Borders' Demise Seen a Small Help to Barnes & Noble

Tuesday, 19 Jul 2011 12:06 PM

 

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U.S. bookstore chain Barnes & Noble Inc will eventually feel a modest boost from the liquidation of its largest rival, Borders Group Inc, but still faces stiff competition and an industrywide decline in book sales, Wall Street analysts said.

Borders said on Monday it would close out its 399 remaining stores by September after failing to find a buyer willing to keep it in business.

Barnes & Noble, which operates 717 superstores, will struggle during its rival's going-out-of-business sales, and then benefit as it wins former Borders shoppers, according to analysts.

But Barnes & Noble's real growth will come from its popular Nook e-reader and increasing sales of e-books.

"Barnes & Noble is not grabbing a larger slice of a growing pie," Morningstar analyst Pete Wahlstrom told Reuters on Tuesday. "It would be more compelling news if the bookselling industry had found a point of stabilization."

According to a Goldman Sachs study last year, Amazon.com's sales of physical books last year, as opposed to e-books, surpassed those of Barnes & Noble. Amazon is the top seller of digital books.

Barnes & Noble shares were up 3 percent at $17.75 on Tuesday morning.

Barnes & Noble, which put itself up for sale last year, is currently assessing a $1 billion, or $17 per share, bid by John Malone's Liberty Media Corp.

Wahlstrom said the effect of Borders' bankruptcy on Barnes & Noble's attractiveness as a buyout target was "nominal."

Same-store sales at Borders had been suffering double-digit percentage declines for years. Overall sales fell from $3.4 billion in the year ended February 2007 to $2.3 billion last year. Barnes & Noble has fared better, with more modest declines in comparable sales.

Still, Barclays analyst Alan Rifkin said in a note to clients on Tuesday that Barnes & Noble could grab between 10 and 15 percent of Borders' 2010 sales, which would lift Barnes & Noble's revenue as much as 4.5 percent.

Yet the benefit could be short-lived, Rifkin warned, "given the significant shift from brick & mortar to E-readers."

Last week, Janney Capital Markets analyst David Strasser said the next round of store closings by Borders, to occur in more desirable locations, will hurt Barnes & Noble more than the previous Borders shutdowns, since more shoppers will be lured away from B&N for the closing sales.

A possible benefit to Barnes & Noble could occur if it moves into attractive locations vacated by Borders, though Morningstar's Wahlstrom said this would happen only in a handful of locations.

© 2014 Thomson/Reuters. All rights reserved.

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