E-Books Will Be The Death Of Bookstores
The Dynamic Wealth Report
February 24, 2011
by Jay Chernoff, Editor
Do you enjoy going to the bookstore?
I know I do. I’ve spent many an hour hanging out in bookstores. I love
perusing all kinds of books and magazines. And now that coffee’s
available, well let’s just say my wife has to drag me out.
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The bookstore era is coming to an end. We’re soon going to see
fewer and fewer bookstores in our neighborhoods.
I have mixed emotions about it.
I love spending time in bookstores. There’s just no other way to get the
full experience… sipping coffee, scanning all the latest publications.
But then I got the Kindle.
In case you don’t know, the Kindle is Amazon’s (AMZN) e-book reader. It’s a fascinating gadget. With the Kindle, you can download and read
most books, magazines, and newspapers.
It’s lightweight, easy to read, and has huge storage capacity. The
device also has easy access to thousands of publications and offers
cheaper prices on many of those publications.
I never thought I’d prefer holding a gadget over an actual book. But I
must say… I’m a convert.
Here’s the thing…
Millions of people are converting to e-books. And that’s why the
store-based booksellers are in big trouble.
If you’ve been following the news lately, there’s been a lot happening
with the country’s biggest bookstores. I’m not going to sugar coat it…
It’s pretty grim news.
Let me summarize the news for the two big players in the market.
Borders (BGP) recently filed for bankruptcy. The company’s shares have
basically stopped trading and are sitting at $0.23.
Barnes & Noble (BKS) just suspended their dividend and they’ve seen
their shares drop over 25% in two days. They also won’t be providing any
financial forecasts for the rest of the year. That’s never a good sign.
So what’s the deal?
Bookstores are rapidly losing revenue to Amazon and other online
booksellers. You see, e-books are a big hit with consumers. And, e-books
are starting to represent a significant portion of overall book sales.
In 2010, e-book sales made up over 8% of all trade book sales in the
US (trade books don’t include educational and professional titles). That’s a big jump from 2009 when e-books only made up around 3% of the
market.
To put it another way, printed trade book revenues dropped over 5% in
2010. Meanwhile, e-book revenues more than doubled to $440 million.
The trend is unmistakable.
So how can you profit from this rapidly changing market?
First off, Borders is done. Stick a fork in it.
They were three years late to the e-book party. They don’t have much in
the way of attractive real estate. And of course, they’re in bankruptcy…
never an easy thing to recover from no matter who you are.
Barnes & Noble is in better shape, but they still have a tough road
ahead. They were two years late in offering e-books. But, at least they
have a presence in the market. Their e-book reader, the Nook, has 22% of
the market. Not great, but not bad either.
One positive for Barnes & Noble is they’re in a position to profit
from the Borders’ bankruptcy.
They can pick and choose some of Borders’ better locations and move into
them. And, while e-books may be the way of the future, there will always
be demand for physical bookstores. Clearly, Barnes & Noble is set to
become the only major player in the market.
That being said, there isn’t a whole lot of upside there.
For a company with big time potential, look at Amazon.
The Kindle dominates the e-book market. It has a whopping 67% share of
this fast growing market. Plus, Amazon has several other successful
products and services to offer.
What’s more, they’re a well run company with an excellent track record. And they’re constantly branching into new markets.
Here’s the bottom line…
Sitting at home with a Kindle and home brewed coffee may not be as
exciting as going to the bookstore. But, the competitive landscape is
rapidly changing. Those who can’t adjust will get left behind.
I’ve come to love my Kindle. And, I’ll appreciate it even more when
Amazon shares go through the roof.
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