Even the Giant Booksellers Are Struggling to Show a Profit

Book lovers like us are already aware of the way that independent bookstores are struggling for survival these days and that Barnes and Noble and Borders are often blamed for squeezing the life out of the independents. But how many of us realize that the two giant booksellers are themselves finding it difficult to turn a profit? Or that they feel squeezed by Amazon.com? According to Forbes, Borders is still losing money and Barnes and Noble has pretty much conceded the online book sales market to Amazon.

Books sales are flat, discount super-centers like Wal-Mart have gobbled up half the best sellers and no one touches Amazon online. So where does that leave Barnes & Noble and Borders?

Possibly in no-man's land, particularly in Borders' case.

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And despite recent rumblings, don't look for the two chains to turn to a merger as a way to shake themselves out of the doldrums. A combined company would invite serious antitrust scrutiny, according to Jefferies & Co. analyst Donald Trott, since the only other serious hardcover player is Amazon.

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Overall U.S. book sales, which include school textbooks, have averaged 4.4% growth annually since 2002, according to the American Association of Publishers. But book club orders and mass market paperbacks are down. Adult hardback books, meanwhile, are off 1.5% since 1997, a sign of the increasing amount of people's leisure time eaten up by the Web, DVDs and the proliferation of television channels.

Barnes & Noble's decision to shut down the warehouse it uses exclusively for its Internet business is a telling sign that the company has effectively given up hope of matching Amazon's book-selling volume over the Internet. Amazon doesn't officially disclose the percentage of its $10.7 billion in annual sales that it derives from books. But industry followers estimate the number at 50%, or over $5 billion. That's about 10 times Barnes & Noble's online book sales, which stood at $459 million a year ago, according to the company's 2005 annual report.

And the news is even worse for Borders because, as Forbes reported yesterday, the super chain lost almost $36 million during the first quarter of 2007.

In fact, one serious problem plaguing Borders is that customers increasingly choose to purchase their books online. Amazon.com had traditionally handled Borders' online business, leaving Borders with just a commission while Amazon hoarded most of the generated revenue.

But now that's changed. In March, Borders announced it would launch its own Web site as part of a broader strategy to improve business.

So it appears that both chains concede the fact that their business decisions are now being driven by what happens at Amazon.com. It's interesting, though, that while Barnes and Noble is cutting back on its investment in the online business, Borders is expanding its own efforts. No one could have imagined a decade ago when the big fish in the business like Borders and Barnes and Noble were gobbling up all the little fish that a killer whale like Amazon would come along to chase the big fish around the book selling ocean. As a book lover, and one who spends way too much money on books (according to my wife, at least), I find all of this interesting and I wonder what the book market will look like ten or twenty years from now.

Should we care? Should we, the consumers, be worried about this trend? My main concern, personally, is that the book market will become very much like today's music industry which makes it difficult for the consumer to find and purchase anything other than the same old homogenized product that is offered at every music retailer. Will bookstores of the future sell much more than an expanded best seller list? I can't believe that a merger of Barnes and Noble and Borders would be good thing. I want more bookstore diversity, not less.