May 22, 2008
Barnes & Noble May Make Borders Bid
A report in The Wall Street Journal (WSJ) has moved into “big if” territory with the revelation that Barnes & Noble, the nation’s largest operator of book stores, is looking into the possibility of acquiring Borders, the number two book store chain.
There are two “big ifs” surrounding this story should the WSJ report be right. Number one is whether any deal between the two chains would pass scrutiny by federal antitrust authorities. Number two, assuming the deal is blessed by the Federal Trade Commission (FTC), is whether it makes sense for Barnes & Noble to pursue it.
“Big if” scenario number one questions whether the combination of the two chains would face a FTC challenge. According to Albert Greco, a professor at the Fordham Graduate School of Business, Barnes & Noble has between a 20 and 22 percent share of the U.S. retail book market while Borders’s share is pegged at between 10 and 12 percent.
Would a single business with a share of 30 to 34 percent be in a position to curtail competition in the marketplace? Would Amazon with a 15-point share, for example, now be unable to compete with the combined entity?
Scenario number two, whether the deal makes sense for Barnes & Noble, is a bit trickier. Borders, which put itself up for sale in March, is clearly struggling and has indicated it may face some liquidity issues. That being the case, the business would probably come cheap but it would also need to be turned around.
The WSJ report appears to come down in favor of a deal. It says, outright, “A purchase of Borders would give Barnes & Noble a chance to significantly boost revenue and profit.” The biggest downsides appear to be the proximity of some Borders’ locations to Barnes & Noble stores and some problematic leases.
Discussion Questions: Does it make sense for Barnes & Noble to acquire Borders? Would such a deal receive approval from antitrust regulators? If the deal were to happen, what would Barnes & Noble need to do to make its newly expanded business a success?
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If Borders went into Chapter 11, they could get rid of bad locations more easily. Of course, it might be easier for Barnes & Noble to buy the good Borders assets that way. One (far-fetched?) reason for Barnes & Noble to buy Borders: it prevents Borders from becoming part of Amazon.
Most analysts who look at Barnes & Noble’s market share only discuss the public company’s volume. There’s another company, Barnes & Noble College Bookstores, which has locations at 600 colleges serving 4 million students. That company is privately held by the chairman of the public company, Len Riggio.
In 1999, Barnes & Noble tried to buy Ingram Book, a large wholesaler, and was prevented from doing so after a huge outcry by authors and publishers. It’s likely that any attempt by Barnes & Noble to buy Borders will again result in another huge outcry.
I’m not sure how this makes any sense for Barnes & Noble, other than the fact that they can get rid of a competitor. Barnes & Noble tends to open stores in the vicinity of Borders, so if they were to take over the Borders chain, they would have duplicate stores within the same 5 -10 mile radius. How can this possibly make any sense?
Add to this the fact that the two stores have the same exact product, from the same exact manufacturer (publisher), for the same exact price. Why would Barnes and Noble need to purchase Borders? You have to believe that ego might be playing a role in this potential transaction.
Barnes & Noble should allow Borders to sink on its own, and not try and add cement shoes to the drowning victim. The end of Borders will most likely happen soon enough on its own.
Ah, good news because less competition is better. Actually there are such little differences between Barnes & Noble, and Borders, that it wouldn’t be noticeable if one bought out the other. In fact, just this morning, I went in to a Barnes & Noble, or perhaps was it a Borders (?) But in any case, my wife and I enjoyed a latte together and we both picked up some books and magazines, and went off to work. Maybe it was a Borders & Noble? I dunno.
Why would there be anti-trust issues? Last I checked, there were lots of other retailers selling books. With a potential market share of around 30%, would that really do much to the market? After all, I’m willing to bet the if the buyout occurs, they won’t reduce the retail price of their books anyway.
Off the top, I would suggest that they try to make a deal, then close all the unprofitable locations, and keep the rest under B&N banner.
Eliminating your competition is always a good thing. Whether or not this merger would be approved by antitrust regulators is anybody’s guess. To make this merger a success, B&N would need a strong acquisition/merger strategy and to execute that plan to perfection. There is duplication in many areas that would reduce cost. B&N needs to do an end to end analysis of the best processes on both sides to develop a superior operating procedure from each and build a book selling giant.
Some day, one big company will sell everything.
Of course I’m exaggerating, but really, these big companies put all the smaller companies out of business and then in turn they get conglomerated up themselves. Who will be left standing?
I don’t know what the answer is, but metrics and pleasing Wall Street and being the biggest and number one is a hard road that never ends–good service is the goal (talked about but not seen) but, unfortunately, a lot of these companies fuel their growth by increasing their size. Less and less competition these days.
Books aren’t widgets. I know most retail analysts cheer the elimination of competition but one less chain means one less set of buyers and readers making decisions as to what the public sees. Both chains now skip a lot of titles, and each one means an author has less chance of exposure.
But when they get behind a book, as B&N has with their B&N Recommends program, it makes a difference for that book (and their picks are generally quite good indeed). And Borders is surely responsible for the national breakout of “Those Who Save Us,” a wonderful and worthy older novel by Jenna Blum.
Would it help my indie bookstore business if the Borders locations closed? Probably, unless this consolidation led to more B&N Exclusives. But would it help the industry? Absolutely not.
This acquisition only makes sense if they can rationalize operations and increase their Internet sales. With Amazon garnering approximately 15% of the market, a merged Barnes & Noble/Borders would have to increase same-store sales and its Internet presence.
I would agree with Joel. It’s hard to see what Borders offers the consumer that B&N frankly doesn’t do better. They overlap in so many markets that it’s hard to see this as a cost-effective effort to buy into untapped markets (although I can’t say I know enough about Border’s real estate to know whether it might make sense as a real estate play). It would just seem to make more sense to let Borders disappear on its own.
“2 + 2 = 3” seems to be the theme this week (see FAO/Macy’s).
Curiously, no one has commented that this would be a merger in an industry that is–supposedly–about to disappear (or something along those lines) and while I think the obituary is premature, I can’t see this as being of much value to anyone (other than the bankers and lawyers, of course).
The competitive landscape is internet versus bricks and mortar. This acquisition secures the home front while B&N prepares for the larger battle.
Borders carries more SKUs of specialty books, while Barnes & Noble carries a more limited selection of specialty books for art, architecture, design, or other specialty fields. Barnes & Noble also carries more “house” books…books published generically by Barnes and Noble, while Borders carries mostly 3rd party books.
Borders also offers better coupons and a no fee “Rewards” card.
Those are 2 big perks that will be very disappointing if Barnes & Noble takes over Borders.
Consumers are getting less and less choices, which makes for a bland shopping experience.
Now where is Schuler Books and Music in Grand Rapids, Michigan going to buy their books from? They call themselves the world’s largest independent bookstore, yet they buy all of their books and systems from Borders Book and Music. This should be an interesting development!
This is an opportunity for these two chains to merge and get better traction in a declining marketplace. However, we have to ask if this is simply an action that defies the difficult question of whether this model can continue. Large, library-like bookstores might be market specific, rather than national as online e-books continue their growth and the Internet in general allows us to enjoy full motion video and audio in almost any location. The surging presence of social networking and demand for mobile TV/Internet devices is but a precursor to the inevitable–a sharp decline in need for large bookstores and their brick and mortar presence.
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If Borders went into Chapter 11, they could get rid of bad locations more easily. Of course, it might be easier for Barnes & Noble to buy the good Borders assets that way. One (far-fetched?) reason for Barnes & Noble to buy Borders: it prevents Borders from becoming part of Amazon.
Most analysts who look at Barnes & Noble’s market share only discuss the public company’s volume. There’s another company, Barnes & Noble College Bookstores, which has locations at 600 colleges serving 4 million students. That company is privately held by the chairman of the public company, Len Riggio.
In 1999, Barnes & Noble tried to buy Ingram Book, a large wholesaler, and was prevented from doing so after a huge outcry by authors and publishers. It’s likely that any attempt by Barnes & Noble to buy Borders will again result in another huge outcry.
I’m not sure how this makes any sense for Barnes & Noble, other than the fact that they can get rid of a competitor. Barnes & Noble tends to open stores in the vicinity of Borders, so if they were to take over the Borders chain, they would have duplicate stores within the same 5 -10 mile radius. How can this possibly make any sense?
Add to this the fact that the two stores have the same exact product, from the same exact manufacturer (publisher), for the same exact price. Why would Barnes and Noble need to purchase Borders? You have to believe that ego might be playing a role in this potential transaction.
Barnes & Noble should allow Borders to sink on its own, and not try and add cement shoes to the drowning victim. The end of Borders will most likely happen soon enough on its own.
Ah, good news because less competition is better. Actually there are such little differences between Barnes & Noble, and Borders, that it wouldn’t be noticeable if one bought out the other. In fact, just this morning, I went in to a Barnes & Noble, or perhaps was it a Borders (?) But in any case, my wife and I enjoyed a latte together and we both picked up some books and magazines, and went off to work. Maybe it was a Borders & Noble? I dunno.
Why would there be anti-trust issues? Last I checked, there were lots of other retailers selling books. With a potential market share of around 30%, would that really do much to the market? After all, I’m willing to bet the if the buyout occurs, they won’t reduce the retail price of their books anyway.
Off the top, I would suggest that they try to make a deal, then close all the unprofitable locations, and keep the rest under B&N banner.
Eliminating your competition is always a good thing. Whether or not this merger would be approved by antitrust regulators is anybody’s guess. To make this merger a success, B&N would need a strong acquisition/merger strategy and to execute that plan to perfection. There is duplication in many areas that would reduce cost. B&N needs to do an end to end analysis of the best processes on both sides to develop a superior operating procedure from each and build a book selling giant.
Some day, one big company will sell everything.
Of course I’m exaggerating, but really, these big companies put all the smaller companies out of business and then in turn they get conglomerated up themselves. Who will be left standing?
I don’t know what the answer is, but metrics and pleasing Wall Street and being the biggest and number one is a hard road that never ends–good service is the goal (talked about but not seen) but, unfortunately, a lot of these companies fuel their growth by increasing their size. Less and less competition these days.
Books aren’t widgets. I know most retail analysts cheer the elimination of competition but one less chain means one less set of buyers and readers making decisions as to what the public sees. Both chains now skip a lot of titles, and each one means an author has less chance of exposure.
But when they get behind a book, as B&N has with their B&N Recommends program, it makes a difference for that book (and their picks are generally quite good indeed). And Borders is surely responsible for the national breakout of “Those Who Save Us,” a wonderful and worthy older novel by Jenna Blum.
Would it help my indie bookstore business if the Borders locations closed? Probably, unless this consolidation led to more B&N Exclusives. But would it help the industry? Absolutely not.
This acquisition only makes sense if they can rationalize operations and increase their Internet sales. With Amazon garnering approximately 15% of the market, a merged Barnes & Noble/Borders would have to increase same-store sales and its Internet presence.
I would agree with Joel. It’s hard to see what Borders offers the consumer that B&N frankly doesn’t do better. They overlap in so many markets that it’s hard to see this as a cost-effective effort to buy into untapped markets (although I can’t say I know enough about Border’s real estate to know whether it might make sense as a real estate play). It would just seem to make more sense to let Borders disappear on its own.
“2 + 2 = 3” seems to be the theme this week (see FAO/Macy’s).
Curiously, no one has commented that this would be a merger in an industry that is–supposedly–about to disappear (or something along those lines) and while I think the obituary is premature, I can’t see this as being of much value to anyone (other than the bankers and lawyers, of course).
The competitive landscape is internet versus bricks and mortar. This acquisition secures the home front while B&N prepares for the larger battle.
Borders carries more SKUs of specialty books, while Barnes & Noble carries a more limited selection of specialty books for art, architecture, design, or other specialty fields. Barnes & Noble also carries more “house” books…books published generically by Barnes and Noble, while Borders carries mostly 3rd party books.
Borders also offers better coupons and a no fee “Rewards” card.
Those are 2 big perks that will be very disappointing if Barnes & Noble takes over Borders.
Consumers are getting less and less choices, which makes for a bland shopping experience.
Now where is Schuler Books and Music in Grand Rapids, Michigan going to buy their books from? They call themselves the world’s largest independent bookstore, yet they buy all of their books and systems from Borders Book and Music. This should be an interesting development!
This is an opportunity for these two chains to merge and get better traction in a declining marketplace. However, we have to ask if this is simply an action that defies the difficult question of whether this model can continue. Large, library-like bookstores might be market specific, rather than national as online e-books continue their growth and the Internet in general allows us to enjoy full motion video and audio in almost any location. The surging presence of social networking and demand for mobile TV/Internet devices is but a precursor to the inevitable–a sharp decline in need for large bookstores and their brick and mortar presence.