Is B&N’s Future a Digital One?

Is B&N's Future a Digital One?

Now that Borders has one and a half feet in the grave, all eyes are on what B&N will do now. It seems like opinion is split between believing B&N will be ok and predictions that Borders fall is a precursor to the same fate at B&N. Fortune thinks the answer is simple: Kill off the bookstore business and go all digital.

Specifically, here’s what Fortune thinks:

The road ahead for Barnes & Noble will prove tough. Few brick and mortar companies have successfully negotiated the choppy waters to safe digital harbors. But Barnes & Noble, unlike Borders, has one bright spot going for it. That bright spot, in fact, might one day be Barnes & Noble, period. And that bright spot is, of course, the Nook ereader and ebook business.

“Barnes & Noble didn’t get into this market very early, but when they got into this, they got into this very smart,” says Forrester research analyst James McQuivey about the company’s ereader. “They went in with with both feet, quickly got a device on the market as opposed to picking someone to partner up with like Borders did, and when the firestorm in 2010 hit, they already had their device ready to go. Borders did not.” (Pop quiz: Do you even know the name of the Borders ereader? It’s called the Kobo. And it’s now on clearance for $60 at Borders stores that are liquidating.)

In fact, McQuivey thinks Barnes & Noble has a better than 50% chance of making the switch to digital if it becomes even more aggressive about its Nook hardware, software, ebook and accessory business. And there is room for growth. Based on a Goldman Sachs analyst report, the Nook business is on a hockey-stick growth curve, with sales going from $62 million in 2009 (the year the device launched) to an estimated $1.163 billion for 2012. Meanwhile, the book business — sales at brick and mortar locations — will decrease, according to the same estimates, from $4.37 billion this year to $3.95 billion for the company’s fiscal year 2012.

I can’t say I disagree that B&N needs to lower their physical book exposure. And it’s smart to do it before crushing debt or a drop in book sales forces their hand. On the other hand, B&N is a behemoth of a company. They have 700+ stores, plus their college bookstore business. It’s easy to say “close some stores” but the reality is that it’s not that simple, with real estate concerns, employees being laid off, not to mention giving up having a physical store and that kind of exposure. Yes, ebooks are going to take off big time. And physical book sales may drop off in the next few years. But it’s too early to tell what kind of impact Borders bankruptcy may have on B&N’s sales. Borders was a terribly run company long before ebooks drove the final nail in that coffin. Even without digital pressures, Borders was living on borrowed time. B&N has been and continues to be a stronger brand, and since they’ll be there for all those disenfranchised Borders shoppers, it may end up BOOSTING their retail sales for the time being.

Plus, B&N runs 600+ college bookstores. Textbooks are digitizing at a much slower pace, so there’s a good chance those stores will be sticking around for quite a while. Now is the time for B&N to tie everything together in a neat little bow…maintain the college bookstores, roll out NOOKstudy for the NOOK/NOOKcolor lines, and slowly lower their retail store count. They have an opportunity to train their future book buyers (college students) to use NOOKs, while simultaneously moving their current retail customers over. The cherry on top would be a way to discount either NOOKs or NOOK ebooks for B&N rewards members.

In the end, I mostly agree with Fortune, but I think it’s a slower process. There are so many variables it’s tough to predict for sure. For all we know, Borders could emerge from the ashes and become a major source of competition (ha!). Or, more realistically, ebook sales that have been growing at triple-digit rates could plateau, Borders bankruptcy could temporarily boost B&N’s sales, any number of things could occur. However, it’s lonely at the top, especially when #2 just went down in flames…hopefully, B&N has a plan to stay strong!


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About the Author

Zek has been a gadget fiend for a long time, going back to their first PDA (a Palm M100). They quickly went from researching what PDA to buy to following tech news closely and keeping up with the latest and greatest stuff. They love writing about ebooks because they combine their two favorite activities; reading anything and everything, and talking about fun new tech toys. What could be better?