Call for Barnes & Noble! Call for Barnes & Noble!

I suspect most readers are too young to remember the heady days of tobacco company commercials, especially radio commercials, or even the cigarette brand Philip Morris. It’s print (1940s) and early TV commercials featured a hotel bellhop carrying a tray with a pack of Philip Morris cigarettes on it and bellowing “Call for Philip Morris!” The radio version (also 1940s), popularly heard on programs like The Jack Benny Show, really was well done.

The commercial came to mind as I digested the recent news about Borders Group’s continuing quarterly losses. It was only a week or two ago that Borders wanted to buy Barnes & Noble. But now — if Leonard Riggio is doing any real thinking about the future — might be the opportune time for B&N to buy Borders.

OK, I hear the naysayers screaming that the last thing that B&N needs is Borders’ bricks-and-mortar stores. True, but that is narrow thinking. By buying Borders, which should be available for almost nothing, B&N can accomplish some important things, such as the following:

  • First, it can immediately close all the b&m stores that currently compete with its own brand. This would increase traffic to its own brand for those of us who like to shop at real bookstores rather than virtual bookstores. And it could convert Borders members to B&N members; there is a lot to be said for loyalty programs.
  • Second, it can replace Borders as a partner in Kobo. This strikes me as a good move for B&N because it would rapidly expand B&N’s ebook reach.
  • Third, B&N could become the partner with ebookstores like the Sony ebookstore, which is currently partnered with Borders. Where else could Sony turn? Perhaps to Kobo but if B&N was a significant partner in Kobo, it would still benefit. If you start adding Sony’s and other “independent” ebookstores that are really run by Borders, B&N could suddenly see a significant rise in its share of the ebook marketplace.
  • Fourth, by replacing Borders as a partner with these other “independent’ ebookstores, B&N would be in a position to incentivize these independents to upgrade to the B&N DRM version of ePub, which would expand its marketplace. (Yes, I know it is relatively easy to strip the B&N DRM, but most people don’t/won’t/can’t do it.)
  • Fifth, it would give B&N a further leg up against both the Amazon and Google juggernauts, something it is going to desperately need it the not-too-distant future.
  • Sixth, if B&N were smart, it could cut a deal with Sony to offer the Sony readers as premium readers — for those people who are willing to pay more for higher quality — and have Sony include perks, perhaps such as wireless access to the Sony, Kobo, and B&N ebookstores, that are not currently available on other devices. This would be a boost to both B&N and to Sony.

Unfortunately, no deal involving Borders is a problem-free deal. There are the debt problems and leases, but the easy way out would be to run Borders through bankruptcy. Inventory debt could be reduced by returning all of Borders’ inventory.

The real issue, I think, is who will be faster on its feet — Google or B&N. An unknown possible player would be Kobo or some of its partners like Chapters, but I don’t see any advantage to them in taking over Borders.

I suppose that someone could pump more capital into Borders but its management team certainly inspires no confidence. Consequently, I think that is a long shot. B&N should strike while Borders is crippled. The question is: Will B&N hear the call?

reposted with permission from An American Editor

3 Comments on Call for Barnes & Noble! Call for Barnes & Noble!

  1. Except,

    1) By the looks of things this will happen anyway! On top of which buying a company to close it and incur management expense and time is just daft right now when it faces the challenge of closing its own stores over the next few years.
    2) B&N is selling lots of devices itself and has access to lots of content too, helping Kobo is of no use to it now unless it was looking at buying kobo …
    3) See 2
    4) See 2
    5) Launching an effective international ebook platform would be more useful in this regard (see mention re Kobo in 2)
    6) Madness, see 2

    No one will buy Borders. Some of its stores maybe, but the business is dying. Maybe it is better that way! Except for the workers of course!

  2. Some people have Amazon on the brain…
    If the bellhop comes looking for B&N, Riggle should tip the young man and promptly hang up.
    B&N buying Borders would be a singularly stupid move that would have Jeff Bezos dancing a jig if it came to pass.
    To illustrate: 20-some years ago, at the height of the workstation wars, third-place HP bought out Apollo Computer, an originator of the category that had fallen on hard times and into fourth place The combination instantly became the number one workstation vendor on the planet, by a slim margin. When queried about the competitive impact of the merger, Scott McNeely, SUN’s boss laughed and applauded the move. The way he put put it was that it made his easier; before the merger he had to worry about two competitors and now he only had one to worry about and one that woud spend the next year worrying more about the logistics of the merger than about competing with him. Indeed, within 3 months, SUN was outselling the combined HP and Apollo and they introduced an all-new architecture, SPARC, that put them ahead by a mile for the next decade. A few years later, HP did it again by buying number 2 DEC. It wasn’t until the internet bubble and its collapse that HP ever came close to competing with SUN.
    Buying failing competitors is a classic prescription for corporate disaster even for industry leaders; for a struggling number two to take on a capsizing number three is corporate suicide.
    The last thing Riggle needs is the troops worrying about merging two disparate back-office operations, two sets of employees, two sets of expensive B&M locations; worrying about their job security and possible layoffs, instead of focusing on how to sell books, how to improve Nook, how to expand the Nook businesss internationally.
    Nothing would please Bezos more than to see B&N spend the bulk of 2011 dealing with financial issues from a merger instead of looking to expand Nook internationally.

    Borders has nothing B&N needs that they can’t get for free once Borders dies. B&N has cash flow issues of their own so the last thing they need is take on a money pit that will suck it dry. Instead, the most logical and cost-effective move for B&N is to go trolling for Borders *customers*, highlighting the FUD from the company’s financial troubles, painting Kobo/Borders as a failing ebook alternative.
    Far cheaper and easier.
    Helping Borders take Kobo down with it will free up a nice chunk of marketshare for free, too.

    And with Borders at risk, instead of looking to throw a lifeline to Sony, B&N would be better served by helping foreclose more B&M outlets from Sony and help grease the skids for Sony’s expected exit from the business.

    B&N should be spending its 2011 boosting its Nook business and expanding it internationally, not waste money taking on dead weight.

    When running from a hungry lion, the best survival strategy isn’t to try to outrun the lion; it’s to trip the guy running next to you. 😉

  3. From Reuters: Credit Suisse upgrades B&N stock on Borders woes.

    They expect B&N sales to improve by 18% (About US$400 million) if Borders starts closing stores.

    B&N has already warned publishers publicly that they expect any concessions they make to Borders will apply to *all* retailers. (Specifically themselves.) Of course, if *everybody* gets the same terms then Borders’ competitive position won’t change…

    Not that I *want* to see Borders go under but they’ve dug a massive hole for themselves and B&N will be only too happy to throw the dirt back in; on top of them.

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