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Companies have two choices: innovate or die. Blockbuster chose to stick with its in-store rental system and ignored the effect digital media was having on its business. Eventually the rental platform at Netflix (Nasdaq: NFLX ) crushed Blockbuster, causing the bricks-and-mortar retailer to succumb to bankruptcy.
I can't help but think I'm seeing a future dinosaur when I take a closer look at Barnes & Noble (NYSE: BKS ) . I see some distinct similarities between these two companies and we know how often history likes to repeat itself in the market.
A struggling business
We could talk to no end about how digital access to information is crippling publishers, but I think these two facts make a stronger statement:
- Barnes & Noble's same-store sales were down 0.9% in the first quarter.
- Amazon.com (Nasdaq: AMZN ) reported in October that its 1,000 best-selling titles were selling better in digital form than in paperback.
You may not think that a 0.9% same-store sales decrease is anything to worry about, but when at least 90% of its business is still in paperback, it's a concerning and continuing downward trend.
We also need to remember that Amazon.com is the leading e-reader provider in the industry, so when the leading company reports that its best-selling titles are not moving as well in paperback as they are in digital form, you need to take notice.
Too little, too late
Barnes & Noble answered critics with the introduction of its e-reader, the Nook, in November 2009. Without question it has been successful in generating sales, but it has been largely unsuccessful in taking market share from its competitors, Amazon and Apple (Nasdaq: AAPL ) .
Think about it this way: Amazon had a two-year head start on Barnes & Noble, releasing the Kindle in late 2007. One analyst estimates that by 2012 the Kindle will account for $5.3 billion in revenue at Amazon. Compare this to Barnes & Noble, which generated just $145 million in sales from its online division during the past quarter.
Apple, on the other hand, introduced the iPad five months after the Nook debuted, but since Apple has a strong track record of innovative products and a seemingly endless advertising budget, the iPad been able to fly out of the gate quicker than Barnes & Noble's device.
Is now a bad time to mention that the perpetually "late to the party" Borders (NYSE: BGP ) recently released an e-reader?
The pie grows smaller
Long story short, Barnes & Noble is going to have a hard time grinding away at Amazon's market share, competing against Apple's history and budget, and successfully separating itself from other bricks-and-mortar bookstores that are slow to innovate. I'm not sure it has enough time or cash to catch up with the competition. What about you? Let me know in the comments box below.