Bookstores to Take E-book Hit
Oct 27 2009
Retail Wrap >>

The shift to digital from physical books will ultimately hurt traditional brick-and-mortar book sellers, analysts said Friday on the heels of Barnes & Noble Inc., the largest U.S. bookstore chain, launching its new e-reader.

Barnes & Noble introduced the Nook Tuesday as a competitor to online retailer Amazon.com's Kindle, which has dominated the e-reader market.

Barnes & Noble, which operates 774 brick-and-mortar stores, also has an e-bookstore that offers more than 1 million titles and an e-reader application that can be used on mobile devices and personal computers, as well as the Nook. The company could become a major player in the digital book business, but that actually may speed the downward trend in its revenue and profit, said Credit Suisse analyst Gary Balter.

"As the math currently works, each sale through a Nook is not just unprofitable but potentially replaces a higher-margin sale at stores," Balter wrote in a client note Friday. One obvious risk is that downloading books reduces the need to go into stores, Balter said.

Goldman Sachs analyst Matthew Fassler wrote to clients Friday that the move to digital formats "clearly challenges Barnes & Noble's store-based model."

E-book readership is small, but growing fast. Forrester Research predicts 3 million e-readers will sell in the U.S. in 2009, and twice that many in 2010.

Fassler said Barnes & Noble's revenue could rise in the short term with sales of the $259 Nook.

"But ultimately, (we) anticipate earnings fallout as the firm confronts broad, intensifying competition with a legacy cost structure," he wrote. Barnes & Noble's chief rival Borders Group Inc. faces similar issues, Fassler added.

Meanwhile, Amazon.com showed its online model is going strong with a report Thursday that its third-quarter profit jumped 68 percent and revenue rose 28 percent to $5.45 billion. Of that total, Amazon's revenue from printed books, CDs, DVDs and other media, including e-books for the Kindle, accounted for $2.93 billion, 17 percent more than a year earlier.

Adapted from Source: Associated Press quoted at www.retailwire.com, 24 October 2009