Book retailers are in trouble. Iconic American chain Barnes & Noble announced overnight its shares are trading so low it will look at selling the company, a development that comes just days after Angus & Robertson owner RedGroup Retail said it may be breaching loan covenants.
Analysts say the companies are struggling as ebook sales grow and dedicated online book stores attract buyers through cheap prices and a wider range than customers find in bricks and mortar locations.
In the United States, Barnes & Noble said it will put itself up for sale, floating the idea as “evaluating strategic alternatives”. Founder and majority stockholder Leonard Riggio said in a statement he will consider looking at private investor groups for acquisition.
“I fully support the board’s decision to evaluate strategic alternatives at this time. Regardless of whether I participate in an investment group that buys the company, I, as well as the entire senior management team, am willing and eager to remain with the company and see it through the challenging years ahead.”
The company says its shares, which have lost about 70% of the past four years and are now trading at $US12.84, “are now significant undervalued”.
While the company recently recorded a sales increase of 19% to $US1.3 billion during the fourth quarter, along with an online sales increase of 51% to $US141 million during the same period.
But the company has debt of about $US260 million and investors are also spooked about potential losses, after the company recorded a net loss of $US32.1 million for the fourth quarter. This is mainly due to the company’s investment in its eBooks platform and the Nook eReader device.
While the move has paid off, with the company now controlling about 20% of the US eBooks market, further losses have been forecast. Analysts say the sudden shift towards eReaders and eBooks have forced Barnes & Noble to move more quickly than it would have liked, putting pressure on sales and costs.
The competition in the eReader market, especially in the US, is continuing to grow with the release of new Amazon Kindle versions and the Apple iPad.
The announcement comes just days after New Zealand group RedGroup Retail, which owns the Angus & Robertson and Borders book chains, said it would likely breach two of its three banking covenants due to difficult trading conditions.
The company expects EBITDA of $25 million for the full financial year, well under analysts’ expectations, due to the impact on book sales from the growing popularity of devices like the iPad and Amazon Kindle.
RedGroup has partnered with Canadian group Kobo to release the Kobo eReader, but the device has been criticised for its lack of range and technical inferiority to the Kindle and iPad.
But despite the poor performance of book retailers, book sales are actually increasing. The recent Pricewaterhouse Coopers Entertainment and Media Outlook found the industry will grow by 4.6% annually until to revenue of $2.3 billion.
“It is great content, at the right price, and at the convenience of the consumer,” PwC’s head of technology, information, communications and entertainment, David Wiadrowski told SmartCompany earlier this week. “This is where mobility is going to really drive the media industry.”
The trend is clear. Users are buying more books online, including eBooks, and traditional retailers are struggling to keep up.
Retail giant Amazon recently validated scores of early adopters by saying sales of eBooks have actually overtaken those of hardback copies on its website. Those metrics are hard to pin down, seeing as though Amazon doesn’t actually provide individual figures, but it nevertheless shows eBooks are becoming a powerhouse.
Booktopia chief executive Tony Nash told SmartCompany today that while eBooks are still a small part of the market, his company will still be launching an eBook platform later in the year to stay competitive.
“We will be launching eBooks by the end of the year. So far from the consumer perspective the market is still small, but we will be launching that platform because of that market.”
Nash believes the key here is an emphasis for online sales. Customers will always want something real and tangible they can hold in their hands, he says, so it is no wonder why book sales are increasing.
“I really do think people are buying less in stores. The retail physical environment is struggling to keep those traditional sales when there is a much better range online. I think businesses must consider beyond the mainstream of what you have shoved in a small bookstore.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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