What Does This Investor See in B&N That We Don’t See?

Is there somebody out there who can help us figure this guy Ronald Burkle out?

Here’s what’s got us flummoxed: The world’s biggest bookstore chain announces it’s putting itself up for sale. The press declares the triumph of digital bookselling and even speculates that Amazon will acquire its tottering rival. This observer, who takes pride (perhaps too much) in his appreciation of the evolving nature of the publishing industry, writes an obituary for Barnes & Noble. The company is swirling around the crapper on its way to the Great Brick and Mortar Septic Tank, right?

So go figure why, instead of bailing, the guy who owns the biggest chunk of stock in this horse and buggy chain has stepped up his campaign to take over the company, even threatening to take it to the stockholders in a proxy fight? What does he know that dumb investors like us do not?

There can be only two explanations. The first is that he is a financial genius who will leverage the struggling company in some super-sophisticated Enron-ish play that will make him billions but leave investors bankrupt, gut the firm’s assets, shutter some 1400 retail and college bookstores and write the epitaph for the once-great civilization that was printed books.

The other is that he is a cockeyed optimist who passionately believes in the future of paper and has a scheme for reviving the faltering retailer with a dose of digital technology and marketing knowhow. Maybe he’s thinking of installing kiosks in those 1400 stores that would enable shoppers to select among a million titles and download their choice into their Nook or print it on an Espresso machine while they wait? Then he can take all that leftover real estate and convert it into condominiums. We wrote about kiosks a while back (See Today DVDs, Tomorrow Books?) and have been wondering when someone would see a way to make them work.

Read Michael J. de la Merced’s New York Times article about Burkle’s bid for B&N and tell us if you have any bright ideas about what he’s up to: Billionaire Investor Nominates 3 Directors in Fight Over Barnes & Noble

Richard Curtis

Tags: Amazon, Barnes and Noble, Investing, Ronald Burkle
Posted in E-book Industry (news), E-Book Reader Technology, E-books (business), Publishing Industry | 8 Comment »

raz godelnik wrote on August 13, 2010 at 11:21 am

Richard,

I agree with your analysis – it’s a real mystery! The only other thing I can think of is that it has become an emotional fight over power where logic is not to be found.

- Raz

michael wrote on August 13, 2010 at 1:11 pm

First, the dumbest thing Amazon could do is buy B&N. Why take on a weak retail chain? If Amazon wanted bricks and mortar bookstores they’d follow Apple’s example. The name brand Amazon is stronger than B&N. Besides Amazon’s focus is not books, it wants to be the WalMart of the net.

From what I read one group was not happy with B&N buying all the college bookstores and getting into the textbook business. The company still could have some valuable assets such as property and inventory. B&N for now remains a strong player in the book selling field. Granted its future looks as bright as Blockbuster’s present, but that could change. I mean if people keep saving Borders, why not the stronger B&N?

Laura Dawson wrote on August 14, 2010 at 9:06 am

I have to agree with Raz to some extent. I’ve worked at B&N Corporate and BN.com. Pretty familiar with the emotional/family/loyalty dynamics that drive the bus. It seems to me that Burkle is merely calling Len’s bluff – except it wasn’t a bluff. There’s something emotional in this for sure – and I think it’s that Burkle doesn’t like being smacked down and everybody involved is acting (out) accordingly.

Brad Munson wrote on August 15, 2010 at 6:22 pm

I have no idea what the real or complete reason for B&N’s distress might be. Overwhelming debt (which is one of Blockbuster’s problems), slow uptake on closing losing stores that thereby drag down better stores; ancient and stupid (and maybe unavoidable) distribution deals with Ingram and the other crooks? But one thing they DO have is a set of strong locations in malls and shopping districts, maybe negotiated as decent long-term deals; another is a fairly good brand-name awareness. And people — a great many people — still want to go physically visit a real, live place where books and readers congregate; they want to browse; they want to see a clump of all the new (or randomly aggregated new and midlist) books on Fitness Over 40 or suspense novels or foodie memoirs, cover out or spine out, easily grabbable and scannable. And apparantly they like a place other than their home or office to sit and read a few pages. The lure of the salon can’t be underestimated — Starbucks, internet cafes, etc. — but it can be underexploited; maybe there’s some secret, brilliant plan to make B&N a coffeehouse/cafe with books, not a megabookstore with a mini-Starbucks welded to it. Maybe there’s a way to keep those locations as ‘browsing points’ where you can download your Kindle or iPad edition instantly, after browsing the paper edition, at the same price (or even less?) than you’d get at home, but the publisher splits the price with B&N for their marketing/display. For all their effort, no e-store has successfully duplicated the browsing/sampling/community experience that’s essential to bookselling. It’s the same reason movie theaters exist even as Blockbuster founders; the same reason that clothing and jewelry stores still exist even in the face of the internet, catalog sales, and QVC. Human contact and the potential or surprise. I admit, that’s giving Burkle a lot of credit for brains and innovation he may not deserve, but SOMEbody, SOMEwhere may get it.

Richard Curtis wrote on August 15, 2010 at 6:50 pm

@Brad Munson – Well, YOU certainly get it, Mr. Munson. Thank you for this cogent analysis, and for some insights into Ron Burkle that have eluded the rest of us.We certainly agree that there’s still lots of fuel left in brick and mortar bookstores (and the paper books they sell there), so here’s hoping Burkle finds a way; its current management doesn’t seem to have done so.
RC

Eoin Purcell wrote on August 16, 2010 at 4:36 am

Isn’t it also likely that there’s a third rational option.

That is assuming that even in a world where ebooks make up 50-60% of books sales (which is still a very long ways off) that leaves maybe 20% on the table for physical book stores (if we allow that Amazon and online retailing can probably take about half of the 40-50% of the remain physical book sales).

If that’s the case then buying the leading brand name, slimming it down and shifting focus a little more towards using the space for more than just bookselling and introducing POD slowly but surely probably results in a steady and securitizable cash flow three or four years from now.

That’s gonna be a chunk of money and over ten to fifteen years it’ll more than likely pay off for a patient investor.

Or it could be the other stuff!
Eoin

Jean Dow wrote on August 16, 2010 at 5:31 am

Hi,
As a publisher I am very surprised at how slow bookstores are coming to terms with the new world of e-texts. Part of this reason is that the book world is not a natural business – it’s corrupt, in the nicest sense of the word. For example, all the book prizes demand the publishers pay when they are short listed (e.g. the Samuel Johnson prize at the British BBC requires all publishers who submit a title to sign a form saying they will pay £3,000 if the they are short listed and a further £3,000 if they win). This no doubt avoids submissions from small independent publishers, but it also skews the results for the readers. Likewise Waterstones and Smiths bookstores have demanded up to £40,000 from publishers to have certain titles prominently displayed in their stores. This is a corrupted system and the readers do not get to see the best titles, though it is handy for the big players to eliminate competition. The e-text world removes this kind of market fixing, and book stores don’t like it. If instead they embraced the e-text model with kiosks, print on demand and e-text packages and all the rest, book stores will survive and become the one-stop shop for readers of all varieties. let us hope that the buyer of B&N understand a book world without market fixing. He’ll clean up if he gets it right.

Clive wrote on August 16, 2010 at 4:43 pm

I think Burkle has probably been smoking too much weed.

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