Barnes & Noble and it’s eReader The Nook is losing money by the minute, primarily because of it’s business model — trying to disrupt and compete with Amazon. Borders tried the same thing and you see where they are. But guess what? Independent bookstores cannot and evidently are not trying to beat the Amazon monster and it’s working. I guess print isn’t quite dead yet!
The recent news of the opening of an independent bookstore on Manhattan’s Upper West Side was greeted with surprise and delight, since a neighborhood once flush with such stores had become a retail book desert. The opening coincides with the relocation of the Bank Street Bookstore near Columbia University, leading the New York Times to declare, “Print is not dead yet — at least not on the Upper West Side.”
Only a few years ago, observers projected that the rise of chain stores and Amazon would lead to the vast shrinkage of independent bookstores. According to the American Booksellers Association, the number of member independent bookstores has increased more than 20 percent since the depths of the recession, from 1,651 in 2009 to 2,094 in 2014. Meanwhile, Borders went bankrupt in 2011, and the fate of Barnes & Noble, which failed to make the Nook into a viable e-reader competitor with Amazon’s Kindle, appears murky. What happened?
The short answer is that by listing their shares as public companies, both Borders and Barnes & Noble were drawn into a negative vortex that destroyed the former and has crippled the latter. Not only did they become public companies, but they positioned themselves as high-growth companies, focused on innovation and disruption. That forced them to compete with the growth company par excellence in their space: Amazon. It also forced them to pursue high sales volume at the expense of inventories. Those strategies, as it turned out, were precisely wrong for the actual business they were in: selling books to a selective audience. Which is precisely what independent bookstores are good at.
Barnes & Noble, Borders, Books-A-Million, and even Costco looked to be squeezing the life out of indies in the 1990s and into the aughts. Borders alone went from 21 stores in 1992 to 256 superstores in 1999. Barnes & Noble saw even greater growth. Those stores offered more choices, cafes, magazines, and for a while, music. Many independents, already operating with razor-thin margins, couldn’t compete. Between 2000 and 2007, some 1,000 independent bookstores closed.
But even as they were expanding, the chains were beset by questionable management decisions pressured by the demands of public markets to grow, grow, grow. Facing the need for expensive investment in technology, Borders sold its online distribution to Amazon in 2001 and threw its efforts into more stores and bigger stores, using its share price to finance massive debt. Barnes & Noble opened more superstores as well, but it also decided to challenge Amazon by developing the Nook at a cost of more than $1 billion.
The results were disastrous. Barnes & Noble bled money; it just announced earnings with yet another quarter of losses and declining revenue. Amazon dominated because it could spend far more money on technology than the chains, and because its core competency was in the disruptive technologies of e-readers, distribution, and inventory management. Amazon was never seen primarily as a retailer, and hence it could carry massive inventories that were a drag on its earnings and then spend billions on research and development because investors accepted Amazon’s narrative that it was a disruptive technology company redefining how everything is sold, not just books.