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THE NEXT CHAPTER BOOK RETAILERS SAY THEY AREN’T SHRINKING from the E-BOOK CHALLENGE by Steve Mclinden

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THE NEXT CHAPTER BOOK RETAILERS SAY THEY AREN’T SHRINKING from the E-BOOK CHALLENGE by Steve Mclinden AUGUST 2010 www.icsc.org THE NEXT CHAPTER BOOK RETAILERS SAY THEY AREN’T SHRINKING FROM THE E-BOOK CHALLENGE By Steve McLinden O, BOOKSTORES ARE hardly doomed to extinction. And no, the writing is decidedly not on the wall for the likes of Barnes & Noble, Books-A-Million or Borders, though the writing may have gotten downloaded onto an e-book reader. Counterintuitive or doubtful as this view of book superstore continuity might seem to some, it does, in fact, have its true believers. Indeed, say these, bookstores are far from writing their final chapter; instead, they will be penning a new series of dynamic sequels, if they can manage to meet an array of operational and real estate challenges. N “We see a lot of similarities in what’s Target Corp. announced in June that it will Barnes & Noble slashed the price on the Nook happening to big-box bookstores with the e- carry Kindles in all its U.S. stores, becoming to $199 from about $260; Amazon parried reader and what happened to the video-store the first brick-and-mortar store to do so, after and counter-slashed—taking the Kindle down industry with Netflix and on-demand,” said a 100-store test proved overwhelmingly to $189 from roughly the same base price. Joe Brady, a former Hollywood Video execu- positive. Target’s Kindle price is roughly the This e-reader dynamism combined with tive and now managing director of corporate same as that of the Barnes & Noble e-reader, relentless pressure from online sales means retail solutions at Jones Lang LaSalle. “If you the Nook. “No doubt that announcement book chains should waste no time on self- are a landlord and have Barnes & Noble or a sent another shock wave to the superstores,” reinvention, observers say. “You have to evolve,” Borders, you are going to see an adaptive reuse Brady said. said Howard Davidowitz, head of Davidowitz of these spaces at some point, I believe.” As with other e-readers, the Nook & Associates, a New York City retail consul- Amazon’s Kindle, Apple’s iPad and the enjoyed dramatic sales after its October 2009 tant firm. “Sam Walton evolved from three Sony E-Reader have made no little dent in introduction, about 60,000 in the last quarter Ben Franklin stores to build his empire. Kmart the physical book chains’ sales. About 2.5 of 2009, despite some early glitches. Barnes & went from Kresge’s to 800 [Kmart] stores. million Kindles have been sold thus far; in Noble has positioned its Nook displays just Target got rid of their Dayton Hudson depart- the first two months following the April 3 inside the entrance at many of its stores. ment stores and reallocated their assets over a debut of Apple’s iPad, some 2 million of The Kobo eReader showcases Borders e- period of years and became a $65 billion com- those were sold, and analysts project that at books store, and Borders CEO Mike Edwards pany. Reinventing yourself is never easy. But least 4 million iPads will sell by year-end. “E- has said the Kobo is the first of as many as 10 you either evolve or you die.” readers are now mainstream,” Brady said. readers the company will soon begin selling. Neither Barnes & Noble nor Borders “They haven’t gone into commodity mode At $149, the Kobo reader may be cheap rela- is raising the white flag. Barnes & Noble yet, but their pricing, quality, connectivity tive to the others for now, but there is a price offers over 1 million titles through its B&N and services will only improve.” war under way, so that could change. In June eBookstore, including many free ones; on the eBooks site, Borders carries just as many titles And bookstore chains still account for 27 shareholder and its chairman could be viewed as its rival. The iPad has an e-book application percent of the book market, versus online as a vote of confidence in that chain’s viability, called the B&N eReader, which connects to purchases, with 20 percent, according to Friedman says. “With the proper management, Barnes & Noble’s e-book site. PubTrack, Bowker’s bibliographic informa- he feels he can stabilize the bottom line.” Much like Blockbuster’s online response tion service. Brady cites a number of other influences to rival Netflix, bookstore chains can compete Brady argues that time may be running out on brick-and-mortar booksellers. “From a successfully with Amazon on content, says for many of the bookstores measuring 20,000 demographics perspective, the wave of 85 Brady, although their universe of titles will still to 40,000 square feet. And if these stores do million millennials has grown up with a sense be very similar to one another. This challenges shrink in size—or worse: if they move out of of entitlement. They want instant gratification, them to come up with points of difference to their current locations entirely—landlords and the e-reader provides that.” Yes, that it keep consumers coming, he says. may have quite a time finding any single ten- does, and how: Consumers download a book Book chains are offering dozens of ant to replace them; the spaces would probably to an iPad in seconds, as compared to the time preloaded books free with the purchase of be broken up and given to 5,000-to-10,000- it takes to drive to the mall, pick up that same an e-reader, plus thousands more out-of- square-foot substitutes, he says. book and drive back, Brady says. copyright titles, also gratis. Borders and Barnes Others deny that. It is far too early to sound The social element of the bookstore coffee & Noble also offer in-store promotions to their the death knell for physical bookstores, they shop and reading areas, however, will endure, e-reader-toting customers. Those who bring counter. The problem is operational rather as will airport book outlets, college bookstores, their Nook into a Barnes & Noble get freebies than being attributable to e-readers or the like, half-price bookstores and other niche sellers, through the More in Store program, including says Ivan Friedman, president and CEO of New Brady says. But the future of the superstores exclusive stories, articles and essays. York City–based RCS Real Estate Advisors. is more dependent on how the chains decide Barnes & Noble and Borders, both of which “They have some challenges, but nothing major to evolve based on “logical and meaningful report sales declines at superstores over the is going to happen in the next 24 to 36 months,” connections with the consumer, and especially past year, have been scaling back their smaller- Friedman said. Barnes & Noble, in particular, the millennials,” he said. format concepts. Barnes & Noble, which is quick on its feet, he says. “They have to rein- In any event, the bound, paper-page book operates 720 superstores nationwide, closed all vent themselves to some degree, and they have has enjoyed a 500-year run thus far and is but two of the 50 B. Dalton mall stores it still the capital to do that, as they have done many highly unlikely to disappear within the next held in January, having already closed about times before,” he said. “I don’t see any wholesale generation or two, Brady says. But technol- 40 of them per year. That same month Borders, closures there.” ogy has always meant change, evolution and which has about 500 U.S. superstores, closed Indeed, Barnes & Noble’s new CEO, adaptation, of course, and the realities in the 200 mall-based Waldenbooks stores, keeping William Lynch, may be just the executive to industry today are simply early manifestations just 130. steer the chain through these waters; he was of that. “If you were in the buggy-whips busi- Certainly, not all the decrease in physical- president of the Web site division, and he has ness in the early 1900s, it didn’t matter if you book sales is attributable to e-readers. The an extensive background with HSN.com, Gifts. were the leaders,” Brady sagely quipped. “Time personal computer is still the preferred e- com and other online sales channels. and technology march on.” book-reading device, according to media/ A $25 million cash infusion that made publishing analysis firm Simba Information. investor Bennett LeBow Borders’ largest .
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