Amazon, Borders, Barnes & Noble: What’s Going On?

Prompted by various articles and blog posts regarding the book industry and the economy I decided to check—granted in a superficial and amateurish way—the financials of three companies in the Book Industry. The companies are:

Amazon.com Inc
Borders Group Inc.
Barnes & Noble Inc.

What follows is some numbers and interesting tidbits found in the companies' 2007 Annual Reports, mixed with personal commentary.


Let’s not forget that Amazon sells a lot more products than just books, DVD’s, Magazines and music which are the sole products of the other chains that we use as a comparison. Of course, the advantage that Amazon has is enormous, especially since it knows how to take advantage of the new media opportunities (e.g. Kindle), among other things.


According to its 2007 Annual report Barnes& Noble is planning to open up to 40 stores in 2008, and to invest further in Internet activities after the positive response they’ve had so far. Also, they’ve been repurchasing stocks, which generally results into better earnings per share ratio, which in turn makes the stock more attractive.

Overall, Barnes & Noble is doing well. They’re expanding, their financials are healthy. They have good cash flows and the stock is doing well too. Losses are caused mainly due to stores being shut down, while sales follow an increasing trend. On the other hand, the B. Dalton chain sales show a decreasing trend.


Here’s the Business Strategy according to the Borders Group 2007 Annual Report:
“Strategic alternatives review process. On March 20, 2008, the Company announced that it would undergo a strategic alternative review process. J.P.Morgan Securities Inc. and Merrill Lynch & Co. have been retained as the Company’s financial advisors to assist in this process. The review will include the investigation of a wide range of alternatives including the sale of the Company and/or certain divisions for the purpose of maximizing shareholder value”

Things aren’t going well, that’s for sure. But lots of things could be done to fix this. Wonder though, who would be interested in the purchase of the company’s divisions…

What’s interesting is that apparently (unless I misunderstood) the websites that operate under the Borders.com and Waldenbooks.com URLS have agreements with Amazon.com. “Under these agreements, Amazon is the merchant of record for all sales made through the Web Sites, and determines all prices and other terms and conditions applicable to such sales. Amazon is responsible for the fulfillment of all products sold through the Web Sites and retains all payments from customers. The Company receives referral fees for products purchased through the Web Sites…As previously discussed, the Company plans to launch its proprietary e-commerce Web site during the spring of fiscal 2008.”

What I found surprising is that, according to Yahoo Finance, Amazon’s direct, public competitors are Barnes & Noble and EBay. I really wouldn’t consider EBay a direct competitor to Amazon…then I came across this NYT article “Amid the Gloom, an E-Commerce War” which compares the development of the two companies. I still stand by my opinion.

As for Barnes & Noble and Border’s competitors we see the same companies:

Amazon
Barnes & Noble
Border Group
Books-A-Million Inc.

I was also surprised by some of the answers—or maybe it was the optimistic vibe I got from the interview as a whole—of President and Chief Executive Officer of Borders Group, Inc., George Jones.

Generally, I agree with Mr. Jones regarding Borders’ advertising and the strong advantage Borders has through its various programs, and it is certainly one of their strong points in terms of their development in the future.

By his comments regarding the Border’s website I’m guessing he is referring to the agreements with Amazon (although whether these are terminated isn’t that clear…). Regardless, the way I see it this is another strong point of the group versus its competitors. First, its revenues will increase, but more important, isn’t it a big deal that Amazon got to actually determine the prices under those agreements?

And since we are talking about Borders, here's two other Borders-related posts, “What If Amazon Bought Borders?” and “Where is everybody?”

The first one, among other things, offers this quote:

“Recently William Ackerman, a major Borders shareholder, suggested they should sell to Amazon instead (of B&N). That probably won't happen, but his reasoning is clear. Barnes & Noble is old news. Amazon is the future.”

and the second talks about the Borders Concept Stores…

Such initiatives, along with proven practices, such as the events Borders stores organize(and I’m not referring to just author book readings, but also events such as the recent Halloween-themed events) show the potential of the group. Generally speaking, I find Barnes & Noble and Borders two companies that are based on the same format, logic and practices. I doubt Amazon would be interested in acquiring any such company…but here’s my question: Barnes & Noble may very well be old news but is Borders?

Of course, the problem is that Barnes & Noble at this point is at an OK financial position, and Borders isn’t.

Finally, since a recent Publisher's Lunch article on the bad economy and the book industry, mostly offered stock prices of companies, here are some numbers and their corresponding dates (the first date in each table is the year (not the day) of the companies’ respective IPO’s).