NEW YORK (
) -- Is
Barnes & Noble
? That's the analogy being made after the
It's easy to see why investors fear Barnes & Noble will imitate the same doomed fate as Blockbuster. Both of their paths to dominance have become iconic stories of business in the 1990s.
in fact dates all the way back to 1873, it wasn't until the early 1990s that the company rolled out its superstores in earnest. In 1989 Barnes & Noble had just 23 of these superstores in its portfolio, but by 1992 the number had more than quadrupled to 105 locations. In just one day in August 1992, the company opened five superstores, and three months later launched three more.
Around the same time, Blockbuster was rolling out new stores at a rate of about one per day.
Along with this monstrous growth, of course, came scorn from those who feared that these two juggernauts would ultimately result in the death of mom and pop shops across America. (And, it should be noted, for the most part they did).
But, of course, such growth is nearly impossible to sustain, especially when coupled with an evolving retail landscape.
By the end of the '90s the manner in which Americans consumed movies had begun to shift -- but instead of leading this revolution, Blockbuster sat around chasing its tail. First,
rolled out its DVD-by-mail format in 1999. Granted, the technology was iffy and acceptance of this new medium was gradual, but it wasn't until 2004 that Blockbuster introduced its own online DVD rental service.
Then in 2004,
introduced its DVD kiosks. This time it took Blockbuster half a decade to adopt a similar program, partnering only with
in 2009 and installing Blockbuster Express kiosks.
Blockbuster once again missed the boat when Netflix started streaming movies in 2008.
As a result, Blockbuster has become increasingly irrelevant, and now finds itself suffocating under $1 billion in debt. It's
due to make its next payment on Friday
, and if that fails to satisfy creditors, could be forced to file bankruptcy.
Blockbuster hasn't been the only casualty of the digital revolution, with
liquidating its assets this spring. And now it appears that Barnes & Noble could be following a similar trajectory.
As with the movie industry, the book sector has been hit by a barrage of game-changing technology, namely the e-reader.
pioneered electronic reading when it launched its Kindle in 2007. It took Barnes & Noble two years to roll out its own e-bookstore -- and it didn't unveil its Nook e-reader until October 2009.
Now Barnes & Noble is struggling to play catch-up. According to Codex Group, a consultant to the publishing industry, Amazon has sold nearly 2 million Kindles as of mid-June, compared to 600,000 Nooks. Amazon also announced last month that Kindle sales tripled in the second quarter and that e-book sales now outnumber hardcover books. It also claimed responsibility for eight out of every 10 e-books sold.
For investors, the similarities between Barnes & Noble and Blockbuster have been enough to drive the stock down 21% this year. But before you go writing Barnes & Noble's obituary (and no doubt re-reading it on your e-reader) consider the many ways in which the bookseller and the movie-renter differ.
Indeed, Barnes & Noble may have already taken a step in the right direction by considering the sale of the company. If taken private, the company could buy the opportunity to reassess its store base, close underperforming locations and beef up its e-reader to better compete with Amazon and
Blockbuster's internal operations have also been more pressured than Barnes & Noble's, ever since the movie-renter broke off from
in 2004. Blockbuster only managed to shed its last letter of credit with Viacom at the beginning of the year. Barnes & Noble is not being weighed down by such issues.
And while the book industry is viewed by some as a mirror image of the movie industry, that mirror is more of a funhouse mirror, with the reflection is a bit off kilter. For one, the speed at which movie consumers migrated to digital movie downloads and streaming content appears to be significantly faster than readers' acceptance of electronic books.
"People are not going to stop reading; illustrated books do not lend themselves to digital adoption; books will continue to be bought for gifts; and none of the technologically-oriented e-book competitors has Barnes & Noble's store base to enable customer interaction and a multiple platform means of reaching them," Margaret A. Gilliam, president of the research firm bearing her name. "Accordingly, we do not expect the book business to go the way of the recorded music and DVD businesses."
For his part, Morningstar analyst Peter Wahlstrom predicts that consumers won't stop purchasing physical books in the near future, and doesn't expect the 20% to 30% dropoff in the next five years that others are forecasting. "The physical book selling business is very competitive, but we don't foresee the dramatic closing of stores at Barnes & Noble," Wahlstrom says. "There is still a need for its retail footprint. The stores are a cash-flow cow, and Barnes & Noble can use the cash from the stores to invest in digital."
"Investors gravitated toward the digital aspect of the book industry because that is the buzz right now," Wahlstrom continues. "But the underlying business still has a long tail."
All of which offers an opportunity for investors to take a second look at Barnes & Noble -- as the ending to that story hasn't been written yet.
-- Reported by Jeanine Poggi in New York.