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Posted on Wed, Mar 16, 2011 : 11:26 a.m.

Borders' Chapter 11 bankruptcy boosts Barnes & Noble, right? Wrong.

By Nathan Bomey

When Ann Arbor-based Borders Group Inc. filed for Chapter 11 bankruptcy protection Feb. 16, it was natural to assume that rival Barnes & Noble would stand to benefit.

But Barnes & Noble's stock price has been flailing in recent weeks, falling below $10 this week, an all-time low for the nation's biggest book store chain.

Investors have reason to be concerned about Barnes & Noble's long-term future. The company faces the same long-term industry challenges that drove Borders into Chapter 11.


Barnes & Noble's one store in the Ann Arbor area is located on Washtenaw Avenue.

To think that Barnes & Noble is in great shape simply because Borders is contracting is foolish. The Internet and electronic books are putting tremendous pressure on physical book stores, and Barnes & Noble is no exception.

Sure, Barnes & Noble is widely considered the better managed book store chain. And, yes, the company invested heavily to develop its own e-reader, the Nook, which has given the company a chance at winning long-term market share in the emerging e-books segment.

But Barnes & Noble's main source of revenue is still physical books. The chain is still inferior to's convenience and pricing power, Walmart's girth and Apple's technology prowess.

To make matters worse for Barnes & Noble, liquidation sales at the 200 superstores Borders is closing are performing very well, Borders executives have said. And analysts say that Borders liquidation sales — such as the one taking place at the Arborland Center store on Washtenaw Avenue — are undercutting Barnes & Noble's early-year sales.

Barnes & Noble, which put itself up for sale last year, shrugged off New York hedge fund investor and Borders shareholder Bill Ackman last year when he said that he would be willing to help Borders finance an acquisition bid for Barnes & Noble at $16 a share. Today that would be equal a lucrative 60 percent premium on Barnes & Noble stock, whose 52-week high was $24.71.

Perhaps Barnes & Noble believes that Borders won't be able to emerge from bankruptcy and will be forced to liquidate. The total death of Borders would surely be good for Barnes & Noble, right?

Maybe. But there's no guarantee that Barnes & Noble would reap a massive influx of repeat customers in the event of a Borders liquidation.

Analysts say that when electronics retailer Circuit City liquidated two years ago, the trickle-down benefits for rival Best Buy were minimal.

To be sure, Barnes & Noble is financially healthy compared to Borders. But the company faces major long-term challenges.

Contact's Nathan Bomey at (734) 623-2587 or You can also follow him on Twitter or subscribe to's newsletters.


Macabre Sunset

Wed, Mar 16, 2011 : 8:23 p.m.

All this "expert" yapping about Borders being slow to embrace the e-book market is absurd. Borders failed for two reasons. One, it took out everything that made Borders interesting as it positioned itself as the K-Mart of the book world. And two, physical book stores are a dying breed, so investors will react to the Borders filing by short-selling Barnes and Noble. Publishers are very reluctantly turning to e-books. At least the bigger ones. Why? Look at the music industry today. Rampant piracy, smaller margins, even higher focus on marketing a small percentage of the most saccharine acts. Just a month ago on another forum, I read about a bitstream club dedicated to stealing e-books. The electronification of intellectual property has had a chilling effect on those businesses who deal in it. The days of the intelligent and thoughtful Manhattan book editor running a kingdom of quality literature are about to end.


Wed, Mar 16, 2011 : 7:51 p.m.

To each their own. For me, books are as much for me as the friends and family that visit. It's like displaying a work of art in your house. When I go to a friends house, I like to see what books they have. What kind of pictures they have on their wall. It's a reflection of us. Thumbing through somebody's ebook isnt' nearly as much fun.


Wed, Mar 16, 2011 : 4:31 p.m.

duh. ebooks are cheaper, slimmer and take way less space in my home.