The Lesson Book for Consumer Electronics

The book retailing industry has certainly changed hasn’t it?

According to the Statistical Abstract of the United States, the number of book retailers in the US declined 26% during the period 2000-2008, the most recent period for which there is published data.  Certainly bad and we intuitively know things have gotten even worse since.  Borders has already or is in the process of closing 200 of their stores with a possible additional 75 closings to follow.  Fully 30% of their total, all a part of what they hope will be a brief and successful stay in bankruptcy.

Good news for Barnes and Noble?  Well, their financial results are better.  Sales up 7% for the quarter ending January 29, 2011 over a year earlier, and profitable if not extraordinarily so ($170 million EBITDA on $2.3 billion revenue), not to mention, they are not in bankruptcy.  And with Borders at the very least hobbled, and way behind in age of eBooks, who’s to say what B&N might be able to do in the future?

Well, as it turns out there are plenty of mostly investment banking types who have much to say with the majority of them questioning the business model of what is still essentially a brick and mortar based business selling a product that is rapidly evolving to digital.  But there is at least one exception.  Liberty Media Corp who has fractional to 100% ownership in a variety of what they see as media businesses, ranging from Sirius/XM radio, Starz cable, Live Nation Entertainment, all the way to the Atlanta Braves.  And more than just think, they’ve acted, offering to buy B&N for approximately $1 billion cash.

So $1 billion for what most others see as this decade’s answer (bookstores) to last decade’s dinosaur (music stores)?  Maybe, but for some not necessarily so.

Robert Routh, executive director of equity research for Phoenix Partners Group summarizes what he believes is Liberty’s strategy as “the Apple store concept applied to all media.”  Traditional books, digital media including printed matter, music, DVDs, Sirius/XM subscriptions and Live Nation concert tickets, all in one place, with that “place” not being limited to brick and mortar or the Internet.

Feasible?  (Before you answer, remember what you probably thought about Amazon a year, two, or even three after they began operation.)  One thing is an almost certainty.  Without significant change to their business model, either initiated from within or by outsiders who buy Barnes and Noble, as Dylan said, “the order is rapidly fadin’, the times, they are a changin’.”  Or in less poetic terms, business as usual won’t be.

So we have a historically large and successful retail segment that grew to be dominated by two giants, one of which is currently in bankruptcy, the other fighting to hold on to diminishing sales and profit.  The rest of this segment’s retailers are small independents (according to small business statistics website Manta, 70% of the 22,000 US bookstores employ 4 people or less with 90% having less than 20 employees.)

That people will continue to read is a given as is the fact that how they read and where and how they buy what they read will radically change.  Those who actively participate in the evolution to the new book selling model will do well while those who don’t . . .

Does any of this remind you of any other previously large and successful retail segment?

William Matthies is the CEO of Coyote Insight (www.coyoteinsight.com) and can be reached at wmatthies@coyoteinsight.com or at 714) 726-2901. Visit Business Wisdom at http://businesswisdom101.blogspot.com/