Living Dead Booksellers

Big booksellers' current situation is an eldritch tale straight out of H.P. Lovecraft's fevered, shadowy brand of horror. Barnes & Noble (NYSE: BKS  ) shares may have spiked more than 20% today, on word that the company's putting itself on the block, but the ultimate outcome might read a little too much like the cursed Necronomicon Lovecraft alluded to in his works. No thanks!

I recently asked who would shack up with RadioShack (NYSE: RSH  ) , after its share price did the spike-then-plunge dance amid rumors that an acquisition was nigh. Investors who bid up shares of companies on nothing more than the gamble that they might get bought for premium prices are playing a dangerous game. In RadioShack's case, these speculators wound up disappointed.

Similarly, I suspect that finding a buyer for Barnes & Noble might be easier said than done. The arrival of e-books is swiftly disrupting the bookselling industry, and companies like Amazon.com (Nasdaq: AMZN  ) and Apple (Nasdaq: AAPL  ) are formidable rivals in the digital realm. On the old-school side of things (not to be confused with the Old Ones side of things), discounters like Wal-Mart (NYSE: WMT  ) , Target, and Costco (Nasdaq: COST  ) all sell best-sellers at bargain-basement prices -- another serious blow to booksellers' traditional strengths.

Its shambling financial condition places Borders (NYSE: BGP  ) in greater danger than its rival big-box bookstore, but that doesn't mean Barnes & Noble is completely out of the woods. The overall competitive landscape for the bricks-and-mortar pure-play booksellers remains perilous, and investors should avoid booksellers' stocks like they'd beware the call of Cthulhu.

Given Barnes & Noble's crazy spike today, folks who have been holding the shares stalwartly for years have a great opportunity to ditch them. Big bookstores are perfectly fine places to pick up horror stories from the likes of Lovecraft. But big bookstore stocks could fill your portfolio with soul-curdling horror. Who will survive? Who will perish? Buyers should keep a safe distance until the grisly spectacle is finally over.

Costco and Wal-Mart are Motley Fool Inside Value recommendations. Apple, Amazon.com, and Costco are Motley Fool Stock Advisor selections. The Fool owns shares of Costco. Try any of our Foolish newsletters free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy won't even try to pronounce "Nyaralhothep."


Read/Post Comments (4) | Recommend This Article (8)

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  • Report this Comment On August 04, 2010, at 10:02 PM, foolindeed1 wrote:

    Smart move - take it private, grab more digital market, close underperforming stores, take it public again in a couple of years and make a lot of money.

  • Report this Comment On August 05, 2010, at 12:30 AM, rtichy wrote:

    I think B&N is already changing even as it goes "up for sale"; my local B&N changed dramatically in the last month. All the computer books are GONE. A lot of the adult content (not THAT kind of adult content!) sections are gone or pared back, and the space is replaced by gift items and toys. This says to me that adult people who need stuff, buy their books online or digitally. Could be me trying to "identify", but that's what I do for books.

  • Report this Comment On August 05, 2010, at 4:41 AM, Atrossity wrote:

    Fascinating times for books. I will be tracking what happens, thanks for keeping me informed.

  • Report this Comment On August 06, 2010, at 1:54 PM, mDuo13 wrote:

    Clever article.

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