/20/2011

Well thanks Jeff Bezos!

Here's the thing though. Can you browse any book you want at Amazon? When you order from Amazon, can you read the book that exact same night? Can you scan an entire genre or section at Amazon?

I don't think so.

[colgan]

01:01 PM on 07/20/2011

Umm I live in NY and have to pay sales tax.
I prefer ordering from BN. As a member, no matter how much or little I spend there is free shipping.

[Howard53545]

05:56 AM on 07/20/2011

Its all over for Borders. They will even close their very first store in Ann Arbor Michigan, but they all are rich now.

[robinhood1]

05:39 PM on 07/19/2011

I am wondering how long Barnes and Noble will last. Generally, Amazon's prices are very competitive and that is before the Internet sales tax exemption issue.

[threnodymarch]

03:30 PM on 07/19/2011

I find it interesting that Books-A-Million, a well-known book retailer in the South and up along the East Coast which has megastores and also sells the Nook, is not even in the conversation. In all of the articles I've read about the closing of Borders, nothing about BAM has come up. They were in third place behind Borders, so I thought they would be getting more press than they actually have. To me it just shows just how ingrained the recycling of the Borders vs. Barnes and Noble narrative is in the mainstream media.

[Sundialsvc4]

09:39 AM on 07/20/2011

Living on borrowed time, I assure you. BAM is part of the Anderson Media conglomerate, which sells magazines at convenience stores. (Which is why so much of BAM's floor space has always been devoted to magazines. Even in the earliest days of that company, books were stacked in boxes on tables and the magazines were carefully arranged.) As long as there are 7-11 stores in out of the way places, Mr. Anderson will continue to take his quarterly dividend.

Nevertheless: it is impossible to defeat a price differential caused by a tax-free competitor when you pay not only sales taxes but property taxes as well.

[Sethj8888]

11:16 AM on 07/20/2011

You act like Amazon JUST appeared on the scene. Truth is, they're been around since 1995 and so Borders and B&N co-existed with them for 15 years. If not for the Great Recession, Borders might still be around.

Also you forget about phenomenons like the Harry Potter and Twilight books. Amazon can't put those books in the hands of fans at a midnight sale can they? I've also never seen an author speaking or signing at Amazon.

[Eagleman]

03:12 PM on 07/19/2011

It's ok

Most of the new generation American are dumb and illiterate anyway....

[blueken]

11:36 AM on 07/20/2011

4 sur

[Quark50]

05:35 PM on 07/19/2011

Really relevant.

[Sundialsvc4]

09:40 AM on 07/20/2011

Uh huh. Can't wait to get out my credit card, as soon as I reach the age of eleven. Where are the moderators this fine morning?

[Philip F Harris]

01:57 PM on 07/19/2011

At All Things That Matter Press we have focused almost solely on internet sales and avoided brick and mortar stores. There has always been this author mind set that they knew they 'made it' if they were on a store bookshelf. But the shelves are rapidly dwindling. Independent presses would be wise to shift their focus and perhaps even tale the lead in on line sales. Our hearts go out to the workers at Borders and hope they, like many others, find employment!

[democrats for life]

01:34 PM on 07/19/2011

ask the 11,000 employees who got laid off who benefits the most

[Mister Grumpy]

01:12 PM on 07/19/2011

Say hello to another 11K people on the unemployment roles........... that is until the Republicans gut the benefit......... afterall they don't see a problem with people going hungry...... they think they were overweight anyway.............

[blueken]

11:37 AM on 07/20/2011

Much as I hate to admit it technology is not a Republican plot. Now doing away with social safety nets, that is a Republican plot.

[born 2b different]

12:59 PM on 07/20/2011

x2

[colgan]

12:56 PM on 07/19/2011

Attn BN in West Knoxville, TN. How about moving up the street from your small location to the vacating Borders on Morrell Rd? Larger and a very nice building. Great location right across from West Town Mall. Think about it.....

[hypnotoad72]

12:52 PM on 07/19/2011

Not for long.  B&N too will crumble to the same external influences, such as amazon.com.

I wonder what will upend amazon...  the only greater influence would be a new store that can do it better, no more middle class to keep spending, or global economy collapse.  The way the downward spiral is going,  option 2 or 3 is more likely what's going to happen.  One can't be creative on command, but what we value and how it is valued CAN.