Harry Potter Can't Save the Day

One of the big headlines circulating today is that, while next month's final installment in the wildly popular Harry Potter series should drum up major traffic for booksellers, there is a negative twist -- the boy magician is also a huge drain as bookstores try to gain advantage over one another. This is no surprise to many of us, though. In such a cutthroat industry, even an amazing phenomenon like Harry Potter can't quite save the day.

Back in February, one analyst upgraded Barnes & Noble's (NYSE: BKS) stock thanks (at least partially) to Harry's imminent arrival. However, at the time -- and since then -- many of us have mulled the idea that booksellers like Barnes & Noble and archrivals Borders (NYSE: BGP) and Books-A-Million (NYSE: BAMM) don't have much to gain through the actual book, Harry Potter and the Deathly Hallows, given the air of mutually assured destruction that's going around.  

All the booksellers -- including Amazon.com (Nasdaq: AMZN) -- have been slashing the price for pre-orders of the book, which is obviously one way to try to funnel Harry Potter business to their own businesses, but it also does a number on their margins. Fanfare can cost money, too, if some of the physical booksellers want to throw midnight release parties as they have done in the past. Of course, when it comes to the bookstores, the hope is that the customers who come in for the book, even at its deeply discounted price, will snap up other items while they're in the stores. Let's hope so, for shareholders' sake.

Publisher Scholastic (Nasdaq: SCHL) may have seen that its runaway hit franchise is coming to an end and boosted the price for the hardcover up to $34.99, but lots of people are currently pointing out that booksellers are slashing half off the cover price in order to drive traffic.

Big hits drive traffic to booksellers, but it's still tough going for Borders and Barnes & Noble, both of which have been pushing hard to get a leg up on the competition; their loyalty programs offer deep discounts to try and lure more and more customers (from one another). Amazon.com is no stranger to discount pricing, either, but at least it offers many different types of products and has the edge of its original tagline, "the world's biggest bookstore" -- it's much easier to find anything you want at Amazon.com, even if what you're looking for resides further down the so-called Long Tail of commerce.

Given the competitive landscape, investing in bricks-and-mortar bookstore chains like Borders and Barnes & Noble just doesn't appeal to me these days; they're hard-pressed to be able to turn even blockbuster hits like Harry Potter's latest adventure to their advantage, profit-wise, and that's really saying something. (And of course, with this installment, Harry Potter mania will come to a close.) Until they can figure out innovative ways to create loyal customers without slashing prices on their bestsellers, it's hard to foresee sustainable growth ahead.

For related Foolishness, crack open a good article:

• Some of us believe there's little magic for booksellers.
• Harry Potter's magic comes back.
• What's the "Long Tail"? We asked Wired editor and author Chris Anderson about it in this interview.

Amazon.com is a Motley Fool Stock Advisor recommendation. Borders has been recommended by Motley Fool Inside Value.   

Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy knows the secret of the Sorting Hat.